The Royal Institution of Chartered Surveyors is renewing calls for homeowners to update their sum-insured policies.
Last year insurers changed their contracts to offer homeowners a fixed sum insurance amount.
The industry made the sweeping changes in the aftermath of disputes from the Canterbury earthquakes in which claimants and insurers disagreed about the meaning of policies.
Since the establishment of sum-insured policies last year, a plethora of online calculators and services providers have arisen claiming to provide the correct cost calculation.
RICS member Andrew Cook from Cook Morris Quinn says while individual homeowners are wise to obtain correct values, the trustees of a family trust are “obliged” to protect the trust property.
In the event that they do not, they may be liable to the beneficiaries for any loss suffered, he warns.
Confusion for homeowners has partly arisen due to uncertainty of what a sum insured policy actually represents, he says.
The figure should be a cost estimate for rebuilding the home, along with all other permanent improvements, including demolition costs and fees.
This should not be confused with a house market valuation or the rates valuation, which are very different indeed, he says.
Oceania RICS chairman Graham Matthews says a house valuation is how much a house may be worth if selling on the open market. A rates valuation is a council’s perceived value of the land plus improvements, so that a rates calculation can be made.
But a cost estimate represents the cost for the demolition, making good and rebuilding of the insured structures such as the house, retaining structures, swimming pool etc, as well as the cost for professional and statutory fees, GST and price inflation during the course of construction.
It also reflects the complexities of each site, such as steep slopes, poor access or protected trees. It does not reflect the cost of the land itself or landscaping.
There is no legal or mandatory obligation to use an industry professional when determining a sum insured.
RICS plans to release a best practice guidance note for the public to protect against undervaluing homes.
RICS in New Zealand has 600 members and an office in Auckland.
Chief executive Brian Dewil says quantity surveyors are the obvious choice to carry out the job because of professional training to provide cost advice on buildings, refurbishments and rebuilds, and they have detailed knowledge of labour and material rates, methodology and risk.
However, there are cases where qualified valuers have successfully undertaken these reinstatement cost valuations for the sum insured in New Zealand.
In the UK this job is done primarily by valuers and only the more complex buildings are done by a quantity surveyor, he says.
Many insurance policies have variations that affect insurance liability.
For example, in some policies concerning hardwood floors painted or covered by carpet, the insurer only needs to provide a similar timber substrate, not the original hardwood item.
This can have a dramatic effect on the rebuild cost estimate, as well as future market value should the owner later prefer to expose what was the original hardwood features that are no longer there.
This is a common problem among homeowners in Christchurch where insurers claim they may replace original wooden floors with fibreboard products because the floors were covered by carpets or other coverings.
The limits set out in each policy can also vary.
RICS says homeowners should check out the professional indemnity insurance of surveyors and valuers, which should at least equal the sum insured valuation on a per claim basis.
A final report should be reviewed by the homeowner to ensure it has covered everything. The report should include a detailed schedule of the elements covered, existing plans and photographs.
The document should be updated annually, RICS says.