The Local - Te AroApartment owners say it’s unfair they are forced to insure to a higher level than other residential owners, as Alex Brocklehurst reports.
Wellington apartment owners are calling for changes to a law to stop them paying too much for insurance.
Under the banner of the Unit Titles Act Insurance Working Group, Wellington apartment owners have been campaigning on this issue for the last few years.
The Act requires the body corporate, which brings together all the owners in a building to manage it collectively, to insure the building to its “full insurable value”.
This term isn’t clearly defined, but it’s generally taken to mean “replacement value”. This reflects the cost of replacing a building entirely if it has been destroyed, rather than say it’s market value, or indemnity value, which aims to cover a policy holder so that they’re no worse off.
The working group’s latest paper said the cost of actually replacing a multi-unit building in many cases would be far greater than its market value. So replacement would often be uneconomic.
And for some residents, replacement may not be a good option anyway. Many, including older residents, would likely prefer to take the market value of their home and move on, rather than wait the many years it would typically take to fully rebuild.
The working group noted replacement insurance policies generally say that, if a building is not actually replaced, only indemnity value will be paid out.
Apartment owners say they’re not just paying higher premiums for a policy that may not suit them – they’re paying for a policy that, if it came to it, would probably never fully pay out, as in practice the building wouldn’t actually be replaced.
Wellington apartment owner and working group member Prue Flacks said the current law was unreasonable. “No other category of homeowner has insurance requirements mandated through the legislation…you accept that there’s perhaps a bit more complexity with multi-owners and maybe some regulation is appropriate, but not to this extent.”
The working group has drafted amendments to the Act, to give more flexibility to apartment owners to agree an acceptable level of cover, while ensuring there is a minimum, to avoid the risk of under-insurance.
They’re encouraging apartment owners to raise the issue with parliamentary candidates ahead of the general election.
As it happens, National Party MP Katie Nimon has put forward a Bill that would allow a body corporate to insure buildings to a partial value rather than full insurable value, with a minimum threshold to cover demolition costs.
The bill remains in Parliament’s biscuit tin for now.
The Local canvassed candidates standing for the Wellington North electorate in the upcoming election.
Opportunity candidate Jessica Hammond said her party would look into changing the law. “It seems reasonable that owners should have the flexibility to choose indemnity or custom cover, just like freestanding homeowners do – acknowledging there may be challenges when owners have different views on the right kind of insurance.”
National Party candidate Jonathan Pitts said he was “100% behind the proposed changes” to the insurance provisions. “The high insurance premiums combined with the rates increases over the last few years have resulted in apartment dwellers in Wellington being massively squeezed financially, so if we can help them by passing this legislation then we should.”
Labour candidate, and current list MP, Dr Ayesha Verrall said she wanted more Kiwis to be able to own a home and “encouraging more medium and high-density housing in the inner city is part of that solution”.
We support easing the liabilities apartment owners face, including the shift to proportional liability in the building sector … [A]ny changes need to get the balance right so bodies corporate aren’t left underinsured.”
The Insurance Council of New Zealand (ICNZ), which represents insurance companies, said the current provisions in the Act could create uncertainty, and were “not always well aligned with insurance practice”.
“A key consideration in any reform is balancing affordability and flexibility against the risks of underinsurance. Alternative approaches, such as indemnity or lower fixed-sum cover, may reduce premiums in some circumstances, but they can also lead to more complex claims outcomes, greater uncertainty in settlements, and situations where there may be insufficient funds to repair or rebuild a building following a significant loss.
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