Are you assured of your insurance?

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With the increasing frequency of extreme weather events, such as the slips and surface flooding which wreaked havoc around the Mahurangi area and the rest of the upper North Island in February 2023, insurance has become even more important to consider when buying a property. 2023’s cyclone saw people stranded overnight by flooding and slips, hitting home the point that coastal properties are the most at risk of damage.

Consequently, insurance companies are tightening up on what they will insure and raising their premiums, and prospective property buyers should take note. Without insurance, banks will not advance a loan on a property. There have been recent examples of property buyers finding out days, or even hours, before settlement that their insurer will not cover them, and consequently, the bank would not advance funds. In some cases, settlements have even fallen through and deposits lost.

Other homeowners have found out the hard way that insurers are applying risk-based pricing, so for flood-affected or at-risk properties, insurance may be available but with particular exclusions and/or considerably higher premiums.

Now more than ever, it is important to take legal advice before signing an agreement to purchase property in New Zealand. Some common advice from your lawyer might include:

  • Having a lawyer review your proposed sale and purchase agreement before you sign it. This allows your lawyer to suggest any additional clauses or conditions which can better protect your interests, for example, a clause making the agreement conditional on you obtaining satisfactory insurance.
  • Contacting an insurer as soon as possible to see if they will provide full cover for the property you are interested in. You need to make sure you have insurance before you go unconditional on any purchase. If you are borrowing from a bank to help finance the purchase, your solicitor will need to provide your bank with evidence that you have adequate insurance cover in place before the bank will release the funds when it comes time to settle. 
  • Finding out the long-term insurability of the property. For example, if you are buying bare land (insurance is not required for bare land purchases) but intend to build later, you will need to check that insurance will be available when you plan to build.
  • Ordering a LIM report from your local council. LIM reports will often show if the property is in a flood-prone or flood-plain area. The vendor doesn’t necessarily have to disclose any flood damage, but if you know the property is in a risky area, this may be a warning to you. 
  • Visiting the property yourself to check for any flood damage or recent repairs so you can make enquiries if you notice anything unexpected.
  • Exercising caution on any property advertised as: ‘as is where is’. You might want to make further inquiries, which your lawyer can help you with. ‘As is where is’ could signal that there is flood damage or other possible issues with the property, which may make getting sufficient insurance difficult.
  • Recommending you have an inspection done by a pre-purchase building inspector (also called a pre-purchase building surveyor). Check the inspector can do a NZS4306 pre-purchase inspection — this is the NZ standard — and that they have up-to-date knowledge and skills. You can also ask to see proof of their indemnity insurance. This protects you if they make a professional mistake, for example, if they miss something. Check your contract with your inspector to see what their insurance covers, too.
  • Finding out further information yourself through the EGC Natural Hazards Portal, where insurance claims on the property are shown.
  • Checking if your local Council has an online tool which shows the Council’s record of flood plains in the area, or contact them directly to ask.

Buying a property can be an exciting journey. Whether it is your first home, or upsizing or downsizing to accommodate your family’s changing needs, it can be easy to get caught up in the emotion or feel overwhelmed with all the details. There is a lot at stake when you buy property; it’s well worth seeking your lawyer’s advice early on.

How can we help?

If you need advice when preparing to buy a new property, WRMK Lawyers’ experienced property team can help. Please give us a call today.

Our thanks to Courtney Clarke and Rebecca Pavis for writing this article, which was first published in the Mangawhai Focus in March 2024.