A groundswell of rising insurance premiums in Wellington has left apartment building body corporates reeling under the pressure of enormous increases and insurers refusing to cover more than half the risk.

Some buildings have been left with partial coverage and some with only indemnity risk coverage.

Body corporate chairs of Wellington city apartment buildings are finding themselves, at short notice, in the harrowing situation of insurance being refused to their entire buildings in some cases, or being told their premiums will increase by hundreds of thousands of dollars, with the threat, if they don’t sign on the dotted line, they will have no insurer.

The body corporate chair of one apartment building, The Portal at 42 Cable St, was told recently by a broker that the building’s insurer, AIG, was pulling out completely. The chair had to scramble to find insurance through its broker for the modern building of more than 30 units.

The body corporate was subsequently given a three-month extension to the policy but at double the premium. The insurer then came back and offered to cover 50% of the building’s insurance but at a considerable premium cost. In the end, the body corporate chair had had enough and changed insurance brokers; the new one found two insurers who agreed to cover the building, according to sources.

AIG, asked by NBR to comment on its decision to stop covering the Portal, offered “no comment.”

 

Eye-watering increases

Other waterfront buildings at Clyde Quay are also said to be experiencing eye-watering premium increases.

Neil Cooper – head of the Body Corporate Chairs’ Group and body corporate chair of the elegant 1920s Dominion Building on the corner of Victoria and Mercer Sts in Wellington – told NBR he received an email from his insurance broker, Marsh, on Friday, April 26, with the news his building’s insurance would lapse unless he agreed to substantially increase premiums from $360,000 to $556,000 (a 55% increase) for the year by the following Tuesday, April 30.

Cooper, who put his three-bedroom apartment on the market recently, said the building is over 70% compliant with New Building Standards (NBS). He said he was bombarded with emails from his broker at Marsh on the Monday and Tuesday, urging him to sign the new policy and warned if he didn’t, the 31-apartment building would lose its insurance altogether. He was also told there was no time to compare costs with other insurers.

Cooper said while Wellington Mayor Justin Lester has talked about having a forum with the EQC, insurers and stakeholders about the plight of Wellington homeowners facing rising premiums, he doesn’t recognise it’s a bigger issue for apartment owners who, rather than being in for premium rises of a couple of thousand dollars, are looking at “hundreds of thousands of dollars” in increases.

According to the Unit Titles Act, it is the responsibility of body corporates to insure their buildings.

But Cooper said the act has no teeth and some buildings may not have full insurance because they can’t find an insurer or insurers willing to take 100% of the risk.

Cooper was told by his broker it couldn’t give him better notice because the insurance companies wouldn’t give him more notice.

But Insurance Council of New Zealand chief executive Tim Grafton was surprised by the last-minute announcement to Cooper and said: “Insurers will advise brokers months in advance of changes to their offerings, such as any significant price adjustment. Brokers, in turn, should be letting bodies corporate know well ahead of their renewal date that their policies are coming up and any changes they can expect.”

Brokers would be given at least three months’ notice of changes and often longer where changes are significant, he said.

Gary Young, chief executive of the Insurance Brokers Association of New Zealand, said these comments from ICNZ show the idealistic version of what happens but it isn’t always the case that brokers get such good notice from insurers.

“We are aware of insurers who won’t provide terms until the last minute. And then you have to wait to get a response, to go up the levels at the insurer. The brokers are in the hands of the insurers,” he said.

Young, who said it will be more common for insurers to share the risk of a building, rather than one covering it 100%, thinks in light of what is happening in Wellington, brokers will be far more inclined to have plans A, B, C and D at the ready as a policy is renewed in case an insurer decides to pull out or asks for unreasonable terms.

“All stakeholders – from the body corporate, the broker, the insurer, the reinsurer – have to make sure our communications are well up to speed, that’s the lesson from this,” he said.

 

Inadequate notice

Cooper said his broker told him in early March that things were looking bad but didn’t give any indication of how much or what the options would be. He doesn’t see this as adequate notice.

He said he was strongly discouraged from going to other insurers by his broker. He did try with another broker but was told none were available.

“None of them will break the brotherhood and do something better,” Cooper said.

His building’s insurance is 55% with QBE, which was formerly covering 65% of the risk, and his broker has told him “the rest had to come from London.”

NBR went to Cooper’s insurance broker Marsh, which advised not only on the Dominion Building but also, it is believed, on the Portal apartment building.

A Sydney-based spokeswoman for Marsh, who said the company does not comment on specific client relationships, said: “During the renewal of a policy, insurance brokers seek to facilitate the provision of timely information and advice to clients although this can be challenging at times, particularly in a difficult market.

“Timing can be out of brokers’ control and can vary depending on the risk to be insured, market conditions and, within insurers, any increased engagement and approval processes both internally and with reinsurers,” she said.

NBR asked the building’s insurer, QBE, what had made it want to lighten its risk on the Dominion Building but the right people couldn’t be reached for comment in time for this article's deadline.

 

Artificially panicked

Former Wellington deputy mayor, long-term city councillor and an apartment owner in the Dominion Building, Helene Ritchie thinks the insurance industry and others are “artificially ‘panicked” about Wellington.

“Many people trying to live in the inner city are stressed out; they don’t know from one day to the next whether the rules are going to change.

“There are lovely apartments in Wellington city but this layer of stress and uncertainty, and the inability for people to control their own lives due to this panic, it is making the city feel undone,” she said.

Wellington City Council and the government should be looking at the way cities around the world, such as San Francisco, handle earthquake risk. San Francisco has not over-reacted to the possibility of future earthquakes the way the council and insurance companies have in Wellington, Ritchie said.

Some apartment buildings in Wellington do not have full insurance. Wendy Booth is body corporate chair of a Wellington apartment building on the city fringe that has had some seismic and weather-tightness issues. As is not unusual in the capital, the risk is shared between two insurers, NZI and another.

Booth looked around for other options through a broker but, she said, “We couldn’t get a quote from anybody else so have continued with the existing risk share. But we couldn’t get full insurance – we got indemnity insurance only.”

A homeowner might have a choice for insurance of risk but body corporates do not, she said.

Cooper said he and some other apartment building body corporate chairs have been meeting with residents and property owners’ group Inner City Wellington (ICW) vice-chair Geraldine Murphy, and talking to Finance Minister and Central Wellington MP, Grant Robertson, about rising insurance costs and other issues for apartment blocks.

Murphy said what Cooper went through was pressure selling and an example of market failure.

“My understanding is there are about four players in the market and they don’t give a toss if you do or don’t sign – there is nowhere else to go,” she said.

The government needs to act to ensure there is some kind of affordable insurance, she said.

It can’t be encouraging people to go into multi-residential housing when the insurance situation is so flawed. It needs to look at models and make sure insurance is reasonable for normal people, Murphy said.

Robertson told NBR, “As the local MP I am staying close in touch with apartment owners as insurance companies change their approach to insuring in Wellington and I am encouraging insurance companies to give them a fair go.”

Commerce Minister, Kris Faafoi told NBR: “We are aware of the issues being faced in Wellington and they are being considered as part of our work programme on insurance matters.”

Cooper said he has put a complaint into the Commerce Commission, which said it had received hundreds of queries and was not able to answer them all but would make a record of his concerns. He has also sent a complaint to the insurance industry ombudswoman.

 

Developers take note

Meanwhile, Wellington developers watching the stress body corporate chairs are going through to secure insurance on their apartments, are questioning the wisdom of developing apartment buildings or converting office buildings into apartments. This is not good news for a housing market desperately needing more accommodation close to town.

Wellington City Council said according to 2013 figures there are about 5000 apartment units in Wellington’s CBD but there is thought to be substantially more now.

Carol Radford, a Ray White agent who specialises in apartments and is selling Cooper’s Dominion building apartment, said she thinks it’s going to be increasingly difficult to get insurance in Wellington.

She thinks the government will have to step in and, with so many powerful politicians living in Wellington and owning apartments, she believes action will be taken.

Radford was body corporate chair of the Queens Wharf apartment building – she remembered getting a good insurance policy through Aon for two years from 2014 but it didn’t hold up after the November 2016 earthquake. The reinsurers changed the policy.

 

 Gill South, NBR

Mon, 13 May 2019