New Zealand insurers are under fire for offering customers payments to repair homes in the Christchurch red zone, where land is deemed unsuitable for residential living.

Householders say they cannot repair their homes, but insurers will not pay out for replacement value so they can rebuild elsewhere.

About 7000 properties around the city and Canterbury province are zoned red and the Government has made homeowners an offer to either buy their land and house, based on the rateable value, or to buy the land and let the owner negotiate with their insurer on the value of the house.

The offers were due to start expiring on May 18, but last week Earthquake Recovery Minister Gerry Brownlee announced a three-month extension because of uncertainty over insurance.

Christchurch-based Harmans Lawyers partner Alan Prescott says insurers have dragged out their assessments and with the deadline approaching many clients feel under pressure to take the Government’s land and house offer. Under this option, the Government takes over all insurance claims.

Some homeowners have labelled insurers’ offers as “fictional repairs” as they are unlikely to get council approval for building work in the red zone.

“In practice the repair is never going to be followed through,” Mr Prescott told insuranceNEWS.com.au.

He is acting for 250 clients on the matter and says one client was offered $NZ20,000 ($16,000) for repairs against a $NZ250,000 ($197,000) replacement cost.

An IAG spokesman says that since the Earthquake Commission (EQC) insures land, insurers have assessed damage to houses in the red zone on the basis that the land would have been remediated.

“In IAG’s case this means that both repair and rebuild methodologies are prepared, and if the house can be economically and viably repaired to a standard that would obtain consent, this is reflected in the offer to the customer.”

She says the assessments use current building guidelines and these were revised last November, affecting the criteria for repairing and rebuilding houses, but many homes would have been deemed repairable without the changes.

Some homeowners say their offer has changed from a rebuild to a repair, but the spokesman says some were told after preliminary assessments that their home appeared uneconomic to repair.

“However, when more thorough, detailed assessments of the home have been undertaken, it has been established that there are repair methodologies suitable for the home,” she said.

A Lumley spokesman told insuranceNEWS.com.au that if a house in the red zone is deemed repairable, Lumley will pay the repair cost and the EQC will provide a settlement for the land.

A Southern Response spokesman says if damage to a house, as distinct from damage to the land, is repairable, then the repair price will be paid.

Vero will pay for the cost of repairs or rebuilding on the original site for red zone customers, who will also receive an EQC payment for their land.