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The Risks of Under-Insurance

Updated: Mar 30


Originally published in PGG Wrightson's Lifestyle Collection Spring Edition

Under-insurance is a significant risk that many do not realise they face until it is too late: those unaware of the problem will only find out when they lodge a claim. Lifestyle property owners are especially vulnerable, particularly if their property is both the family home and a source of income, as is the case for many. They can suffer more acutely than others.


Events in the last few years have had a significant impact on New Zealand and the insurance industry. Ongoing severe weather and Covid-19 have been the biggest drivers of insurance claims inflation due to an increase in the number of claims and higher repair/replacement costs across the board.


A major adverse impact of Covid-19 for the construction sector is the rising labour costs due to staff shortages and increases in materials costs because of supply chain issues. We’re seeing similar challenges in motor and contents which is also increasing the average cost of claims.

Under-insurance is easily remedied; usually it costs less than might be imagined

When reviewing the sums insured for buildings and dwellings, it’s important to consider how the replacement costs would look in today’s construction market. With New Zealand’s largest timber supplier, Carter Holt Harvey, announcing they’ve cut timber supply to three major building supply chains, and the price of steel rapidly increasing, including an average 15 per cent increase passed on to consumers, the cost to build is escalating. Making sure the replacement sums insured align with realistic, estimated build costs for all buildings is a key factor to consider when insuring your property.


When you set the sum insured at the beginning of your insurance year you need to make sure that the sum insured you select for your home and all other buildings, which is the maximum you will be paid, is adequate to cover the future rebuilding costs. For instance, if a fire destroyed your home on the last day of the policy, 364 days from now, is the sum insured adequate to cover the costs to rebuild in one year, taking into account the increase in building materials, labour and consents throughout the term of the re-build? Some rebuilds can take months and years. Specialists and specialist resources are available to assist with setting the correct sum insured.


Under-insurance is easily remedied: usually it costs less than might be imagined.

A recent example was a lifestyle property client, who on recommendation from their BWRS broker, obtained a valuation for insurance purposes from a registered valuer. The valuation recommended a new replacement sum insured of $2.7 million, an increase of $900,000. To increase the sum insured by 30 per cent only resulted in a 15 per cent increase in premium.


An insurance broker is an insurance and risk management specialist. Brokers provide advice and advocacy to their clients, identifying individual and business risks, how best to manage them; and the most cost effective way to insure. Contact your local BWRS branch to find out how we can help you