Don't Retire, Reinspire

Welcome back to Don't Retire, Re-Inspire and today I've got a great guest for us again. Warren is joining us again, but this time he's going to talk about insurance and how to get the best out of insurance and in particular to get the most for the money that you are in fact paying into it. So welcome Warren and I'll leave you to introduce the topic and to start chatting. Thanks very much Lynne. Great to be back.
Thank you very much for the kind invitation and the opportunity to say a few words which are I think opportune. Let me first say I've had 62 years in the insurance profession but I'm retired and no longer have a license to give advice. So I'm not giving advice, I'm just giving some points that listeners should be aware of.
Recently there was a very good programme on TV3 about the melting of the ice (and sea level rise) affecting properties close to the seashore. And let me tell listeners that anybody that's got a dwelling or property that's close to the sea should be speaking to their insurer because after speaking to an underwriter, recently on whether they will insure dwellings close to the sea, simply because of the increase in the water level and the exposure to flood from land and of course sea. So let me say that if you're looking at buying a property near the sea, and you know what that means, be very careful.
The other thing that you need to look at very closely today is the age of the dwelling. Now, 1970 was 54 years ago, and it doesn't sound long, but 1970 houses prior to that date need to be very carefully inspected, especially the electrical.
Now if you're going to be buying a property pre 1970, the electrical wiring in the house, that's the switchboard and all matters related, will need to be inspected. And in some instances, listeners, the insurance company may ask if the house be rewired. I've known that to happen, particularly when the house got back to 1960. And that doesn't seem so long ago, and there's an awful lot of houses in New Zealand that were built post-war. So if you're contemplating buying a house that is pre-1970, speak to your insurer first and get a directive as to what they require. And there's a pretty good chance that they will require you to have an inspection of the electrical and that's at your expense and all this races away with money. Anyhow, that was just a couple of pointers I thought I'd start off with. But back a year ago,
Last year, 2024, The press published an item, insurance premiums for house and contents off the charts. And it just talked about how the premiums have increased significantly over the past 12 months. I took an analysis of my own insurance, such dwelling, contents and car, to find that they've gone up 82%. That’s 82% in the last three years. That's dwelling, contents and car, all for the same, sum insured, but it's the exposure that the insurance industry has had towards the fires in Australia and America and the floods in New Zealand, which is costing huge money. Huge money is brought back down from the reinsurance companies. The reinsurances are the people that carry the catastrophic losses, excessive losses. And they're normally, the most famous of the lot would be Lloyds of London, that's a reinsurance company, but they're in Switzerland, Sweden, America, over in parts of the world where reinsurance companies have been firmly established for many hundreds of years. But they're taking huge losses on the catastrophic events. And some of those are the rising of the sea and the effect of the floods coming on shore, as well as what I've just mentioned with fires and the like. So that has an effect on the insurance premium that is going up. And if you think it's coming down, no, it's going up nearly every year. I've had four increases on my dwelling contents in car in the last 12 months. Last 12 months, the premium has increased by, I'm looking at my notes now, by 20%. Now, there has to be ways and means of reducing the premium. The first, of course, is don't insure. So you carry the risk yourself. Now, if you've been insuring your dwelling and contents and car for all your life, it's very hard to say, which one will I no longer insure? Dwelling, it's a big risk to carry.
If you have a mortgage, your mortgagee will not allow you to have an uninsured dwelling. They will not allow it. That just simply means that in the event of a fire or flood or a total loss, they need to be paid first and they need to be paid by an insurance company. So don't decide to lapse a dwelling policy. Now, content, you might think, okay, I've got contents. Do I carry the risk on that or not? That depends on you because if you're going to have a claim on the dwelling, you will have one on your contents and that is the carpets and drapes and furniture and furnishings and home appliances and the like. But let me just give you all a couple of tips. A couple of tips are this. Consider catastrophe cover for the dwelling.
Catastrophe cover has not been popular in New Zealand, but that is the total replacement of your dwelling and there is about 22 different aspects in how to get the value on your home. I've got them in front of me, which is the square metres of your home and additional units out, buildings, garages and carports and so on, points that need to be brought into consideration to get the replacement. Now that is to put your house back, plus ensure for demolition and removal of debris. Demolition and removal of debris is what it says. The house has to be demolished and the debris has to be removed. That has to be paid for by you and the fees associated with putting the house back. It might be architects fees. Indeed, the council will require application fees and the like. So it's the cost of the dwelling plus demolition and removal of debris plus the fees give you the total sum insured. Now I'm suggesting it's best that an insurance company carry that risk and not yourself. So I'll dwell on that. Here is a few ideas for catastrophe insurance go for the maximum excess that you can from your insurer. That might be $2,500 which means you meet the first $2,500 of each and every claim. So catastrophe means you're having a claim of $50,000, $70,000, $100,000, $200,000. And what would $2,500 be on a $100,000 claim? I'm quite sure you can wear that. But for you to take a $2,500 excess, you may find that your insurer provides you with a large discount.
And I know of one insurer that pays, gives you a 37.5% discount for taking that large excess. And boy that's a significant amount of money. So speak to your insurance company, speak to your broker and ask for the maximum excess that you can. And cast your mind back over 10, 20, 30, 40, 50 years, how many claims have you had on your dwelling? Now I've had over 65 years insurance on dwellings and I've never ever had a claim. Never. I'm not interested in broken windows, toilet pans, wash hand basins and the like. My greatest concern is an earthquake and indeed a total loss caused by fire and the fire happens when you're not in the house.
When you're in the house, you can smell the fire, see the fire, and with all things equal, you can put it at yourself, but you're there on the spot to be able to phone the fire brigade or a 111 call to get them to come and put it out. So that is a pointer. Go for the largest excess and that will reduce your premium. Now in that, there is another couple of pointers that you need to be aware of, particularly what you've got around the house and it's best that you involve your insurer or your broker as to what you've got around the house. For example, a plantation, a stream, would that stream turn into a flood? Would the Waimakariri River get bigger and larger and overflow?
It's very important that you advise your insurer of any natural disaster that are perceptible in your own mind. So the dwelling needs to be carefully calculated. Now what does that mean? That means the actual square meterage of your dwelling. Get a tape measure out and record the actual square meterage of your home. And from that there are computer programs that you can go into, and give that square meterage along with other details and that will give you the replacement value of your home. That's the house demolition, removal of debris, fees, etc. That's the replacement. And it might find that you're grossly over-insured and you're paying premium for something that you're significantly over-insured. Why do I say that?
Compare the price index to your sum insured. So if last year your house was insured for 200,000, the industry might have said, oh, it's gone up by 10%. Now the sum insured is 220,000 and you're paying a premium on that. So get the exact value. It's best of course that you get a registered value to come along and give you the replacement value, but that's going to be a fee of at least $600, well it used to be, just to give you that. But hey, it's pay the $600 in a five years time, get it reviewed. So there's nothing wrong with doing that. But the first thing is go for the maximum excess simply because your exposure to a total loss or a significant size loss is pretty remote unless of course you're near an area. So that's the first thing. Remember all the areas that have to be checked out to get the replacement value of your dwelling and I've got in front of me about 22 items that need to be taken into consideration which I won't dwell on. Can I just, Warren, that's actually really interesting because many years ago I was living in a dwelling and you got me to do exactly this exercise and I got a value in and one of the things that I found really interesting was that, like in an earthquake, you might have concrete paths that are going to be damaged. And also, if you remember, my house was split level and there were retaining walls. And so the valuer said to me, well, those retaining walls have to be rebuilt. And so it wasn't just the dwelling. I think people can just think it's just the dwelling, but it's all those other things. It's the paths, it's the driveways, it's the retaining walls. And so as a consequence, for a house at the time that would have sold on the market, say for 450,000,
The catastrophe value in doing all that, but bear in mind I would still have the land, was valued at $850,000. And most of that was built into the cost of building the infrastructure around the house, not just the square footage of the house to the same level of spec. So I think that's kind of interesting as well, isn't it? And I thank you for that. Thank you for that, Warren. That was really a very useful exercise. So rather than paying less, I ended up paying more because I never thought for one moment about all those other infrastructures that were so essential to that particular section. But do continue, I'm absolutely fascinated by this. I like your style, Lyn. I'm just looking at a statement that was made several years ago that I used to pass over to clients wiring an older home wiring may not meet modern electrical safety standards there you go if you're buying ask an electrician to check the property wiring before you make an offer if the original wiring still exists or the wiring is old you may need to rewire the property and replace the electrical switchboard as this can be a far hazard. So there we go. There was a statement made on a brochure that was sent out some years ago. And I'm just reiterating that if you're looking at buying a house pre 1970, just think about it. Right. When you're looking at a contents, this is very, very difficult. My best recommendation is for you to get from your insurer a domestic contents valuation guide. Domestic contents valuation guide. And on that you complete what the values are of the particular items in the house. And that is an amazing exercise. And the effect that it does have, you could find that you are underinsured or you are well out.
And that means that you go down, which has a list, and they make a suggestion as to what something might be worth. I'm looking at bookcase shelves in shelving. They're saying the average value is $1,750, but a high quality one could be $4,000. You put alongside of what you consider your value, and you go right down, books, buffer, coffee tables, cushions, lounge chair, and then around the house heaters and fans, mirrors, bed frames, there must be a hundred odd items that are all in front of you, which gives you the average value, what a high quality value would be worth and what you think yours would be. I'm looking at a jug and a kettle. The average value at $80, a high quality $1.250. I think the one that we've got at home is worth about $10. So I'd write down $10. But what it does, it provides you with an accurate sum insured at the conclusion, simply by adding everything up and what you think the value is and see how close that is to the sum insured you could be significantly over-insuring, in which case you're paying a premium for that. Now remember that the premium is the actual premium that the insurance company takes plus fire service levies, plus what used to be the old earthquake and war damage now natural hazards levy, plus GST.
Now, if the premium came to say $200, the insurance company is getting about $100. Those other three taxes and levies are about $100. That's the Earth Fire Service levy, the natural hazard, and then GST at the very end. That all adds up to the other 50%. So you're paying one heck of a lot of money in taxes.
And that is you can't reduce those, you just cannot. You cannot avoid paying them. If you are insuring, the insurance company collects those premiums for and on behalf of the government. It collects the GST of course, and remits that. It collects the natural hazard premium and the fire service levies. It really brasses me off into a lot. It's the people who insure pay a fire service levy.
The people who don't insure, of course, don't pay it. But the fire brigade will still come out to the people who are uninsured. I believe that the insurance industry should say to the government, hey, look, we're collecting something on your behalf and we're being penalised for it. That should be included on the rates. The fire service levy should not be the responsibility of the insurance industry, but that's my little gripe. Now. Can I just say something?
Host: So Warren, I just want to talk about that inventory because you also got me to do that some years ago and I was amazed by actually how much I had in the house, the replacement value of those things. So I found that exercise really, really useful because it gives you an indication of just how much it would cost to take your current home and have it back after a disaster to how you actually have it today.
Guest: Now for some people that might be less than what they think. For some people, it comes around things like the quality of your furnishings, for example, how new is your lounge suite, et cetera. That was a very useful exercise. What was it called again, the document there, Warren, that you've got the domestic content, the domestic contents valuation guide. I strongly advise all of you listeners to actually, find that on Google and download it and just do a little check yourself of are you under or over ensuring your current contents but that was a very useful document you gave me. I'm so enjoying this Warren I'm learning a huge amount keep going. Okay Lyn thank you. Well the other point I know it's going to be difficult for you to perhaps assimilate but there are two types of insurance. Today, people take what is commonly known as the comprehensive cover. That's the old terminology that came out in about 1960. It's now got really flash terms like extended benefits and so on. But when you buy insurance from your broker or from the company, they will automatically include the comprehensive or the full cover which is fire explosion, lightning, thunderbolt, storm, tempest and flood, burglary, house breaking, glass city theft, water damage, flood and so on, as I quickly race through some of the extra benefits that you get, but you're paying for them.
Suppose for the moment that you don't have exposure to any of those, there's no exposure to flood at all. I lived in Havelock North for 30 odd years and the chance of getting a flood there is pretty remote. If they got a flood there, New Zealand is flooded.
So what I'm saying is I was paying a premium for something that would never ever ever happen. But what does happen is fire. So you can, by approaching your broker or your insurer, affect a fire only cover. All it provides you is with a fire peril. All the other perils are excluded because you're not paying a premium for them. Now your premium has taken a sub-existential reduction and it's becoming more popular today when people assess what their exposure is What is my exposure to? Any of the perils where I live and you can say I don't have any when I don't live anywhere near a river Why have I got flood why have I got? all these covers that I'll never ever ever have a claim for but you can never preclude fire because it'll strike any person at any time. So that's the first thing. See if your broker or your insurance company will quote you on a fire only peril and that will significantly reduce your premium for certainty. You've still got the earthquake cover through the natural hazards or the old EQC part. You've still got that which will hit anybody at any time.
And to that, I've never ever had a claim on a contents policy. Never, never had a burglary, housebreaking, larceny, theft, any of those damages. But I'm paying one hell of a premium for that. And I have to reassess all this now that my premiums are going up at the rate 82 percent in the last while, in the last year, it's been 20 percent. And that's significant. And I just have to even my own self look at what is available. So maybe those few things Lynne would get people to contact their insurer, contact their broker, say how can I reduce the premium. The two big things are a big excess on the dwelling and maybe a thousand dollar excess on the contents and certainly have a look at the difference between fire and extended perils. So those are a couple of premium savings you could reduce it by a significant percentage. And as we're getting older, I can assure you that they will not come down. And if you're living close to a peril, like a plantation, or close to the seashore, you may find that that premium takes one significant increase, if of what I'm hearing in the industry. So the other thing, too, is remember to do this assessment say every three years. Don't do it annually because you've just had a review, but have a review. It only takes an hour or so to sit down, speak to your broker, speak to your insurance and go from there. I made a little note. One would think that the insurance industry is very prosperous, very, very wealthy and has a lot of money. But when I entered the industry, there were 15 insurance companies within walking distance of where I started work. All closed their doors today. No longer in existence. And a quick run through, National Insurance, Standard Insurance, IOA, Queensland, Victoria, FAME, South British, North British, AMP, Colonial, government life, just a few of the names that were very well publicized in Dunedin where I started work but no longer can open their doors today. Why? It's just too darn hard to make a profit in the insurance industry without increasing the premium, increasing the premium, increasing the premium. So that's one of the reasons why you're paying one.
Car insurance is three types of car insurance that you can get. The most popular one that you would have is comprehensive car insurance. It's what it says. It protects you, your car, and any claims that can be made against you as the result of any accident you may cause. You're coming home at night and you slip on the ice and you knock a power pole down it will cover the power pole and all the resulting damage that you caused, the wires that came down etc. plus the damage to your car. Now that is third party cover, it's part of your comprehensive cover which is significant. Each insurance company has a larger amount. So that's comprehensive cover. The main thing of course that protects is your own car and the most important peril would be it being stolen.
The very modern cars have anti-theft devices and you can't drive the car without undoing the safety advice but indeed cars that are 15, 20 years old and older and they may be parked out of the garage could be the target for a thief who can get into the car easily and have it started in a way before you wake up. So comprehensive cover is what it says. The next one down is third party.
Fire and theft or third party in a legal conversion third party says it will protect you against any claims that can be made against you As the result of your negligence You ram the car in front of you at the give-away sign you hit the power pole and do that. It won't ensure Your car won't pay out any money, but it will protect any claims that can be made against you as the result of your negligence
And as I'm saying, the power pole is a classic one and that could be one heck of a lot of money to get the people out to restore power at two o'clock in the morning. So third party, fire and illegal conversion is very popular because it's a significantly cheaper premium than the comprehensive. And I've got to say, it's a very good cover. Now again, speak to your broker, speak to your insurer as to what their quote would be. Now at the same time look at what an increase in excess would be. The standard excess on a policy could be $250 or $500. Ask what would it be if it went to $750 or $1000. That means that you cover that amount yourself. But again I've had car insurance for nearly 70 years and I only had a claim about 5 years when a third party reversed into me.
I was in a car park, this person got in on the opposite side of the car park and reversed into me and damaged the side of my car, about $3000 worth of damage she caused. But I didn't cause the damage at all. So my insurance company claimed against her. The very first thing you do is get the registration number of the car that was involved in the accident. Just get it. And if you can photograph it, even better.
Just get that information down so that it enables your insurer to recover from the other person who may have caused the damage. So that's another thing. Then lastly is third party only, which for years was very inexpensive. It was very popular with the rural folk because they considered that they would never get involved with a collision anywhere out in the country. And that's a good point there. And on country roads they've got less exposure.
So third party is what it says, it only protects you against claims that can be made against you as the result of your negligence. That could be, I use the Power Pole one because it's the most popular, but it could be that you've hit another car out in the country, it will protect you against claims that can be made. Won't protect your car and if it's a total loss that's a big claim that you have met down to say $7,000, $5,000 and I've got a car that today's worth $2,500. A 2004 Kia Optima, about $2,500. Well, I've just got third party on it. Simply because to insure it would be out of reason to insure such an inexpensive car. My other car, no, I've got that comprehensively insured simply to protect me against any other car. So there we go, Lynne, there's three popular classes of cover being house, contents and car where premiums can be considerably reduced. If you speak to your broker and ask about accepting a greater excess change in the type of cover and I'll finally say this, there are several methods of paying a premium. One you can pay annually, that's what it says, you pay the premium all at once and that is by far the cheapest method. Now there are two methods of paying it monthly, two premium has got a 10% loading on it. Now just suppose for the moment that your premium was $144 and you're paying that monthly. You would think that the monthly premium would be $12. Uh-uh, no that's $13.20. You think that's not much. I'm only paying an additional $14 a year. But if your premium is up over $1,000 a year, you're paying $100 more simply to have your premium paid by the bank on a monthly. $100 more is what is being charged and you wouldn't even know that your premium was being hiked up. Now just suppose that your premium was up in the $2,000 bracket and you're paying monthly. That is another $200 you're paying. Now I suggest you pay the $2,000 rather than $2,200 because what rate are you getting on your $2,000 in the bank which is probably only 5% today or even less. So think very, very carefully. Look at the monthly premium, multiply it by 12 and compare it to the annual premium and you'll find that there is a 10% but there are several, I know of one, companies in New Zealand that charge the true monthly premium. That is what a month premium is. Let's go back to $144, divide it by 12. The premium is $12 a month. Not $12 plus 10%, $12. So you should be looking for an insurer that provides the true monthly premium, not one that loads the premium by 10%. Now, your broker and insurance company should be able to explain that.
Yes, you pay an extra 10% a year to pay it monthly. No, the other insurance company could be saying, no, you divide the premium by, annual premium by 12, and you pay that amount. So you can see, you could easily save $700 to $1,000 by adopting some of the pointers that are brought to your attention today. And I recommend a visit to your broker or to your insurance company for a total review in an endeavour to get your premium down because boy it's eating into your A. Pension, B. Wages, C. Salary or income of any description and if you think it's going to come down I've got news for you and it's all sad. Thanks Lyn.
Host: Really, really interesting there, Warren. One of the things that I just wanted to comment on, which is the car insurance, the third party, third party fire and theft and the comprehensive. I don't think a lot of people are aware that, choose not to have any insurance whatsoever. But what I'm aware of is say, for example, if they hit, if they have an accident with a train, that accident can be very, very expensive and KiwiRail does collect that money. It could also be if you've hit a building as a result of that accident, you could be up for the cost of that as well. So I don't think there should be any car on the road without insurance, that's for sure. One of the quick questions I just want to ask you before we wrap up this podcast, Warren, is you were my broker for many, many, many years and now you are retired. But thinking about our listeners and also myself, what is it best to do?
Guest: You're kind of in a state and you go, oh, do I go to the insurance company, which are going to sell me their products anyway, or do I go to a broker? And what are the costs and what's the differences? And I mean, at the end of the day, I'm going to weigh up that decision, but what are some of the things I should be going through my thought processes before I go to one or the other? Well, I've got a strong affinity with going to a broker simply because they represent maybe three or four general insurance companies here in New Zealand and they would know the companies that provide the benefits that I just talked about before. They will know what the name, I've got it right here in front of me, I know who it is but I can't tell you, who provides the true monthly premium and who charges you the 10% loadings. I know who they are because I was in the business for a long time and that information comes to you. So it's a visit to the broker who represents a number of insurance companies and you go to them and say, look, I would like ABCD and that broker will be the recipient of an agreement with nearly all the insurance companies in New Zealand. Indeed, they are. I can't think of any that don't have a multiple otherwise why be a broker? The object of a broker is to find out the best deal for the client. Now they're more likely to be involved with the commercial risks, the bigger farm risks and the like. And they would know who has got special cover for those commercial risks. Say for example, it was something like, let me quickly think, Hastings. Oh, it's James Wattie Canneries for example, that would require great skill to be a broker to do their insurance. But for a farm out here in Canterbury, they would be able to give the farmer the best advice that they can as to the best premium. Now what am I talking about? They visit the farm and they look at the farm and go over it, hello you've got a plantation.
Oh boy, now we need to make sure that we've got at least $5 million worth of farmers liability. Why do I need that? The big case was up in Marlborough only a couple of years ago when the farmer was coming along and his item, what was it a trailer or something, clipped a stone and ignited the grass and set fire to the forest the farmers responsible for the burning of the forest. And I'll bet my bottom dollar, very few farmers are carrying five million, 10 million dollars. So a broker will come out to your house, look at it, tell you what exposures you've got, what cover they recommend.
It is absolutely critical to go and visit a farm for the reasons I've just mentioned. What type of farm? Dairy is different to sheep. Just suppose that the gate was left open and sheep wandered out on the road and I'm coming along in my new Jaguar and I plough into them. Who's going to pay? Best of three guesses. It's the farmer for not making sure that the gates were correctly done. And that is what I'm talking about, Lynne.
The person to come out, speak with you, look at the risk or what we would commonly call inspect the risk. That is farms and house, contents and car. For a commercial risk they would have to go out to inspect it to make sure that all the perils are noted, all the exposures are noted and so on. I'll give you a case not long ago, oh it was about 10 years ago, it was a new block of shops that were built in central Otago and three years later they were burnt to the ground and nobody could figure out what it was. It was subsequently discovered that the wiring in the roof was placed beside other wiring and the heat in the roof of the property cracked the insulation and a spark jumped from one to the other and ignited the material in the roof.
My brother who had been in the industry for many many years was telling me in Alexandra many years ago they couldn't figure out why houses were burning down. Beautiful warm sunny day and a house would suddenly ignite. No one could figure it out until somebody ah ha ha ha ha the sun was shining on a mirror. The mirror was redirecting the rays from the sun onto an inflammable item like a cushion in the lounge and igniting it. Now you're away for the afternoon, the sun goes down very slowly in Central Otago, the sun is shining on that object for a long time and it was magnifying the rays, the rays were concentrating on an inflammable item and it burned. Now what I'm saying is that any broker, any insurance advisor along that line would be coming to you and saying, oh, oh, oh, oh, oh, you better keep your blinds down or you should be doing this and that or the next thing. They'll be well trained and be well versed in the whole measures of insurance underwriting and giving advice. And that's sadly I can't give it, but I'm just explaining to you that is what they should do.
Host: Well thank you Warren, that has been an absolutely fantastic half an hour with you. I've certainly learned a lot. Thank you, Warren. We look forward to our next little chat in a few weeks. Take care, listeners.