Wellington apartment owners join forces in search for alternative insurance cover

Wellington apartment owners are joining forces to try to find alternative insurance cover amid growing concern that premiums are becoming unaffordable.

They have launched a working group called CoverWell led by people with expertise in property development, engineering, law and business.

Property developer Peter Dow is one of them.

The insurance premium for the building Dow lives in has increased from about $200,000 four years ago to about $550,000.

Insurance brokers have warned the cost could continue to increase by as much as 20 per cent year-on-year, he said.

The cost of the premium is split between the owners of the 34 apartments in the building.

The building has a 100 per cent New Building Standard rating.

Expensive insurance premiums in Wellington were commonly associated with earthquake-prone apartments but owners in buildings built to high seismic standards were coming under pressure too, Dow said.

It was an affordability problem. “If the premiums keep going up, it just makes it less viable for ownership and for developers to do projects.

“It also runs the risk that central Wellington would really just become a domain for the people that can afford to live here, which is not very balanced.”

Peter Dow estimates the collective worth of apartment buildings in Wellington is about $5 billion. Photo / Mark Mitchell

CoverWell’s first task is to build a picture of Wellington’s apartment portfolio, which Dow estimated was about 250 buildings with 4500 apartments.

“If we don’t look after ourselves, nobody else is probably going to do it for us,” he said.

“We want premiums that reflect the fact that we’ve got buildings that have been well-built to high-resilient standards and are well-maintained.”

CoverWell will develop a range of alternative cover options and explore their viability.

These include working with brokers or agents to pitch directly to the international underwriting market, setting up a captive or a mutual insurance business and proposing to the Government to adjust the EQC cap or market-based pricing above the current cap.

Dow said the collective worth of apartment buildings in Wellington was about $5 billion, which was not inconsequential in terms of negotiating a deal.

Paul Nielsen is also on the CoverWell team and said he had just paid a special levy worth thousands of dollars on top of what he was already paying to cover his share of a new premium for the apartment building he lives in.

“The same stories are happening all around Wellington,” he said.

Wellington apartment owners Peter Dow, left, and Paul Nielson. Photo / Mark Mitchell

Nielsen is keen for apartment owners to organise themselves so they can better understand the insurance market rather than operating in an information void.

He stressed they did not want to create fear among owners or to upset the insurance industry, they just wanted people to be able to make informed decisions.

Nielsen said he was optimistic and determined to get more affordable insurance by challenging the status quo.

Insurance Council chief executive Tim Grafton said the market’s move to risk-based pricing meant people paid premiums for the risks to their particular property.

Wellington premiums took into account the city’s high earthquake risk, Grafton said.

The 2016 Kaikoūra earthquake caused more than $1b of damage to Wellington property alone.

“This experience, together with experiences from the Canterbury earthquakes, such as the impact of liquefaction, has seen insurers adjust their understanding of the risk the city has faced.”

New Building Standard ratings were a life safety measure and not a measure of structural resilience, Grafton said.

CoverWell’s first task is to build a picture of Wellington’s apartment portfolio which is estimated to be about 250 buildings with 4500 apartments. Photo / Mark Mitchell

Treasury admits ‘knowledge gap’

Meanwhile, the Treasury has admitted its understanding of how the insurance market operates for apartment owners is limited to anecdotal evidence and is undertaking a nationwide survey to “fill that gap”.

Its current method of monitoring residential insurance prices and availability uses online quotes to source premium information. However, online quotes are not offered for apartment buildings.

Finance Minister Nicola Willis said she expected to be briefed in early March about the survey results.

Inner City Wellington residents’ association spokeswoman Geraldine Murphy has called for greater clarity in the Unit Titles Act.

The act says a body corporate must insure a building to its full insurable value but it also says indemnity cover is allowed if full replacement cover is not available in the market.

Murphy said the wording was unclear and affordability should be taken into account when deciding whether full replacement cover is considered to be available.

Georgina Campbell is a Wellington-based reporter who has a particular interest in local government, transport, and seismic issues. She joined the Herald in 2019 after working as a broadcast journalist.