The Kaikoura earthquake has highlighted the risks of underinsurance following the switch to a sum-insured system for buying cover, New Zealand’s Insurance and Financial Services Ombudsman Karen Stevens says.

“Some homeowners who suffered damage from the November earthquakes are under even more stress as they discover their insurance won’t cover the rebuild costs,” she said. “It is timely to remind everyone to make sure you have enough cover.”

Most New Zealand insurers have shifted away from meeting open-ended full replacement costs for rebuilds since the Canterbury quakes six years ago, switching to covering a set amount calculated by the customer.

Ms Stevens says it is important people understand the sum-insured amount is not the current value of the property but an estimated cost of rebuilding.

The Earthquake Commission (EQC) had received 26,875 claims from the 7.8-magnitude Kaikoura quake by the mid-February lodgement deadline. The number will rise as claims are passed on by insurers.

The EQC covers the first $NZ100,000 ($93,616) of damage to residential properties, with “over-cap” costs met by private insurers.

Insurance Council of New Zealand CEO Tim Grafton says it is likely 90% of residential claims will come under the EQC cap. About half the remainder could potentially require a total rebuild.

He says anecdotal evidence suggests there is a relatively small number of cases where people have inadvertently underinsured, while there are also instances where a lower value was chosen on the expectation a large property wouldn’t be replaced to the same scale.

Some insurers still offer total-replacement policies, and ensuring adequate cover remains a key message from the earthquakes in recent years, Mr Grafton says.

“This is a risky country,” he said. “Insure your house and make sure that it is insured for the correct amount.”

In the commercial arena, some property owners in Wellington are looking to replace older damaged buildings with premises that meet higher earthquake resilience standards.

“Insurance plays a really important role in providing funding, acting as a trigger to improve the resilience of the building stock in the city,” Mr Grafton told insuranceNEWS.com.au.

More resilient buildings also make commercial sense for owners because they attract tenants prepared to pay a premium for stronger, safer buildings, he says.