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Bogeymania: the great insurance misdirection

Wednesday, February 08, 2017

 


All the hype surrounding P contamination in rental property is leading many to assume that meth is the undisputed bogeyman for all landlords.

The thing about the bogeyman is that it is a figment of our overactive imagination, irrationally based, and conveniently served up to distract us from what matters. Yes, meth contamination is frighteningly possible at rental properties. But just because you own a rental, doesn’t mean it will become contaminated.

So is meth the biggest risk facing rental property owners? We talk to Gary van Zijl of Initio Insurance to unpack and examine this common supposition.

APIA: So Gary, what do you think? Is the fear of meth contamination, rightly or wrongly, pushing landlords to take out property insurance?

GvZ: Initio clients tend to be quite sensible with their motivation. The main driver for getting insurance is basic protection against the big loss risks such as fire, flooding, earthquake, and other natural disasters. That said, recent media attention has moved a lot of investors to seek insurance for meth contamination as a major concern. So yes, if there were one bogeyman pushing investors and homeowners to seek cover, it would be meth contamination.

APIA: We cannot stress the importance of being suitably covered more. That said, how does the fear of meth contamination compare to the actual loss suffered by rental owners? Is the fear justified?

GvZ: If we talk strictly at claim statistics to determine whether fear of a risk is justified, then no. The most common claims (approximately 30%) we have seen are for internal water damage from leaking pipes and overflows. Not meth. Weather-related claims make up another 20%, while deliberate damage by tenants cause takes up another 15%. Surprisingly, meth contamination only makes up about 3% of over claim numbers.

That is the number of claims. Now, if we look at claim costs, then the story is dramatically different. While water, weather, and deliberate damage claims make up 65% of all claims, they only account for 30% of costs. Fire, on the other hand, is just over 5% of claims but makes up almost 60% of all claim dollars paid. Meth again is a small feature, contributing to 8% of overall cost.

APIA: Looking at the claims Initio processed over the years, what would you say is the biggest risk for investors?

GvZ: The single most common cause for claims is leaking water pipes, especially in older homes where maintain has not been carried out or has fallen behind.

Regarding what is costliest, no surprise that fires caused by wiring/electronics is the most damaging source. From an overloaded multi-plug to overloaded wall sockets.

APIA: Insurance is one of those peace-of-mind expenses that people want to have but doesn't want to claim on. What is your advice to investors regarding managing their insurance costs?

GvZ: Depending on the provider and type of claims, it is true that too many claims will push up the premium. At the end of the day, insurance is there to be claimed on.

I suggest investors ask their insurer if they have any form of no-claims bonus or increase if a claim is made. If the claim amount is just over the excess, it is worth considering not lodging.

The best advice I have is to select as high an excess as you can comfortably afford. This means you are protected against the major events, but due to fewer claims, you will end up spending less overall on your insurance bill.

APIA: Do not think NZ investors are adequately insured?

GvZ: Unfortunately, not always. The Initio philosophy is to provide cover that ticks all the boxes right from the get-go. But insurance is a competitive market and some policies, while cheaper, do not include basic covers such as gradual damage, or even deliberate damage caused by tenants. If you are entirely focused on being a price-chaser than you could become underinsured.

 


If you would like to know more about managing your insurance expense and getting as much value out of your policy as you can, Gary is speaking at the upcoming How to get your insurance claim paid webinar on the 23rd of February.  

This post is sponsored by Initio Online Insurance, a specialist in rental property insurance.


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