INAUGURAL HOME & CONTENTS STAR RATINGS RELEASED

HOME & CONTENTS INSURANCE UNDER THE MICROSCOPE

Many people spend an inordinate amount of time, energy and money creating the perfect family home only to protect their investment with the cheapest home insurance policy they can find. This is all well and good until it really matters. More often than not, the home owner then has to deal with the trauma of the initial ‘event’ such as fire, storm, theft etc, followed by the grim realization that their insurance policy does not cover anywhere near the amount of loss or damage incurred.

There’s no doubt this is a stressful situation, and one we see in the media all too often, but simply paying a higher insurance premium is not necessarily the answer. This lies in the fine print of the product disclosure statement (PDS), as each home insurance product can vary in the coverage provided. If this stated coverage is at odds with what is important to you, disappointment may await when you need to make a claim. Testament to this is the fact that the Insurance Ombudsman reports an increase of 44% in home insurance disputes between consumers and providers, fuelled largely by claims rejections.

Comparing home insurance is not easy, unless you have the time and inclination to obtain, read through and compare the dozens of product disclosure statements available from 32 insurers in Australia. And that’s before you start amassing quotes! Fortunately, CANNEX has the depth of research resources to undertake such a mammoth exercise and the results from our first home & contents star ratings will help you shortlist the appropriate home insurance products for your situation.

WHICH INSURERS CAME OUT ON TOP?

After careful collation of results from 26 insurers included in our research, CommInsure stood out for consistency across Australia in all three categories – home, contents, and home and contents insurance. For home, or building cover only, CommInsure shares its National 5 Star Overall Award with NRMA Insurance Group.

QBE (Western QBE), along with CommInsure, has been awarded a National 5 Star Overall Award for Contents insurance, while Suncorp shares the spotlight with CommInsure for the National Home and Contents Award. These insurers demonstrate broad and deep value offered to consumers and deserve our congratulations for the consistent service they provide to Australian households.

BRINGING HOME THE RESULTS

In order to compare and rate home & contents insurance policies, CANNEX has completed an exhaustive shadow shopping exercise, covering 53 policies and obtaining over 9,000 individual quotes across the six Australian states. As a result, we have built arguably the country’s largest home & contents insurance database with nearly 10,000 features covered.

To estimate the average cost of home insurance, our researchers shopped around as if they were typical Australian consumers. Our quotes cover the three common insurance types:

1. Home Insurance, for buildings only
2. Contents Insurance, covering goods inside the home
3. Home & Contents package

For each insurance category, we obtained quotes at two different price points. The sample figures below are considered average across Australia by home insurance standards. We obtained quotes in all states using 8 postcodes in the metropolitan area and 4 in regional towns. We assumed the lowset home to be owned by a young couple, with the highset by a 50-year-old couple. Further details on how we conducted this comparative research can be found in the Methodology document.

HOME INSURANCE EXPLAINED

A typical home or building insurance policy covers your house, plus fixtures or home improvements such as garages and fixed swimming pools against the following insured events: damage from rain, storm, fire, explosion, theft, attempted theft, malicious damage, escape of liquid, collision, falling tree or branch, lightning, earthquake, or damage from riot of civil commotion.

Contents insurance typically offers new for old replacement cover for your furniture, furnishings, household goods, electrical appliances, clothing and personal belongings against the insured event mentioned above. Home & Contents insurance is a package of the two offered by a single insurer.

Borderline cases include such things as tiles which are included in the home insurance policy, yet carpet is covered under contents. A free-standing dishwasher may be considered as contents whereas a dishwasher built into a kitchen cabinet is part of the building. It is the same with air conditioners. A wall unit is covered under home building insurance, while an air conditioner attached to a window is deemed to be contents.

UNDER-INSURANCE A RISK

It’s common knowledge in Australia that some people have insufficient cover for both their home and its contents and do not have the full amount of their claims paid. Much of this under-insurance is because the burden of estimating rebuilding costs rests with the consumer who generally does not have reliable or comprehensive enough knowledge to make a correct estimate. If your home was destroyed totally, say, by a bushfire, you may find yourself massively out of pocket due to a shortfall in your insurance ‘guesstimate’.

To add insult to injury, you may also discover that your insurance company will not cover the cost of demolition and removing the debris, a significant cost in itself. During our research, we discovered 11 out of 32 insurers who require you to add the removal of debris on top of your sum insured. Then there is the question of accommodation. What will your insurer contribute towards alternative accommodation in the event of a disaster? We have all seen victims of cyclones and bushfires in this country displaced for months and months on end while their homes are being repaired or rebuilt. Unfortunately this is a very real consequence of a disastrous event and should be factored in to your home insurance policy.

Apart from incorrectly guessing the amount of money it would take to rebuild your home in the event of total destruction, under-insurance can creep up on even the most vigilant. You may have had your home insurance policy in place for a lengthy period of time and simply forgotten to keep it up to date to incorporate today’s increased costs of building materials and labour. You may also need to revisit your policy to include any improvements you may have added to the home in the following years.

Some insurers have tried to address the problem of under-insurance by offering full value protection with their normal home insurance policies, as opposed to any elite or prestige policies they may offer. This means that they will guarantee to cover the full cost of rebuilding, provided you have given them ‘reasonable’ information when taking out the policy. Reasonable information is not, for instance, insuring a $500,000 home for $250,000 and expecting the insurer to pick up the shortfall. Comminsure takes this approach while Suncorp/GIO offers what they call safety-net cover where they will cap their payment at 25% to 30% above the sum insured. Thus on the same $500,000 home insured for $250,000, you would receive $325,000. AAMI takes a unique approach. Instead of asking the usual "how much do you want to insure?", AAMI asks for the specifications of the house (eg. number of bedrooms, etc). AAMI then undertakes to replace the house to these specifications, should the worst occur.

Under-insurance is not a risk confined to building insurance alone. Many contents policies are out of step with true replacement costs when taking recent purchases into account. In the time after you insured your contents you may well have refurnished the house, bought a new plasma TV and sound system, complete with many more DVDs and CDs. As well as household goods, you may have added to the list of personal valuables you now own and if you want these covered you may have to add them separately. For instance, insurers usually set a total limit of up to $5,000 for jewellery, witb a cap of $1,000 per item. This is not likely to cover a diamond engagement ring so you will need to specifically specify that and other expensive jewellery with your insurer. Most insurers cover a low amount of unspecified personal valuables. Above this limit, you are required to specify the items before the full value is paid. Be aware, too, that some insurers cap the limit of what they will pay to a percentage of the total sum insured. This could be 20% or 25%. So if your contents were insured for $50,000, you would only receive $10,000 as a maximum payout for personal valuables.

EXCLUSION CONFUSION

The most common reason that insurers give for refusing home insurance claims is that the claim is excluded under the policy. It’s therefore just as important to know what’s not covered by a policy, i.e. the ‘exclusions’, as it is to know what is covered.

Accidental damage is excluded on most policies but can be taken out as an optional extra which, according to our research, will add up to 30% to your premium. This may be worthwhile if someone in your family is prone to accidents such as driving through the garage wall or spilling red wine all over the white shag carpet.

Visitors staying for an extended period who bring valuable items with them may not be covered unless the insurance company is notified.

Beware invitees or persons entering the property with the consent of the policyholder. If an invited person steals something from your house your insurance claim will probably be rejected.

Going away for more than 60 days and leaving your home unoccupied is an insurance no-no. It’s best to inform the insurer if you intend holidaying for an extended period.

Swimming pools not constructed in accordance with proper standards may void insurance cover.

Burglar alarms that are not operating at the time of a burglary may be the cause of a claim to be rejected. Check whether your policy requires an effective alarm system and make sure it is working.

Divorce/separation may sound like an odd reason for rejection of home insurance claims but the Insurance Ombudsman reports disputes persistently arising from not informing the insurer of a divorce or separation and making the necessary changes to the policy cover. This also applies to disclosure obligations.

Flood cover is a major exclusion from most home insurance policies. Confusion arises from the different terms insurers use to explain what they will and won’t cover in relation to floods. Most policies will cover rainwater run-off. After that, it’s a sliding scale of coverage if the damage has been caused by flash flooding of rivers, creeks, drains or heavy rains. Flooding without rain in your area and landslip due to storms are also events that are likely to be excluded from insurance cover.

The definition of flood cover varies between insurers. In the event of flash flooding the source of the damaging heavy rain seems to be of paramount importance to insurers. Was the cause man-made such as a storm-water drain? Was it a creek or water-catchment system near your property or worse still, was it rainwater mixed with flood water?

There are 17,000 Australian homes built in high risk flood areas, according to the Insurance Council of Australia. If you are in or near a flood zone, you may have difficulty obtaining flood cover. If you can get it, you may have to pay a surcharge or a flood excess, according to perceived risk by the insurer. More information on this subject can be found here.

HOW TO TRIM PREMIUM COSTS

Despite popular urban myth, premium costs do not automatically double if you double the value of your home and contents cover. Increasing your cover to a more realistic level may not cost very much and if you shop around you may even be able to get more cover for the same price, or better still, a lower price. If you are an existing policy-holder, the first step is to review your policy, particularly if you have not done so for some time. Make a list of the cover that’s important to you, then start looking at insurance products that may be a better fit.

In order to prune premium costs, consider the following:

• Investigate policy excesses. Just like car insurance, if you agree to pay a certain excess for a certain claim, it will reduce your premium.
• Multi policies with the one insurer can also pay off through a discount on premiums.
• Purchase online for a discount as high as 10%.
• Paying annually may save you money. However, CANNEX’s research points out that there are 13 insurers who allow monthly payments at no extra cost.

There are other factors that affect the premium you pay for home and contents insurance. The suburb, and even street, you live in can be considered risky, whether it be for burglary, bushfires, flood, cyclones etc. On the other hand, you’re likely to pay less if older, and supposedly less risky, people live in the home. Good security measures, such as alarm systems, smoke alarms and security doors and windows are also looked upon favourably by insurers, particularly when pricing risk for contents insurance.


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