Understanding insurance claims is crucial when buying a house in New Zealand. This article provides insights into how past insurance claims on a property can impact your purchase decision, insurance premiums, and overall risk assessment, helping you make informed choices.
The Importance of Disclosure: Previous Insurance Claims
One of the first and most critical steps when considering a property in New Zealand is to investigate its insurance claim history. New Zealand law requires vendors to disclose certain information, but delving deeper into a property’s past claims can reveal potential underlying issues or vulnerabilities you might otherwise miss. Failing to do so could lead to unexpected costs and difficulties securing insurance later on. It’s not just about whether a claim was made, but the nature of the claim and how it was resolved.
Accessing Insurance Claim History: CLUE Reports and Beyond
While vendors are legally obligated to disclose some information, a comprehensive insurance claim history is not always forthcoming or readily available. In New Zealand, there isn’t a single centralized database accessible to the public for viewing all claim histories. However, you can request a Claims and Loss Underwriting Exchange (CLUE) report from the property owner, which summarizes insurance claims made on the property in the past. A proactive vendor may have already obtained one, but if not, it shows due diligence to request it. Remember that these reports may not be exhaustive, as they are typically limited to claims made through participating insurance companies.
Talk to multiple insurance providers. Even if the vendor has a CLUE report, it might not include all past claims. Contacting various insurance companies and inquiring about the property’s history (with the owner’s permission, naturally) can sometimes reveal additional information. Be prepared with the property address and any other relevant details to facilitate the search. It’s important to have a clear understanding of what the previous claim was for, the amount paid out and if the issue was resolved. Was it a leaky roof that was ‘fixed’ by a patch-up job, or was it fully replaced? The depth of the repair matters hugely.
Impact of Previous Claims on Insurance Premiums
A property with a history of insurance claims, particularly repeat claims for similar issues, may attract higher insurance premiums. Insurance companies assess risk based on a variety of factors, and a checkered claim history signals a higher likelihood of future claims. For instance, a property with a history of weather-related damage (e.g., flooding or wind damage) will be considered riskier and therefore more expensive to insure. The increase in premiums can be significant, potentially adding hundreds or even thousands of dollars to your annual expenses.
When receiving insurance quotes, be upfront about any known history of claims on the property. Trying to conceal this information could invalidate your policy later on if a claim arises from a pre-existing condition. Disclose everything you know, even if you’re unsure how it might affect your premium. Transparency is key to securing a valid and reliable insurance policy.
Specific Claim Types and Their Implications
Different types of insurance claims carry different levels of weight. Some of the most common—and potentially concerning—claim types in New Zealand include:
Weather-related Damage (Flooding, Storms): New Zealand is prone to extreme weather events, and properties in flood-prone areas or those susceptible to strong winds are particularly vulnerable. A history of flood claims, for example, may indicate ongoing issues with drainage or location risk, potentially requiring costly mitigation measures. Check regional council websites for flood maps and historical data.
Earthquake Damage: Given New Zealand’s location on the Ring of Fire, earthquake damage is a significant concern. Properties that have undergone repairs for earthquake damage should be thoroughly inspected to ensure the work meets current building codes and standards. Request engineering reports and compliance certificates.
Water Damage (Leaky Homes, Burst Pipes): Leaky homes are a notorious issue in New Zealand, and a history of water damage claims should be a red flag. Pay close attention to the quality of repairs and investigate the underlying cause of the leak to prevent future problems. Look for evidence of mold or rot when inspecting the property.
Landslip: Vulnerable sections and areas with high rainfall are generally most prone. A history of landslip claims should instigate a thorough survey of the section, including retaining wall integrity, drainage and bank stability.
Meth Contamination: Although less relevant as insurance claims but becoming more prevalent, meth contamination can be costly to remediate and can impact the value of the home. While not always covered by insurance, it’s crucial to test the property if there’s any suspicion of drug use, particularly if there’s a history of related police incidents.
Each of these claim types has unique implications for insurance coverage and the long-term value of the property. Understanding these risks is crucial for making an informed purchasing decision.
Due Diligence Before Making an Offer: Building Inspections and LIM Reports
Before submitting an offer, conduct thorough due diligence, including obtaining a comprehensive building inspection report from a qualified building inspector. The inspection should focus on identifying any underlying issues that may have contributed to past insurance claims or could lead to future claims. Be sure to instruct the inspector to pay close attention to areas highlighted in the property’s claim history. A good inspector can also recommend further specialist reports where appropriate.
Also request a Land Information Memorandum (LIM) report from the local council. A LIM report provides information about the property from the council’s perspective, including zoning, rates, building permits, and hazard information (e.g., flood zones, erosion risks). Cross-referencing the information in the LIM report with the insurance claim history can provide a more complete picture of the property’s risks and potential liabilities. For example, a LIM report may show that a part of the house has unpermitted works that the insurance company may not cover in case of damage to non-compliant works.
Negotiating the Purchase Price Based on Claim History
A property with a history of insurance claims, or that displays unaddressed risks revealed through due diligence, should be factored into the purchase price. Use the information gathered to negotiate a lower price, reflecting the increased risk and potential future costs. For example, if the building inspection reveals ongoing dampness issues related to a past leak, you could negotiate a discount to cover the cost of remediation.
Alternatively, you could request that the vendor address the issues before settlement as a condition of the sale. This could involve repairing structural damage, upgrading drainage systems, or completing other necessary repairs to mitigate the risks. Ensure that any work agreed upon is documented in the sale and purchase agreement.
Understanding Insurance Policy Exclusions
Insurance policies typically contain exclusions – specific events or circumstances that are not covered. These exclusions can be particularly relevant when dealing with properties that have a history of insurance claims. For example, a policy may exclude coverage for damage caused by pre-existing conditions or for damage resulting from inadequate maintenance. Review the insurance policy carefully to understand what is covered and what is not, paying particular attention to any exclusions that may apply to the property in question.
Clarify any ambiguities with the insurance company before committing to the purchase. Obtain written confirmation of coverage for specific risks, especially if the property has a history of related claims. This will provide peace of mind and protect you from unexpected financial losses.
The Earthquake Commission (EQC) and Natural Disaster Coverage
In New Zealand, the Earthquake Commission (EQC) administers a government-backed natural disaster insurance scheme, covering physical damage to residential properties caused by earthquakes, landslips, volcanic eruptions, hydrothermal activity, and tsunamis. The EQC cover provides a limited amount of cover and excludes contents. Understanding (and checking) a property’s EQC history is important. Similar to private insurance, properties with past EQC claims may be perceived as riskier.
Note that EQC cover is capped, and for damages exceeding the cap, you’ll need private insurance. Therefore, reviewing both EQC history and private insurance claim history is essential for a comprehensive risk assessment.
Knowing if the house was damaged in previous events (like the Canterbury earthquakes), is important. Often homes that have EQC claims will have some form of cosmetic repair, but often not the standard new buyer would expect. It’s still a liveable house, so it meets the legal requirements for a sale, but it could quickly turn into the new owner’s first project.
When reviewing any EQC repairs, be sure to check all paperwork and ensure that all repairs were signed-off with sign-off dates. Councils and EQC tend to be very strict with paperwork.
Working with Insurance Brokers
Navigating the complexities of insurance claims and policies can be challenging, especially when dealing with properties that have a complicated history. Consider working with an experienced insurance broker who can provide expert advice and guidance. Brokers have access to a wide range of insurance providers and can help you find the best coverage at the most competitive price. They can also assist with interpreting policy terms and conditions, negotiating with insurers, and managing claims should they arise.
A good broker will understand your specific needs and tailor a policy to address the unique risks associated with the property. They can also help you understand the implications of previous claims and identify any areas where additional coverage may be necessary. Look for a broker who is knowledgeable about the New Zealand insurance market and has a proven track record of providing excellent service.
Case Study: Addressing a Leaky Home Claim
Imagine you’re considering the purchase of a property with a history of leaky home claims. The vendor has disclosed that the property underwent repairs several years ago, but you’re unsure of the quality and extent of the work. Here’s how to approach the situation:
1. Obtain all relevant documentation: Review the original insurance claim documents, repair invoices, engineering reports, and compliance certificates.
2. Engage a specialist building inspector: Commission a specialist building inspection specifically focused on identifying any remaining moisture issues or hidden damage.
3. Seek expert advice: Consult with a structural engineer or building surveyor to assess the long-term durability of the repairs and identify any potential future problems.
4. Renegotiate the purchase price: If the inspection reveals ongoing issues, renegotiate the purchase price to reflect the cost of additional repairs or remediation.
5. Secure adequate insurance cover: Work with an insurance broker to find a policy that provides sufficient coverage for potential future damage related to the leaky home issue.
By taking a proactive and thorough approach, you can mitigate the risks associated with buying a property with a history of leaky home claims and protect your investment.
Impact of Building Code Changes
Building codes change, and they can have a significant impact on insurance claims and the cost of repairs. If a building was damaged prior to a code update, the repairs to the damaged part need only meet the standards of the code at the time the home was built. Homes built pre-1970 will often have minimal or no insulation, and the requirements to uplift these to today’s standards will depend on the particular insurance policy.
If a house is significantly damaged (usually around 60%), then the new works must align with current standards, and the older parts of the house might be required to be brought up to code as well, so you may want to consult with an engineer to see if the house is susceptible to damage or may have old damage.
The Importance of Good Record Keeping
If you do proceed with purchasing a property with a history of insurance claims, maintain meticulous records of all repairs, inspections, and insurance policies. This documentation will be invaluable if you need to make a future claim or sell the property down the track. Keep copies of all invoices, warranties, engineering reports, and insurance correspondence in a safe and accessible location.
Future insurance and resale value
Think about how the home may impact the next buyer as well. Often, homes that had previous claims can be challenging to sell. It might be worth undertaking additional remediation on the home to present better for future resale, which will help future buyers with insurance.
Other things to think of as future costs
If the past insurance claims included damage from asbestos or lead paint, this could represent additional remediation costs for the new owner, which is worth consideration when valuing the home.
Navigating the Insurance Landscape: A Practical Guide
- Initial Assessment: Start by requesting the vendor’s disclosure of any past insurance claims. Don’t hesitate to ask probing questions about the specifics of those claims.
- Independent Verification: Cross-reference the information provided with your independent research. Contact insurance providers, seek CLUE reports, and delve into publicly available data.
- Professional Consultation: Engage relevant professionals, such as building inspectors, engineers, and insurance brokers, to assess risks and provide informed guidance.
- Risk Mitigation: Consider the potential implications of disclosed risks and implement mitigation strategies, such as renegotiating purchase prices or making repairs before settlement.
- Insurance Procurement: Carefully evaluate insurance options, factoring in policy exclusions, coverage limits, and premium costs. Prioritize transparency when discussing claim history with insurers.
- Record Management: Maintain meticulous records of all claims, inspections, repairs, and insurance documentation for future reference and potential resale considerations.
FAQ Section
Q: What happens if the vendor doesn’t disclose a previous insurance claim?
A: If the vendor knowingly fails to disclose a material fact, such as a previous insurance claim, it could be considered misrepresentation. This could give you grounds to withdraw from the sale and purchase agreement or seek compensation.
Q: Can I get insurance on a house with a history of leaky home claims?
A: Yes, it is possible, but it may be more difficult and expensive. You may need to demonstrate that the repairs were carried out to a high standard and that the underlying issues have been resolved. Some insurers may also impose specific exclusions or limitations on coverage.
Q: How far back does insurance claim history go?
A: Insurance companies typically maintain records of claims for several years, often up to 7-10 years. However, the availability and retention periods may vary depending on the insurer and the nature of the claim. This highlights the importance of obtaining a comprehensive history whenever possible.
Q: What if the previous claim was for something minor? Does it still matter?
A: Even minor claims can be relevant. A series of minor claims for similar issues may indicate an underlying problem or a vulnerability to future claims. It’s essential to understand the context of each claim and assess its potential implications.
Q: Can I use the insurance claim history to negotiate a lower asking price?
A: Yes, you absolutely can. This claim history provides objective evidence of the property’s potential risks, which directly impacts its value. Using this information, you can justify a lower offer based on the need to account for future repairs, mitigation measures, or higher insurance premiums. Having hard facts builds confidence in your negotations.
Q: What’s the difference between EQC and private insurance when it comes to natural disasters?
A: EQC covers specific natural disaster damage (earthquake, landslip, volcanic eruption, hydrothermal activity, and tsunami) up to a capped amount. Private insurance covers damages exceeding the EQC cap and typically covers a broader range of risks, including fire, flood, and storm damage (depending on the policy terms).
Q: Should I get an insurance broker?
A: When buying a property with limited or problem history an insurance broker can be valuable. They provide many insurance options, which can simplify finding something that suits. In addition, they can help better explain the insurance policies and any ambiguous clauses.
Q: How often should I get building inspections done?
A: A new building inspection should be done for important events such as refinancing, buying, or selling a house.
Q: If repairs were conducted, does this mean there are no future issues?
A: Not necessarily. A specialist inspection can check the quality and standard of the workmanship for the repairs. If you’re still concerned or the repairs appear substandard, you can seek advice from a structural engineer regarding the integrity of the building.
NOTE: The advice provided in this document is intended for informational purposes only and does not constitute legal or professional advice. Always seek the advice of qualified professionals, such as lawyers, building inspectors, and insurance brokers, for specific guidance tailored to your individual circumstances.
References
Earthquake Commission (EQC)
Land Information New Zealand (LINZ)
New Zealand Society of Building Surveyors
Buying a home is a significant investment. Don’t let hidden risks erode your financial security. Take control of your purchase decision and unlock the true value of your dream home. Contact a professional now to get the right building inspection and insurance coverage.
