Friday, June 24, 2011

"What about the uninsured?"

We've put the title in quotation marks because, in various forms, that is one of the clamours coming from a number of groups and individuals in response to the Government's earthquake announcements yesterday.

It's a vexed issue. On one hand, it's hard not to feel sorry for anyone who is facing the loss of their home, or a substantial repair bill. On the other hand, no home-owner should be uninsured.

Gravedodger visits here regularly. He made this comment yesterday at Homepaddock (our emphasis added):

In middle age, with cash flow issues, facing the annual insurance roll-over I would muse on self insurance and concluded if I had started early and obtained insurance quotes, placed the equivalent premium in a managed fund would I have been ahead or behind.

It was always too late, the lower risk of total loss had passed by.

When we had a total loss house fire in 1990 I never revisited the subject again as having the luxury of the support and the expertise of NZI to manage our little disaster was worth a lot more than the premiums we had paid over the years.

Some larger organisations self insure and with the statistics and the law of averages on side it works but for joe and josephine average a good dollop of luck would be needed to get away with it.

When our spawn entered the property market we breathed a sigh of relief as the lender ensures the asset is insured and the mortgage required the responsibility to be met and compulsory saving was achieved.

It is so easy when the baubles overcome discipline but anyone who “saves” money on minimising or ignoring insurance they are fools with honours.

Gravedodger's story should be a salutory lesson to anyone without household insurance. A tragedy can strike at any moment.

Others see it differently. Over at The Standard, Anthony Robins blogs:

The government needs to do better on the issue of the uninsured. The cost of the buy out offer is currently estimated to be between $485 million and $635 million. Compare that with $1.6 Billion for the SCF bailout. I don’t see that an uninsured resident of Avonside is any less deserving of government help than an investor in a dodgy finance company.

In comments on various forums about the place I see some fairly strong anti-Christchurch sentiment emerging. “Stop complaining and take the deal”. “It’s your fault you’re not insured”. That sort of thing. As always the nasty underside of New Zealand society is never very far from the surface. As if the residents of the shattered suburbs didn’t have enough to cope with already…

We disagree wholheartedly with AR's comments about a "nasty underside", and have commented as follows:

AR; there’s nothing nasty about those who have taken the sensible precaution of insuring their homes being unhappy if uninsured people get bailed out. What is the point of paying insurance premiums if the government is going to come along and clean up afterwards? To not insure your most significant non-human asset is negligent; probably grossly so.

We reckon that if you own a house, it's foolishness in the extreme not to insure it, and its contents. Even for those on a limited income, insurance should be budgeted for in the same way as mortgage payments; a high priority spend, not an add-on from what remains. Most banks require proof of insurance before a mortgage is drawn down, but all too often, home-owners let the insurance slip, with often catastrophic effect. Perhaps three needs to be a better interface between the banking and insurance industries to ensure that insurance is maintained on properties partly owned by the bank.

That's not to say that we don't feel some pity for those who have suffered a total, uninsured loss. But ought the government bail those people out to the extent of the loss, or should the individual have to wear some of the loss? This will doubtless become an issue as time passes.

We are certain that the John Key-led government is not without compassion, but on the other hand, the pantry is bare, and with estimates now that the total cost of the earthquakes is going to exceed $25 billion, there will be many demand on the government. We reckon that this is an area where the government will be targetted by those who excel in spending Other People's Money.

What do YOU think?


James Stephenson said...

I'd like to know the reality of how many people are uninsured, because anyone who has a mortgage will have to have had insurance.

So who are we left with? The elderly who have long since paid off their mortgage and landlords who have cut corners to maximise profits? I have some sympathy for the former group but absolutely none for the latter.

It seems to me that this is a relatively small problem being exaggerated to make it a more effective stick to beat the government with.

Inventory2 said...

I think you might find that there is also a group who will have had insurance when they took out their mortgages, but let it lapse at some point, unbeknown to the bank holding the mortgage.

Agree wholeheartedly with your comments with regard to the other groups though.

alex Masterley said...

I2, all banks and finance institutions require a certificate of currency from a borrowers insurer confirming the existence of a policy of assurance and that the lenders interest is recorded on the policy as security holder.

Failure to insure is generally a default under a mortage instrument, at least it is in the ones I have read, so I would expect that those lenders who have borrowers without insurance will get cross.

Also to get EQC cover you need to have insurance anyway.

I would be interested to see who the "uninsured" are

The other point to note is that Chrsitchurch borrowers are getting very goo lending rates from ANZ and Kiwibank. While not trumpeted as much as the Government proposals this is still a very good sweetheart deal.

Tinman said...

There are cases where an insurer has refused to re-insure or accept previously agreed upon business because of the earthquakes.

In these instances I would hope some assistance is available.

In any other instance give the bastards a tent and a ferry ticket and send them on their way - hone territory is the place for them.

homepaddock said...

There is a case for those Tinman says were refused re-insurance after the first quake. But I'd be very wary of helping those who didn't insure in the first place.

showmethetaxcut said...

To reiterate what Alex said - let's get some facts straight.

All banks and financial institutions require confirmation of insurance and notation of their interest as mortgagee on the policy before they will drawdown a loan.

A mortgagee's interest is noted on the insurance policy for two reasons. Firstly, by law, the insurer must pay the proceeds of the policy to the mortgagee in the event of a claim. And secondly, if the insured party neglects to renew the policy or otherwise allows it to lapse by not paying the premium, the insurer goes to the mortgagee to rectify the situation. The mortgagee pays the premium, adds it to the mortgage and then contacts the mortgagor to have it out about the default.

The pool of uninsured will be extremely limited to some of the infinitely wealthy or stupid.

Coverage for the uninsured must be absolutely out of the question. It sends all the wrong signals and will invite stupid behaviour in future.

pdm said...

Between the post and commenters the situation is pretty clearly summed up. Perhaps I can add a viewpoint from my experience as a BNZ staffer a feww moons ago.

One of my jobs at one stage was to initiate letters to insurance companies for confirmation of mortgage details and that the banks interest was noted. It was a prick of a job in the early 1970's when I had my turn and everyone doing it used to procrastinate but the letters all went out within a few weeks of when required.

The next step was to ensure all letters were replied to and to immediately chase up any that had been cancelled or had omissions such as the banks interest not being noted or being greatly under insured.

As others say - sorry uninsured the best you can hope for is a payment based on the land value where the land is considered unusable for residential housing.

showmethetaxcut said...

pdm, today it is the lawyers who do the banks' work for them and put their balls on the line in the solicitor's certificate to boot - even when the cover has been arranged through the bank.

Anonymous said...

I agree with you, I2. My parents (in Auckland so not affected by the earthquakes) rent from Housing NZ and have chosen not to get contents insurance. They say they can't afford it and they have nothing worth stealing anyway. But, I said, what about your $1000+ flat screen TV? They said a TV isn't essential, if that gets stolen they'll have to live with it. But, I said, what if there's a fire and you lose everything? No sofa, no bed, no clothes, no fridge, no washing machine? They said that won't happen.
They're right that it probably won't happen, but you pay insurance in case it does. In 10 years of paying insurance I've never made a claim, but at least I know I'm covered in case something bad does happen.
By the way, in addition their huge flat screen TV they have broadband and sky TV, but they can't afford insurance.

Anonymous said...

"it's hard not to feel sorry for anyone who is facing the loss of their home"
Nice to see you're trying though INV2.

Anonymous said...

Compare that with $1.6 Billion for the SCF bailout. I don’t see that an uninsured resident of Avonside is any less deserving of government help than an investor in a dodgy finance company.

AR makes an error here with his comparison to the SCF bailout.

SCF had insurance.

SCF was guaranteed by the previous Labour Government.

Anonymous said...

I don't recall my bank ever requiring proof of insurance over a mortgaged property. By way of example, a couple of years ago I bought a property from my son as he needed the cash for another project. I borrowed about $200k as a top-up by simply drawing down from a fully-paid mortgage that I had left on my own house. A $2 drawdown fee and it was done on-line, then a simple on-line transfer (in this case direct to my son as the lawyer didn't require it to pass through his trust account). No other contact whatsoever with/from the bank. And I never left my office to complete the sale and purchase - also all done on-line these days. Brilliant!

Oh, and BTW I would never leave a property uninsured; it's a no-brainer. So I agree with others that uninsured property-owners, regrettably, have only themselves to blame for any loss.


Anonymous said...

INV2, can you please inform us whether or not you believe your God intended human beings to insure themselves against his acts in a monetary sense. I'm sure figuratively he did, in terms of confession and prayer and not sinning, but did he really want them to pay into a kitty to avoid his wrath? If so, shouldn't churches who tithe pick up the insurance slack? Appreciate the forum...

pdm said...

smttc - that has always been the case with insurance included in Lawyers Certificates for new loans.

What I was referring to was what happens with Mortgages which could have been on the banks books for 10 or even 20 years covering overdraft facilities etc. The BNZ had a yearly check system to ensure there was still cover in place.

robertguyton said...
This comment has been removed by a blog administrator.
Anonymous said...

Well INV2, we're all very interested. It's not a difficult question from Anon 12.31. Or is it?

Anonymous said...

No, we are not all interested. That you should ask such a stupid question of our genial host suggests you intend to ridicule him and his faith. He has shown unbelievable tolerance to the most sneering of commenters on this blog, and never tries to push his faith onto others. If this is the best you can do, you are a sad piece of work.


pdm said...

David - well said.

Inventory2 said...

Thank you David and pdm. I'm sure that our anonymous commenter is only too aware that churches have made significant contributions towards relief and recovery both in Christchurch and in other disasters. A friend of mine pastors a church in Christchurch's eastern suburbs and his congregation worked tirelessly after February 22nd to feed and water people in their neigbourhood, to comfort people who were traumatised, and just to lend an ear for people who needed someone to talk to.

But churches as de facto insurance companies? Spiritually; yes. But financially; no.

Peter Stone said...

Not so David. if Inventory2 is willing to go public with his views of the world he'd rightly expect to be saked questions about his politics ceratinly, and his faith as well. He tells us in his introduction that he is a Christian and as such should be willing to discuss questions of faith. It is not fair of him to dodge questions that he finds a little difficult yet go on and make claims about other issues. I guess it is a matter of being answerable to the audience and every blogger should be willing to do that. If not perhaps the best thing would be to close the blog off to the general public and simply talk to people who agree with him comletely. How very dull that would be, something like being in a bible discussion group I would imagine.

pdm said...

Peter Stone what you say is stupid.

It is Inv2's blog and he has all rights to what is said on the blog. If you don't like that bugger off somewhere else. Try disagreeing with the blog hosts at Red Alert for example.

Moist von Lipwig said...

Peter Stone...
Who do the hell do you think you are?
The correct response to the "question" that provoked your attack was given. And that response was to ignore it.
Inv2 shows his patience once again in dealing with the idiots that sometimes visit here.

Keeping Stock dull, or "like a Bible discussion group". Not for me it isn't.

Inventory2 said...

Actually, Bible discussion groups can be really interesting sometimes; way more fun than a Green Party convention!

Inventory2 said...

But let's not get sidetracked; there have been some very informative posts here...

Adolf Fiinkensein said...

Perhaps your irritating knit picking drop kick might like to wonder why the Presbyterian Church (of which I have some knowledge) pays over one million dollars each year to insure over one billion dollars worth of property against fire, burglary etc.

Does he know more than their Trustees who. last time I looked, coprised some of the most respected professional, business and legal people in the land.

His suggested course of action is adopted from time to time by whacky fringe dwelling cults in which said drop kick would feel right at home.

I remember one such telling me he didn't need insurance because he had been to a prayer meeting and had asked God about it. When he felt the spirit running down his leg he knew he had his answer.

Anonymous said...

So: we all agree it is simply wrong for the government to help someone who chose not to insure their house.

Please explain why it is right for the government to pay an income to someone who chooses not to earn one

showmethetaxcut said...

Okay Anon @ 7.12pm, I will take the bait at the risk of threadjacking and getting a telling off for doing so.

According to Labour and its fellow travellers, the premise you postulate simply does not exist.

No-one willing submits to the scurge of welfare.

It's just that the jobs are not there.

Where are the jobs? Hail the mantra: But where are the jobs?

Interesting thing is that you will hear the same mantra even when you have perfect economic conditions like those squandered by the last government. Bastards.

Inventory2 said...

No telling-off required SMTC; your rebuttal was far more eloquent than anything I could have concocted on a Friday evening.

Lindsay Addie said...

I'm with Tinman on this one.

And I must add quite frankly I've had a gutsful of the whiners in this town. They come across as ungrateful and bloody selfish. They're not the only ones who are having a tough time. Many of us aren't complaining and are getting with life the best we can.

Time to get on even if things aren't what they were before.