A Christchurch-based building consultant says the property insurance model is “flawed” and building reports that are both compulsory and detailed would significantly reduce the costs and risks faced by insurers, consumers and banks.
“The current system is seriously flawed,” said Gideon Couper. “The work I’ve been doing over the past few years has opened my eyes and what I’m seeing is that insurance companies are unintentionally wasting billions of dollars while exposing homeowners to significant risk.”
Couper, a building consultant, has specialised in building assessments since the Christchurch earthquakes of 2010 and 2011.
Would building reports help ease underinsurance issues?
In New Zealand, building reports are not compulsory for obtaining property coverages. Insurers often rely heavily on information provided by consumers, their brokers and online rebuild cost calculators to charge premiums.
“At present, buyers, banks and insurers are accepting properties based on information that may not be accurate, and in my opinion, this happens a lot – I see it, almost every week,” he said. “At the moment, all those parties [insurers, vendors, buyers and banks] are exposed to unnecessary risk, probably without even realising it,” said Couper.
Couper also argued, like other industry stakeholders, that a significant driver of increasing levels of property underinsurance and claims issues is erroneous building reports.
He said a better system would require potential home buyers to provide their insurer and bank with “a fully independent building report from a builder certified to do a comprehensive specialist report.”
Couper said this would effectively benchmark the building quality and state of the property.
“I’ve never understood why it is often suggested that vendors get a building report for a prospective buyer,” he said. “They have a vested interest in the sale, the motivations are all wrong,” he said.
Building reports using digital tools
He said digital tech like drones should be used to improve building reports.
“These digital tools give a much more detailed and comprehensive understanding of conditions in spaces that are often quite dark and difficult or impossible to access,” he said. “It’s foolproof – the pictures don’t lie.”
Cyclone Gabrielle’s insurance revelations
Couper said it was his use of drones to gather property footage following Cyclone Gabrielle in 2023, that raised his awareness of this insurance issue.
“I was gobsmacked by what I saw,” he said. “Yes, there was damage caused by the cyclone, but many of these properties had been flooded several times previously and each time the owners had been paid out for what was clearly an obvious flooding risk.”
Some insurers deploy this tech after a disaster to assess property claims after damage. Couper wants it used at the front end – when a house is purchased.
“In a lot of cases, I was left thinking ‘how was this even considered insurable?’ In Auckland there were basements converted to living areas that didn’t meet minimum legal requirements, yet were fully insured. People convert these basements then on sell to someone else, and that person gets a mortgage and insurance on a property that is inherently flawed.”
Climate change fuelled property insurance issues
Couper said climate change will soon make failures in the current system more apparent.
“Insurers are already paying huge amounts of money – it must amount to billions of dollars – to clients whose properties are damaged by weather-related disasters, such as Cyclone Gabrielle,” he said.
Couper said the situation is already unsustainable.
“The risks to property are rising,” he said. “Insurance premiums are going up and up and that’s simply not sustainable.”
Unless something is done, he expected more people to cut back on insurance, increasing underinsurance and insurance gaps.
Trans-Tasman common causes
In Australia, some stakeholders also favour detailed, compulsory building reports.
Marty Sadlier, director of MCG Quantity Surveyors, has called for mandatory quantity surveyor reports on construction costs to be used for calculating property insurance. Like Couper, he said these reports would be paid for by the property owner and would help solve underinsurance issues.
However, industry stakeholders questioned their affordability and the willingness of many property owners to pay for them.
“I think the surveyor report may look like an attractive way of addressing it [underinsurance], but it opens up a whole range of other issues, affordability being the main one that comes to my mind,” said Angelo Azar, COO of Honey Insurance.
Article courtesy of insurancebusinessmag.com
