Rental property insurance excess - what's your strategy?

[Sanya]

I got a nasty shock last week with my insurer advising me that that the premium for a particular rental property will increase by 25% this year. I’ve been with the insurer several years, no claims have been made, no change to the insurance coverage or terms and it’s not located in a high risk area.

When I quizzed the insurer about the increase it mentioned much of it was due to increased Government levies (EQC in particular) and in part because insurers are seeing increased risks with rental properties.

It was suggested I increase the excess to bring down the premium. An option exists to increase the excess up to $2000.

I was wondering whether other property investors have taken this road? What do you think? Any drawbacks?

I had read of some landlords opting for increased insurance excess because a law change in 2019 with respect to tenant liability for damage made them liable for careless damage in a rental property, for the cost of the damage up to four weeks’ rent or the landlord’s insurance excess, whichever is lower.

[PC]

The only problem is the excess is charged for every "seperate event".
And it's amazing how many events an insurance accessor can seperate something into.

[Sanya]

Good point and thanks for the reply.

I haven't lodged a insurance claim in years. Just not worthwhile for smaller events due to the excess and impact on no claims bonus.

I tend to view insurance as a safeguard for larger events and taking that view I wondered whether other landlords were upping their excess?

[PC]

Have you tried a quote from Initio?

https://initio.co.nz/

[Sanya]

Have you tried a quote from Initio?
https://initio.co.nz/

Yes. I'm currently insured with them and they've jacked up the premiums.

[Perry]

2024 and time to refresh.

I've asked my broker for the best cut-off point for accepting an increase in the excess. That's after being advised of a 39% increase for the next insurance year. (Close to the calendar year.)

The last one is two years old, so I've commissioned a revised insurance valuation, so nothing is even close-to-concluded until that's provided. However, I'm not expecting the insurance valuation to make much difference to the premium increase.

In order to recoup losses after last year's cyclone damage, the cost for insurance is being amortised across all policy-holders' premiums, whether or not they made any post-Gabrielle claims.

Are other PT forumites seeing much the same?

Sanya - you mention a no-claims bonus. Is that on all types of insured items? Or only some?

[Sanya]

2024 and time to refresh.

I've asked my broker for the best cut-off point for accepting an increase in the excess. That's after being advised of a 39% increase for the next insurance year. (Close to the calendar year.)

The last one is two years old, so I've commissioned a revised insurance valuation, so nothing is even close-to-concluded until that's provided. However, I'm not expecting the insurance valuation to make much difference to the premium increase.

In order to recoup losses after last year's cyclone damage, the cost for insurance is being amortised across all policy-holders' premiums, whether or not they made any post-Gabrielle claims.

Are other PT forumites seeing much the same?

Sanya - you mention a no-claims bonus. Is that on all types of insured items? Or only some?

I've just compared calendar year insurance premiums paid in 2023 vs. 2022 and the increase was 38% across my property portfolio.

My approach in earlier years was to consider insurance as basic protection against the big loss risks such as fire, flooding, earthquake, and other natural disasters only.

On that basis I accepted an exchange of a large excess for reduced premiums.

That worked to keep premium increases reasonable for a few years but recently premiums have climbed tremendously.

There are two issues right now with insurance

First, as you correctly point out, New Zealand's natural disasters (flooding, cyclones, tornado's etc.) have dramatically increased insurance company risks and re-insurance costs. This is being reflected in the current premiums.

Second, building costs have gone up dramatically. 25% by some account in the past two years. As a rough rule of thumb construction cost is $4000 per square meter for a single storey standard build 3 bedroom property on flat land with services. Wise though to use online calculators or valuers for greater specificity.


Re No claims bonus it depends on the insurer. The best approach is to ask your insurer if they have any form of no-claims bonus or increase if a claim is made.

I still think the best advice to manage your costs 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.

[Perry]

Second, building costs have gone up dramatically. 25% by some account in the past two years. As a rough rule of thumb construction cost is $4000 per square meter for a single storey standard build 3 bedroom property on flat land with services. Wise though to use online calculators or valuers for greater specificity.

I thought it was bad / shocking enough, last year.

My three, very small, motel-studio-unit-like rentals increased in replacement cost by 281% in 2-3 years.

Their cost in 2020-21 was $92k

Their cost in 2023 was $259.6k.

[deechnz]

Are other PT forumites seeing much the same?

Just got my renewal premiums (Initio): a 24% increase in cost to me compared to last year.

[Chris W]

https://www.stuff.co.nz/money/350182687/property-investors-say-insurance-driving-rent-increases

[Perry]

I've opted for the largest excess figures I can get. Still waiting on the resultant figures.

[Perry]

Total premiums for last year: just under $12k

Total premiums for this year: just over $17k. That's with a big increase in the excesses.

A 42% increase.

[Chris W]

Total premiums for last year: just under $12k

Total premiums for this year: just over $17k. That's with a big increase in the excesses.

A 42% increase.

And this is with higher excesses?

If excesses had remain unchanged, the percentage increase in premiums would have been even higher.

[Perry]

And this is with higher excesses?
If excesses had remain unchanged, the percentage increase in premiums would have been even higher.

Yes. I don't have the numbers in front of me, at the moment. Later . . .
This year, an insurance certificate revaluation was done by a registered valuer.
The increased 'value' in the insurance certificate was noticeably greater than the insurance coy estimation of increased 'value.'

Next year will see me very carefully scrutinising the things to be insured.
I'll do that on the basis of what size of loss I could cope with if there's no insurance?