Builder beware! Home insurance changes could put you at risk of liability

As a result of the Canterbury earthquakes, insurance companies across the board are changing the way they insure homes.

“For many years, house replacement costs were based on floor area,” explains Ben Rickard, of construction liability specialist Builtin. “Since the quakes, it’s become apparent that the rate per square metre varies enormously and their models were incorrect. So, to combat this discrepancy going forward, insurance companies are requesting that homeowners determine a replacement Sum Insured.”

According to Lumley, AA and other insurance providers, the Sum Insured should cover the total cost of rebuilding your home and will set your insurance levels accordingly.

While some insurers are suggesting homeowners use a builder’s estimate to determine an appropriate Sum Insured, Mr Rickard strongly advises against it.

“Estimating the total cost of rebuilding a home is very different to quoting an estimate for a new build or renovation,” he says.

“Aside from the price of rebuilding the house, retaining walls, driveway, fences, swimming pool and any other structures you might have, you have to take into account demolition, debris removal, extra foundation work, geotechnical assessment, professional fees, compliance costs, inflation over 12 months and, in the case of a natural disaster, the inflation that accompanies specific service providers being in high demand. For example, after the Christchurch earthquakes, because so many houses needed to be demolished, the cost of demolition sky rocketed.”

Ben says because it’s such a complex valuation, most builders wouldn’t be covered for giving replacement cost evaluations.

“If the Sum Insured estimated is not enough in the event of a claim, the homeowner could hold the builder liable for the difference!”