Insurance on the UP!!

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Body Corporate owners may be aware of the recent Treasury announcement of an investigation into the significant challenges insurance is placing on multiple unit complexes.  This reality is evidenced in virtually every Body Corporate budget, where insurance growth in excess of 20%-30% per annum is not uncommon.

 

The premium growth often linked to policy terms being tightened has been fuelled by a number of key drivers, including:

  1. The obligation to insure for the full insurable value (i.e. replacement value for complete demolition and rebuild). With construction costs having rocketed over the past two years from anything between 20%-30% the cost to demolish and rebuild increases by a similar amount, and ergo your premiums.
  2. Climate change and other catastrophic weather events are driving both the volume of claims and the cost to insurers and owners. This is a secondary and significant driver.
  3. The Body Corporate market in New Zealand has unfortunately an extremely limited pool of insurers and a number of these are imposing unusual restrictions and categorisation, whether in terms of seismic status, occupancy mix, limits per region, aluminium cladding and fire systems.

 

The Government has also assisted in the escalating insurance with its changes to EQC and fire service charges.  The October 2002 increase in EQC cover to $300,000 per unit added an immediate $180 plus GST per to every unit premium.  Fire service levies had not long increased prior to that and are now  due to increase again.  From 1 July 2024 the residential risk per unit will increase from $106 per unit to $119.50 per unit plus GST.  Whilst not overly significant in dollar terms ($13.50 plus GST for a 40 unit complex) this is simply another insurance cost increasing by in excess of 10%.

 

Treasury has invited submissions from parties associated with community owned properties who have experienced insurance challenges and BBCL has contributed its views to the Treasury invitation.  Owners should be free to share their own experiences as invited by Treasury.

 

Take Away

Insurance will remain the largest element of the Body Corporate annual budget for most Body Corporates.  International pressures from underwriters and continuing cost escalations are likely to increase pressure on premiums.

Auckland Floods – Managing your Insurance Claim

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Download this information as a printable PDF


What To Do:

If you have been affected by the current wild weather in New Zealand, we recommend you take the following steps:

  • Stay safe
  • Do not return to properties or evacuated areas until it is safe to do so
  • Check buildings for structural damage and to ensure gas, water, electricity are working
  • Check appliances are working
  • Try not to start flooded cars or electronic/electrical equipment until inspected by someone qualified to do so
  • Take reasonable steps to preserve property and if possible store for later inspection by the insurer before disposal
  • Take photos or videos to document all damage
  • Take photos that show ‘tide levels’ and if ‘black’ (sewerage) or ‘grey’ water was involved
  • You can’t take too many photos!
  • Send an email to yourself making a note of what happened and listing damaged items/loss
  • If you have to dispose of stock or furniture and fittings take careful notes and photos of what was damaged and in what way – Insurers require proof of loss
  • Look out for the development of mould in this hot and humid weather which can be harmful to health
  • Keep records of your expenses and set up a cost code
  • Loss adjusters will be very busy so they may take some time to get to sites so don’t worry about delays.

Navigating the Claims process

Severe rainfall and floods can cause significant property damage, power interruption, landslides, prevention of access and supplier interruption which in turn may cause interruption to your business and loss.

Managing a claim can take you away from your business focus; whether that be reopening or rebuilding. We can support you as you navigate the claims process.

Claims Preparation Costs

The vast majority of policies will cover claims preparation costs, including the services of an Independent Claims Consultant. An independent claims consultant:

  • Advise on strategy/policy response.
  • Quantify the financial impact.
  • Prepare detailed & documented submissions.
  • Seek to maximise the settlement outcome and reduce delays.

Getting claim ready

  • Know the process. Ensure you are clear about the process and what is required of you. If you don’t understand something, ask your broker or insurer and ensure you are satisfied with the response.
  • Check your critical policy conditions such as dates and times for the notification and/or presentation of claims. This information is on your policy paperwork. If your paperwork is damaged, destroyed or inaccessible, contact your insurer or broker who can provide these details.
  • You are responsible for proving your claim. This means you will need to fully document and provide evidence of your claim.
  • Detail matters. The quality of claim presentation and supporting documentation is critical to a successful settlement. Ensure that all documentation passed to insurers is accurate.
  • Communicate, communicate, communicate. Keep insurers’ experts informed of progress throughout the period of the claim.
  • Your claim may take time. Due to the significant losses, claims assessors and loss adjusters will be reviewing a much larger number of claims than usual. Complicating what is already a difficult situation, there are challenging logistics of accessing affected areas.

Working with your Broker and Loss Adjuster

Your broker can help you understand your options around the Claims Process and provide access to an Independent Claims Consultant.

Loss Adjusters and other insurer appointed experts act for insurers to assist with quantifying the size of the loss and managing the claim. Seek the loss adjuster’s agreement prior to material costs being incurred to mitigate the loss and on key decisions, such as reinstatement methods, mitigation expenses, time lines etc. Ensuring loss adjusters understand and agree on the circumstances and uncertainties can provide greater clarity and may reduce the possibility of disagreement as to whether the policy will respond. As they become apparent, communicate any problems with any suppliers, timetables or work schedules to the loss adjuster immediately, and include them in the problem solving process. Tips to maximise your claims outcome.

Tips to maximise your claims outcome

  1. Document as you go. Organise the systematic collection of information as it becomes available – searching through historic files at the end of the claim is harder and important elements may be missed.
  2. Photograph any damage. Collect reports, drawings, photographs as appropriate to adequately establish the nature and extent of all loss and damage sustained. Fully document (videotape or “still” photograph) the damaged property, plant and equipment.
  3. Conduct a detailed stock take or reconciliation of plant and equipment to ascertain damaged assets.
  4. Do not remove any damaged property, plant and equipment until viewed in situ by loss adjuster, unless necessary (i.e. due to safety, to reduce further damage, to recover). If the property, plant and equipment needs to be removed place in temporary storage, do not throw out.
  5. Document best and worst case loss and cost estimates as soon as feasible so they can be provided to your insurer to assist with your claim. Make sure you consider the long-term impacts.
  6. Advice and quotes should be provided in writing. Retain damaged assets to assess the extent of the damage (repair or reinstatement) and to obtain a quotation for the recommended response. Consider what steps can be taken immediately to either stabilise or temporarily repair assets.
  7. Document conversations. Document all conclusions of discussions and action points arising from each meeting, leaving no room for misunderstandings or incorrect assumptions.
  8. Support all costs with appropriate documentation such as purchase orders, work orders, invoices, time sheets, service contacts and material requisitions. Justify business continuity decisions (i.e. alternative suppliers or relocation of offices) with all relevant documentation. This might include emails, meeting minutes etc.
  9. Track time spent on claims. Ensure that all the time spent by company employees on claim related activity is properly recorded (including details of the work carried out), this has particular relevance for overtime, temporary employees and casuals.
  10. Use Online Claim Processes where possible. Insurers are dealing with a huge workload and trying to phone in claims may be difficult. Handwritten claims forms also present challenges for processing and there will be delays getting your claim loaded. Most insurers have good online claims processes available, and these ensure claims are efficiently loaded into the insurers claims processing systems.

Impacts of EQC Changes – Video

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The EQC have changes coming effective 1 October 2022.

Key points below:

  • EQC Cap currently $150,000 plus GST per unit rising to $300,000 plus GST per unit effective 1 October 2022.
  • Premium increasing from $300 plus GST per unit to $480 plus GST per unit.
  • Natural Hazards Insurance Bill will replace the Earthquake Commission Act 1993.  This looks like it may happen around 1 December 2022 dependent on assessment and unless deferred by order-in-council.
  • The amount of FENZ Levy changed should be unaffected by this change

The Earthquake Commission, EQC, provides natural disaster insurance for residential homes and some of the land under the homes. The Earthquake Commission Act (EQC Act) defines natural disaster as an earthquake, natural landslip, volcanic eruption, hydrothermal activity, or tsunami or natural disaster fire. For residential land only, natural disaster includes storm or flood. EQCover in 1993 consisted of a $100,000 cap per residential dwelling and $20,000 of personal contents per policy. In 2019 the residential dwelling cap increased to $150,000, cover for personal contents was stopped, and the rate of EQC levy increased to 0.20%. EQCover automatically applies to residential dwellings insured for the peril of fire, but not for residential dwellings insured for natural disaster fire only. Where a fire policy exists, and the terms of the EQC Act are met, EQCover is compulsory. Although the EQCover cap is doubling to $300,000, the levy charged per residential dwelling is not. Instead the EQC levy is reducing to 0.16% (down from 0.20%) equivalent to a maximum EQC levy of $480 plus GST per residential dwelling.

When EQCover was increased to $150,000 in 2019, the change occurred when each policy renewed. In the words of EQC, it took twelve months to implement the increase in cap as it was effective as of the insurance renewal date for existing polices or the inception date for new policies. EQC are currently unable to confirm the same will occur with the new increase but it is assumed it will. The previous change sets a precedent, and increases in FENZ levy operate in the same manner.

The Earthquake Commission Act 1993 is to be replaced by the Natural Hazard Insurance Act. The EQC Act, and how it affects the amount of EQCover available, can be difficult to interpret currently and these changes should enable better community recovery from natural hazards and clarify the role of the commission in the cover provided.  According to EQC, the Natural Hazard Insurance Bill 2022 is in the final stages of drafting. The public should have the ability to comment on the proposed bill once it has received the approval of cabinet. The Natural Hazards Insurance Bill was introduced on 16 March 2022. Once the bill has had its first reading, you can follow the bill’s progress on the Parliament website.

There is some valuable information from Vero in the YouTube video below.

Impacts of EQC Changes – YouTube

 

What is New Building Standard (NBS) and How Can it Affect a Building’s Insurance?

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NBS is simply the assessment of the earthquake rating a property is expected to have when built to the current building code.  NBS therefore changes to reflect code changes.  NBS is calculated as part of a seismic assessment of how the building has been constructed.

 

The percentage of NBS rating is not a measure of the building’s ability to handle an earthquake without damage for insurance purposes but is about “life-protection”.  As such NBS is unlikely to alter the insurance premium unless the NBS is substantially below the current threshold.  Any increase in the NBS percentage may however improve the building’s expected performance in protecting life.

 

When a seismic assessment is performed by a structural engineer, this will result in an NBS rating being given to an existing building.  The assessment calculates the percentage NBS achieved.

 

Significantly NBS is measured at the lowest defective point in a building, so if there is a particular weakness which is rated 30%, the whole building will be rated 30% until the defect is addressed.

 

A building with a rating of less than 67% NBS is deemed to be an “earthquake risk”.  A rating less than 34% NBS means the building is “earthquake prone”.

 

If a building, or part of a building, is earthquake prone it is believed it will ultimately have its capacity exceeded in a moderate earthquake and if it were to collapse, would do so in a way likely to cause injury or death to persons in or near the building, or injury/death or damage to adjacent property.

 

If a building is found to be earthquake prone this doesn’t necessarily mean it shouldn’t be occupied.  The Building Act provides a period of years for strengthening or demolition work to be undertaken.

 

New Zealand is categorised into three risk levels

Source: How the system for managing earthquake-prone buildings works

The link below identifies what regions of NZ are in which risk category:

Seismic Risk Areas Map

 

For further information please contact Body Corporate Manager Alex McAllister: alex@bbcl.co.nz

Marsh Contents Solutions

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Obtaining contents cover with the associated and necessary liability extensions is becoming very difficult for short term accommodation rental owners.

Click on the image below to find out about how Marsh Insurance can offer a solution for you.

Insurance Costs Continue to Rise

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Please click on the image below to view the article from Marsh.

Terrorism Exclusion

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The recent atrocities in Christchurch with the Mosque attack brought home to BBCL the need to consider the potential impact of terrorism on Body Corporates.

Virtually every current Body Corporate policy has a terrorism exclusion from the material damage portion of the policy.  If the Body Corporate has a concern regarding terrorism, whether for any specific reason or simply to ensure full coverage, additional cover can be obtained upon request.  Should you feel that this is an omission from your current cover please contact your account manager.

Insurance Victory for BBCL Body Corporate

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Christchurch’s unique situation has brought a number of challenges to our Christchurch Body Corporates.  The impact of Mother Nature has been both random and at times unjust.  Equally the insurance industry and its associated broking fraternity have responded in a variety of different fashions.  The catastrophic events suffered in Christchurch illustrate so clearly that the laissez faire attitude to insurance that many encompassed was shared not only by owners but also by many in the related industries.

One of BBCL’s Body Corporates has suffered huge challenges as a result of impreciseness in documentation relied on by the Body Corporate.  This documentation was supplied by its broker and the insurer.  This sadly has resulted in two lawsuits against both the insurer and the broker which have only caused further heart-ache to owners.

February 22 2011 saw the total complex declared an economic loss.  To this day the Insurer still will not accept that (despite 50% being demolished under an order from CERA) and the remainder requiring temporary strengthening to leave it habitable pending a controlled deomolition.

The BC relying on a replacement valuation looked to design a replacement complex for its central Christchurch site only to be advised that the replacement cost is nearly double the replacement valuation it received.  The extent of cover under the policy was disputed and an issue has also arisen as to whether or not EQC payments acted as an excess under the policy or not.  A simple reading of the policy document would suggest it does however when confronted with the claim the insurer alleged it did not.

The issue of whether EQC’s payments acts as an excess has now been resolved by a full bench of the High Court in Auckland and the Body Corporate is delighted to have received the judgment issued by Justice Courtney which has affirmed that a clear reading of the policy does in fact apply.

The end result is that instead of being limited in recovery to the valuation estimate the Body Corporate is able to recover both that plus the EQC pay-out of $6.8 million plus GST.  The total sum will certainly go a long way towards the cost of rebuild, if not completely, and will come as a huge relief to the 68 owners affected.

Managing claims of such scale and then preparing for rebuilding as required by the 2010 Unit Titles Act required a significant vote of faith by owners and their hardworking Committee in BBCL and the supporting professionals.  BBCL share’s the owners delight at the successful High Court award and looks forward to progressing with the Body Corporate a complete rebuild over the coming years.

 

Quake Impacts

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Whilst the position in terms of the impact of Christchurch’s quake on the New Zealand insurance market remains cloudy, it appears the insurer’s response will resemble post 9/11 where rates were increased virtually overnight and significant excesses have applied.

Most insurers to date have increased their earthquake rates drastically, as much as 70% for Auckland, despite being rated as the lowest statistical earthquake zone. Buildings will also be rated upon their age, with increases of up to 20% on buildings pre-1935 likely.

Most significantly, is the excess structure will change from a minimum percentage of loss to a minimum percentage based on site value. As a result, the current excess of 1% of loss may end up being many percent of actual loss – e.g. If a site was valued at $10 million and the percentage of site value is 2.5%, then the excess would be $250,000 for an earthquake, whether or not the extent of loss was $250,000 or $5 million.

The only thing that is certain is that costs will increase significantly, and only time will reflect the actual impact on premiums and budgets. We will keep you updated.