Alarming suggestions over the weekend that elderly New Zealand buildings in places other than Dunedin and Northland may simply be uninsurable in the near future.
Crombie Lookwood insurance brokers’ Richmond-based relationship manager Karen Botica told more than 50 invited guests that older commercial buildings, particularly those constructed before 1936, were more difficult to insure now.
“Dodgy buildings, dodgy areas, not earthquake strengthened, pre 1900s – you might not get insurance. In the past you could probably jimmy it, wrangle it through, pay a higher premium and get it covered but now you can’t.”
She said one client with a pre-1900s building worth $180,000 couldn’t get cover anywhere, despite having tried 11 different insurance companies. Buildings constructed pre-1960 were “a bit of an issue” while post-2000 buildings were “not so bad,” she said.
Northland and Dunedin were the only places not having to pay higher premiums based on earthquake risk. “Everywhere else is fair game.”
Well, what to do if you are an owner?
Ms Botica recommended investors who saw an old building on a great site think about demolishing and replacing it. That would keep tenants happy, lower insurance costs and create a better return on investment, she said.
Excellent idea. Demolish every pre-1900 building in the country! But really, if you’re an owner with a mortgage, what else would you be able to do? No bank is going to fund you if you can’t get insurance.
Telfer Young Nelson director Ian McKeage commented that:
The age of the building now is becoming critical – it’s that magic date of 1935-36. In some cases the property values were being written down to land values, he said.
So….avoid old buildings and leave the insurance problems where they lie, or buy at written-down values and demolish. No fun for the existing owners though…what happens when you get the insurance company refusing to renew, planting you with an uninsured property and in breach of your mortgage? A sizeable plummet in the valuation and sale price, for one.
You might think that your insurance company wouldn’t do that to you in the case of a renewal, especially given your years of claim-free premium payment, but we beg to differ…have seen insurers shaft their clients in the field of professional indemnity insurance in the most venal and self-serving manner possible (eg tripling their premiums or, in another example, using pre-claim notifications (of possible claims) to refuse to renew the policy unless claims based on the pre-notifications were excluded). There is no reason that insurers will carry the risk if they deem your property not worth the trouble….it will be dumped straight back on the owner.
What can you do? Well, we have yet to see exactly what the insurance industry intends. Some are talking about 40% rises across the board. Hopefully all of this talk is somewhat alarmist – after all this is the first major earthquake in a large NZ urban centre since the 1930s.
But, if they do go the selective route and refuse to insure categories of property built before certain dates or in certain styles, then owners might be well advised to consider whether immediate exit is the best choice…..alternatively, investigate whether or not the property can be brought up to code and start funding that upgrade while they still have insurance. Can they afford to take the risk if the insurers won’t?