Factors That Can Increase Your Home Insurance Rates
Home insurance is an essential safeguard for Kiwi homeowners, protecting one of their most significant investments. However, many New Zealanders are surprised to find their premiums increasing over time. Understanding the factors that can drive up your home insurance rates is crucial for managing your household budget and ensuring you maintain adequate coverage. Let’s explore the key elements that influence home insurance costs in Aotearoa.
1. Location and Natural Hazards
New Zealand’s unique geography exposes many areas to natural hazards, significantly impacting insurance rates.
Earthquake Risk
New Zealand sits on the Pacific Ring of Fire, making earthquake risk a major factor in insurance pricing. The Earthquake Commission (EQC) provides the first $150,000 of cover for residential buildings, but insurers price additional risk above this threshold.
- High-risk areas like Wellington and Christchurch often face higher premiums.
- The 2010-2011 Canterbury earthquakes led to substantial increases in insurance costs nationwide.
Flood Risk
With climate change increasing the frequency and severity of extreme weather events, flood risk is becoming a more significant factor in insurance pricing.
- Properties in flood-prone areas, such as parts of the Hutt Valley or Edgecumbe, may face higher premiums or even difficulty obtaining cover.
- The Insurance Council of New Zealand (ICNZ) reports that insurers are increasingly using sophisticated flood mapping tools to assess risk at a property-specific level.
Coastal Erosion
For coastal properties, the risk of erosion and sea-level rise is becoming a more prominent factor in insurance calculations.
- Some coastal areas, like parts of the Kapiti Coast, have seen significant increases in premiums due to erosion risk.
- In extreme cases, some properties may become uninsurable due to coastal hazards.
2. Building Characteristics
The physical attributes of your home play a crucial role in determining insurance costs.
Age of the Building
Older homes often come with higher insurance premiums due to:
- Increased risk of failure in older systems (plumbing, electrical, etc.)
- Potential for outdated building materials that may not meet current standards
- Higher replacement costs for heritage features
Construction Materials
The materials used in your home’s construction can affect its resilience to damage and, consequently, your insurance rates.
- Wooden homes may face higher premiums due to increased fire risk compared to brick or concrete structures.
- Homes with weatherboard cladding might be more expensive to insure than those with brick veneer.
Roof Type and Condition
Your roof is your home’s first line of defence against the elements, making it a key consideration for insurers.
- Older roofs or those in poor condition may lead to higher premiums.
- Some roofing materials (like long-run steel) may be viewed more favourably than others (like asbestos or tile) due to their durability and resistance to weather damage.
3. Security Features
The security measures in place at your property can influence your insurance rates.
Alarm Systems
Homes with monitored alarm systems may qualify for discounts on their insurance premiums.
Locks and Security Devices
Quality locks on doors and windows, and additional security devices like security cameras, can potentially lower your insurance costs.
4. Claims History
Your personal claims history, as well as the claims history of your area, can affect your premiums.
Personal Claims
- Multiple claims in a short period may lead to increased premiums or higher excesses.
- Some insurers offer no-claims bonuses, which can help keep premiums lower for those who don’t make frequent claims.
Area Claims History
- If your neighbourhood has a high rate of burglaries or weather-related claims, this could drive up premiums for all residents in the area.
5. Increasing Rebuild Costs
The cost to rebuild homes has been rising steadily in New Zealand, directly impacting insurance premiums.
Construction Costs
According to Stats NZ, construction costs have increased significantly over the past decade. This means the amount needed to rebuild your home in the event of a total loss is likely higher than it was when you first insured it.
Labour Shortages
The ongoing skills shortage in New Zealand’s construction industry, as reported by the Ministry of Business, Innovation and Employment (MBIE), contributes to higher rebuild costs and, consequently, higher insurance premiums.
6. Policy Add-ons and Coverage Limits
Expanding your coverage or increasing your sum insured will naturally lead to higher premiums.
Additional Coverage Options
- Adding coverage for items like jewellery, artwork, or other high-value possessions will increase your premium.
- Opting for additional living expenses coverage or extended replacement cost coverage will also raise your rates.
Sum Insured Increases
- Regularly reviewing and updating your sum insured to reflect current rebuild costs is essential but will likely result in premium increases over time.
7. Global and Local Economic Factors
Broader economic conditions can indirectly affect your home insurance rates.
Reinsurance Costs
New Zealand insurers rely heavily on global reinsurance markets. When global catastrophes occur, even if they’re not in New Zealand, they can drive up reinsurance costs, which are then passed on to consumers.
Inflation
General inflation affects the cost of materials and labour needed for repairs and rebuilds, which in turn influences insurance premiums.
Conclusion
Understanding these factors can help New Zealand homeowners better manage their insurance costs and make informed decisions about their coverage. While some factors, like location and natural hazards, may be beyond your control, others offer opportunities for proactive management:
- Regularly review and update your sum insured to ensure it accurately reflects rebuild costs.
- Invest in home maintenance and security measures to potentially qualify for discounts.
- Consider bundling your home and contents insurance with the same provider for potential savings.
- Shop around and compare quotes from different insurers, as pricing can vary significantly.
- Consult with insurance brokers who can provide tailored advice for your specific situation.
Remember, while it’s important to manage costs, ensuring you have adequate coverage should be the primary concern. The cheapest policy isn’t always the best if it leaves you underinsured in the event of a claim.
By staying informed about these factors and working closely with your insurer or broker, you can strike the right balance between comprehensive coverage and affordable premiums, ensuring your home remains protected in the face of New Zealand’s unique risks and challenges.