Underinsurance in NZ

Underinsurance in NZ

Almost every homeowner in New Zealand assumes their house policy will rebuild the house if it burns down or falls over. A good number of them are wrong, and the gap can run into six figures. Underinsurance is what happens when the sum insured on your policy is less than what it would actually cost to rebuild. It is the quiet risk in the file that nobody reads until claim time.

What surprises people most is how the Natural Hazards Commission fits into the picture. It covers natural hazard damage up to $300,000 plus GST per dwelling, per event, and it pays first. That sounds like a safety net. It is not a substitute for insuring your own house properly. If your replacement sum insured is too low, your own cap is too low, and the Commission's contribution does not rescue you.

Underinsurance is not just a home problem either. It shows up in health cover, life cover and business policies. The same mistake runs through all of them: people buy a policy, file it, and never check whether the number at the top still matches reality.

How We Researched This Guide

We built this from the providers' own documentation rather than from anyone's summary of it. The Natural Hazards Commission figures came from naturalhazards.govt.nz and Treasury, including the levy rate of 16 cents per $100 of cover and the maximum levy of $480 plus GST per year. The scheme's rules sit in the Natural Hazards Insurance Act 2023, which replaced the Earthquake Commission Act 1993 on legislation.govt.nz and took effect on 1 July 2024.

Two things stood out. First, Treasury advised that 16 cents per $100 is not enough to meet the scheme's expected long-term costs and recommended raising it to 24 cents, but the Minister of Finance paused that review pending an affordability review, so the rate is unchanged for now. Second, the Commission's own reinsurance programme hit a record NZ$12.3 billion for the 2026 policy year. The scheme is well covered. Individual homeowners are the weak link.

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The Quick Summary (60-Second Version)

If you read nothing else, read this.

• Your sum insured should reflect rebuild cost, not your home's market value. They are different numbers and often far apart.
• The Natural Hazards Commission pays up to $300,000 plus GST per dwelling, per event — and your cap can be lower if your own sum insured is lower.
• Anything above the cap comes from your private policy, subject to the sum insured you chose. That is where the gap lives.
• ACC covers accidents, not illness. A cancer or heart disease diagnosis gets no income replacement from ACC, which is the real reason health and trauma cover exist.
• Underinsurance also turns up in business interruption, where a 12-month indemnity period was shown to be inadequate after the Canterbury earthquakes.
• Rebuild costs move. A sum insured set three years ago and never revisited is the most common way people end up short.

Where the Home Cover Gap Actually Comes From

The Commission's cover is automatic if you hold a home policy that includes fire insurance, which most do. You do not buy it separately and you cannot buy extra from the Commission. The levy is inside the premium you already pay your insurer.

What the Commission covers is the cap, paid towards rebuilding or repairing your home after a natural hazard event. It is aimed at earthquakes, volcanic eruptions and tsunamis, and to a much lesser degree storm and flood, for which only limited land damage is covered. There is limited land cover based mainly on the market value of damaged land, focused on the land immediately under and around the home and driveway. Bare land is not covered.

Driveway surfaces and landscaping are not covered by the Commission, though your private insurer may offer cover for those. The practical warning is simple: a homeowner who insures their house for less than it would cost to rebuild is underinsured no matter how the cap is described, because the Commission pays first but only up to $300,000 plus GST.

Getting the number right

Rebuild cost is not market value. It includes demolition, site clearance, consents, professional fees and the actual construction. A house on expensive coastal land might sell for far more than it costs to rebuild. A character home with imported materials can cost far more to rebuild than it would sell for. The two numbers are related but they are not the same, and only one of them belongs on your policy schedule.

Why the cap is not a floor

The building cap rose from $150,000 plus GST to $300,000 plus GST on 1 October 2022. That is a real improvement. But it is a maximum, not a guarantee. If your replacement sum insured is set at $250,000, your cap is $250,000. The Commission does not top you up to $300,000. Review the sum insured on the policy itself, because that is the number that decides what you actually receive.

What the levy is doing

The Gaps Beyond the House

ACC is generous in ways people forget and silent in ways they do not expect. It covers everyone in New Zealand, including children, beneficiaries, students, the unemployed, the retired and visitors. It is no-fault, so it does not matter what you were doing or who was at fault, as long as the injury falls within the legislation. In exchange, you give up the right to sue for personal injury in most circumstances.

What it covers is physical injury caused by accident: sprains and strains, wounds, burns, fractures, dislocations, dental injuries, hearing loss, concussion and loss of consciousness. It also covers gradual process conditions caused by your work, treatment injuries, and maternal birth injuries that occurred on or after 12:00am on 1 October 2022. For a treatment injury, three things must be true: the treatment directly caused your injury, a registered health professional was treating you, and it is not a normal side-effect of the treatment.

What it does not cover is illness. If you are diagnosed with cancer, heart disease, stroke, diabetes or kidney failure, ACC provides no income replacement, no treatment funding and no rehabilitation support, because those are illnesses rather than accidents. That single gap is why private health and trauma cover exist.

Health insurance: speed and choice, not access

Around 30 per cent of New Zealanders hold private health insurance. The main providers are Southern Cross Health Insurance, nib, AIA, Partners Life and UniMed, which now administers products previously sold under the Accuro name. Southern Cross is a not-for-profit Friendly Society and returns 94 cents of every premium dollar it collects as claims.

Be clear about what you are buying. Private health insurance buys speed and choice — a faster specialist appointment and access to a private surgeon — rather than access to treatment that would otherwise be unavailable. The public system will still treat you. What you are buying is time and control, and it costs more as you age.

Life, trauma and income protection

Business cover, where underinsurance hides quietly

Questions You Might Have

Does the Natural Hazards Commission cover my whole house?

No. It covers up to $300,000 plus GST per dwelling, per event, and your cap can be lower if your own replacement sum insured is lower. Anything above that comes from your private policy, subject to the sum insured you chose. That is why the number on your policy schedule matters more than the cap.

Is car insurance compulsory in New Zealand?

No, it is not legally required. ACC covers personal injuries, not vehicle or property damage, so an at-fault driver is personally liable for the damage they cause to someone else's vehicle or property. Third party only is the minimum sensible level, and it is often a fair bet on a low-value car.

Can I claim ACC and health insurance for the same injury?

Generally no, because health insurance does not cover what ACC already covers. Most policies offer an ACC top-up benefit for any shortfall. If you are injured, claim through ACC first, then look at whether your policy's top-up benefit applies to the remainder.

Is pet insurance worth it on an older animal?

Usually less so. Pet insurance makes most sense for a young, healthy pet insured before any condition appears, because pre-existing and hereditary conditions are where insurers draw the line. On an older pet with existing conditions, you are likely paying a premium for cover that excludes the things most likely to go wrong.

What should I ask an insurance broker?

Ask which insurers they hold accreditations with, how they are paid on this policy, whether there is a fee as well as a commission, and what their complaints and dispute resolution process is. Commissions remain permitted in New Zealand, so the safeguard is disclosure rather than prohibition.

What Matters Most

The single number that decides whether you are underinsured is the sum insured on your policy schedule. Not the Commission's cap, not your home's market value, not what the house cost you to buy. If that number is lower than the real cost of rebuilding, the gap is yours to carry.

The Commission's reinsurance programme hit a record NZ$12.3 billion for the 2026 policy year, so the scheme itself is in solid shape. That is not the risk. The risk is a homeowner who set a figure years ago, never revisited it, and assumes someone else is watching. Nobody is.