"Highlighting the inadequacies of the way in which the earthquakes of 2010-2012 were handled by the insurance industry! "

Insurance Settlement Agreement trends – Part I: guest post by Sarah O’Brien




The ‘shocking truth’ is, I have found that most insurance company settlement agreements which I have read, are offering the claimants between 33% to 50% of what the ‘true’ replacement rebuild cost would be!

Many of these agreements and insurance supplied quantity surveyed costings are void of fences, gates, woodsheds and external buildings and exterior features: like spas, wired to the house water features or feature lighting. Remember: if it is wired or plumbed to your house, it is part of your rebuild cost.

I am presently in negotiations myself with my insurer (IAG), and noticed the omissions of essential costs when calculating the rebuild price. As a result, I decided to review several other clients’ settlement agreements only to find common flaws or omissions in other earthquake claimants’ scopes. This concerns me, as people will and are unsuspectingly accepting offers without understanding the true costs involved. The consequence will be that they are left with no further option but to purchase yet another earthquake damaged home, instead of that much awaited rebuild, which comes with an assurance of durability and compliance.

In order to avoid these issues:

  • Request in writing (under the Privacy Act 1993) all of your Rebuild Costings and an itemised breakdown of what your insurer has allowed for, all geotechnical reports and all Structural Engineers reports pertaining to your property (add your property address). If you do not have e-mail access, photocopy all written requests. Be sure to keep a copy for yourself and always ‘track-mail’ your letters so you retain an audit trail of all correspondence.
  • It would also be advisable for you to request from your insurer information pertaining to flood levels, as well as asking them to provide you with written documentation advising you whether your house is in the ‘flood zone’ and if so – how high the house will be required to be elevated.

It is your insurer’s duty to obtain all of this information from structural engineers or geotechnical engineers, enabling them to be able to properly cost your rebuild.

Most insurance policies give the homeowner the right to receive all professional costs incurred in the assessment of their property. Your insurer should also provide you with all expert reports for you to view prior to your making any decisions.

  • It is important to read your geotechnical report summary and understand the basic requirements recommended for your rebuild. If you don’t understand this, pay a local friendly builder to view and explain this to you
  • What classification is your land: E.g. TC2 or TC3 ?
  • What type of foundation solution is recommended? E.g Deep foundations to 14m with rib-raft?
  • What ground works are required for your property? E.g.: Excavate 600mm and hard fill under foundations, or excavate and hard fill 300mm below drive and pathways?

Look an your insurance documentation and review what ‘type of foundations’ your insurer has allowed for in their costing. Is this foundation the ‘same’ as the foundation specified in your geotechnical report?

I have discovered, and what is, in my opinion an attempt by the insurance industry, to undervalue rebuild estimates, and subsequent settlement offers. I am concerned that it appears there are several insurance contracted Quantity Surveying professionals who are failing to include essential required costs. This is likely to be in accordance with instructions from the insurers, after-all, it is the insurer who contracts and instructs them to complete these costings.

You need to make sure costs are itemised and your settlement agreements are inclusive of the following:

  1. Preliminary & General Fees: (10% of the total rebuild cost, before GST)
  2. Contractors Risk Insurance
  3. Contingencies: (10% of the total rebuild cost, before GST)
  4. Project Management fees: (3% of the total rebuild cost, before GST)
  5. Margin: (10% of the total rebuild cost, before GST)
  6. Engineers fees: (approximately $8,000.00 before GST)
  7. Geotech Report fees: (approximately $12,000.00 before GST)
  8. Design Fees (4-9% of the total build cost before GST)
  9. Builders Toilet
  10. Temporary Electricity to site
  11. Weekly and final cleaning
  12. Removal and dumping of underground services.
  13. Building Consent Fees
  14. Master Build Guarantee fees.
  15. Asbestos removal & disposal (if required). Please note that the majority of homes 1930s to pre-1980 have asbestos soffits, some asbestos roofs, some asbestos cladding (also found in stucco plasters and lath and plaster interior finishes), and older vinyl’s and butanol’s contain asbestos.

It is impossible to estimate a square meterage rating for replacement housing, as each section and house is required to be valued on a case by case basis, as too are the foundation requirements. Any company willing to supply a ‘guestimated’ cost without providing the required professional research and proper costings, is not acting with professional integrity.

I am seeing many settlement agreements which start with a:

‘Comparable House’ rebuild price e.g. $150,000.00: These so called ‘comparable house’ costings appear to be baseline boxes with equivalent or similar floor m2 area only to the house being costed. There is no consideration of features, woods used, quality of materials and finishes. These ‘comparable house’ prices are literally ‘prefabricated kitset boxes with cheap MDF finishes, to ‘supply only’ prices. Your insurer has an obligation to you, to properly identify the quantity, quality and materials in your present home, and foot the bill for the modern equivalent replacement products.

This ‘Comparable house price’ often has stated next to it ‘inclusive of demolition’. The demolition of the average 120m2 house is approximately $16,000 plus dumping fees. Please insist your costing has demolition listed as a separate item.

The other way insurers are devaluing your rebuild is by quoting the Quotable Value (QV) sum. This again does not consider the above-listed items or demolition of the existing and the required extensive site-works.

Siteworks: All of the settlement agreements which I have viewed this year have been void of pre-build site works, as generally specified in your geotech report. Be sure to check for:

  • Excavation: what has your insurer allowed for in their costings;
  • Dumping fees (these are now in the region of $232.80 per tonne) will be extensive if you house is made of brick (or a heavy weight cladding), or where there is a lot of excavation work required on your land.

Foundations: I have noticed the majority of the settlement agreements from insurers which I have viewed of late, allow for approximately $50,000.00 to $80,000.00 for new foundations for TC3 sites. This is a great under-estimation of the actual costs involved.

  • e.g. Deep driven poles for a 120m2 TC3 home (14 to 16 metre depth) cost around $50,000 to $60,000, then you would have to add on the $275.00 to $300.00 m2 cost of the Rib-raft foundation.

The most effective way to properly quantify your foundation cost, if you are unsure, is to send a scale 1:100 plan drawing of your house to the foundation suppliers and ask for a quote to supply and install. These engineers will need to know if your house is in the ‘flood zone’ as they need to know how far your house will require elevating. You can ‘Google’ appropriate suppliers. This will often come with a cost, as this takes engineering design and specialist time. However, if you then have a written quote to present to your insurer they should foot the bill, and your settlement offer will be more realistic. It is your insurer’s responsibility to do the due diligence in assessing the true cost of your replacement home but up to you to make sure its realistic.

My next post (Part II) will contain some helpful tips for ensuring your pricing and settlement agreements are realistic.

And don’t forget that you do not have to assign your EQC land claim to your insurer.


Author: Sarah-Alice Miles

Love to write, create and watch the clouds move across the sky - these days in the Netherlands. 'Art allows us to find ourselves and lose ourselves at the same time'.

8 thoughts on “Insurance Settlement Agreement trends – Part I: guest post by Sarah O’Brien

  1. Thank you for sharing. Its very useful. And thanks to Barry too for more information.


  2. Hi Sarah, great summarisation. As a Chartered and ethically independent QS can I make the following comments.

    1. P&G as a % is not a very accurate measure. It will be site and build dependent. It can range from 6-12%
    2. Contractors all risk insurance is a P&G item and therefore included above.
    3. Contingencies should be based on a risk assessment. Again this will depend on the site and the level / quality of available info. I would recommend upwards of 15%
    4. Margin also varies. 6-10% and it should not be put on the contingency sum.
    5. Your figure for engineers fees are relatively low. I would recommend upwards of $18,000 but will be site dependent.
    6. Design fees would normally include the engineer.
    7. Builders toilets are a P&G item and included in item 1 above.
    8. Temporary Electricity is also generally a P&G item.
    9. Weekly cleaning is a P&G item and usually the final clean is also.
    10. Building consent fees can generally be got from the B301 schedule from CCC.
    11. Asbestos can be found in houses built in the early 90’s also.

    Another point worth mentioning is that the house needs to be compliant to todays standards. The existing house may not have double glazing or a compliant cladding system. If assessing like for like design for the superstructure then these type of items need to be added.

    My advise, engage a good RICS or NZIQS QS as these professionals are guided by ethics.



    • Thanks for your additional input Barry


    • Thanks for this Barry. Our property is a “repair” and requires a reclad with rigid underlay and drained cavity to meet code. Can we expect double glazing or is it acceptable for the single glazed windows to be removed and reinstalled? Also If the insurer uses a cladding system whereby the windows stay in place, what should apply here? (The policy is for, as new replacement)


      • Hi,

        The cladding replacement will require a building consent or consent exemption, so I would suggest that yes they will have to be double glazed.

        More importantly though is that if your existing cladding system does not have a batten or cavity system and will need one for the new system then the thickness of your cladding system will change. This affects the window reveals and means the old windows will not be suitable for refitting. New compliant windows will be required from both a buildability and compliance perspective.


  3. Mike, I studdied Interior Architecture in Wellington, have worked in construction at management levels for the past 24 years, I have owned my own concrete manug=facturing and design companies, I am a spokesperson for WeCan and responsible for starting the IPENZ investigation and writing the 27page OIA. I have been working from the Earthquake Services Building for the past 2 years, as this enables me to monitor the abuse and the trends / tactics being used by EQC / Fletchers and Insurance companies.


    • Hi Sarah,
      Perfect, we need professionals helping to protect us.
      The pros seem to generally be working largely on the opposition side.
      $s rule!
      Thanks for your effort.


  4. Who is Sarah O’Brien?


Leave a Comment

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s