Cyclone-hit homeowners unlikely to get payouts that fully cover rebuild cost, insurance lawyer warns

An insurance expert is warning flood and cyclone-hit homeowners with claims for write-offs are likely to get cash payouts that won't cover their rebuild costs.

Many insurance policies are now for capped cash settlements rather than managed repairs, leaving homeowners as the project managers for rebuilds with their payout.

Wellington-based insurance lawyer John Goddard said most homeowners should expect a cash settlement - and then they'll be on their own in their rebuild.

He was the supervising solicitor for the claims resolution service after the Canterbury earthquakes, settling 4000 claims.

"With the Canterbury earthquakes most insurance policies were for full replacement and so that issue did not arise. In order to limit their liability, insurers have made sure that policies are capped."

He warned capped policies were not replacement policies.

"Now that most policies are sum insured, then there are going to be a lot of situations where people are underinsured and the maximum amount they can receive under their policy may not be enough to complete all of the repairs."

It is something that concerns Peter Johnstone, whose once idyllic country block in Pakowhai still has metre-deep silt in places, and his badly flooded house is unliveable, and yellow stickered.

But he is still waiting to hear whether insurance will write off his home, Whatever the outcome, he expects the insurer to manage the rebuild.

At 75, he is not in a position to become the project manager.

"I'm not trained to do that, that's not in my skill list. For me that's where a lot of people dealing with builders and subbies and contractors, it's also council, on and on and on, then that's quite daunting."

But Johnstone has heard of people in similar situations offered cash-outs to manage their own rebuilds.

"When you've been through a disaster and you've lost everything, to me that's a pretty ugly sort of situation to be put in."

He and his wife have still not settled claims for house and contents or received the accommodation allowance specified in their insurance policy, despite paying rent.

The exact number of homes written off is unknown as insurers are still to assess many of the hundreds that are red stickered.

Goddard said the potential for insurance claims to fall short of building costs is more concerning for write-offs.

"It's the houses which are either written off or require substantial repairs where it could be an issue and the amount of sum insured could be exceeded but I'm not able to give a dollar figure on how much it might be, but it could be significant."

The Insurance Council disputes the extent of this becoming a problem.

Chief executive Tim Grafton said many homeowners wanted to settle claims with a cash payment.

"The only way in which it might trigger an issue is if the sum insured is insufficient to rebuild a house that has been written off, and at the moment I don't have any data that shows that is a significant problem," Grafton said.

"The suggestion that a cash settlement is something that puts people at a disadvantage is not a good presentation to make to the public."

He said insurers could still help vulnerable homeowners manage repairs, and homeowners could give insurers quotes for building work ahead of a cash settlement.

"There are many people who would like to have a cash settlement in order to move on with their lives and some insurers are asking people if they want to get their own quote from their own builder and submit that for a settlement, then that's an alternative way for them to go."

Meanwhile, hundreds of people have so far sought help for settling their insurance claims through the government's Claims Resolution Service, set up last month.

The service's director, Darren Wright, said 168 people had registered from Auckland of whom just nine are active cases, while 115 people with Cyclone Gabrielle related claims have registered for help of whom 11 are active cases.