Rising construction costs and inflation are leaving a growing number of New Zealand households exposed to significant financial gaps in their insurance cover, according to a report published Wednesday by Gallagher Insurance NZ.
The report warns that underinsurance – a situation in which a policy’s sum insured falls short of the true cost of repairing or replacing an asset – is an increasingly common but often overlooked problem for homeowners, renters, and vehicle owners across the country.
According to Gallagher, the gap between what households are insured for and what they actually need to recover from a major loss frequently goes undetected until a claim is filed – a moment already marked by stress and financial disruption.
“This gap often only reveals itself at claim time, when people are already coping with stress and disruption,” the report stated.
The insurer cited several real-world scenarios to illustrate the problem: a home insured for $700,000 that costs $800,000 to rebuild after a fire; household contents covered for $40,000 when $55,000 is needed to replace them after a burglary; and a vehicle insured for $12,000 despite a replacement costing $16,000. In each case, the policyholder is left to cover the difference from their own funds or accept a lesser replacement.
Gallagher identified several contributing factors driving the rise in underinsurance. These include rising construction costs, inflation pushing up the price of household goods, homeowners failing to update their sums insured after renovations or new purchases, and people estimating insured values rather than using formal valuation tools.
As of the fourth quarter of 2025, the average cost of house insurance in New Zealand reached $2,815 – a 37% increase from $2,062 recorded in the fourth quarter of 2022, according to insurance comparison platform Quashed. Wellington stood out as the most expensive region, with an average premium of $4,394 per year, largely due to its high earthquake risk.
For home insurance, the Gallagher report emphasised that a sum insured must reflect the full cost of rebuilding a property to the same size and quality as it currently stands, including specialist structures such as retaining walls, swimming pools, wharves, jetties and architecturally unique features.
Gallagher recommended homeowners obtain professional valuations from a registered valuer or quantity surveyor and noted the availability of online tools such as the Cotality calculator as a starting point. Sums insured, the report said, should be reviewed at every renewal, accounting for any renovations or improvements made during the year.
Contents insurance carries similar risks, the report noted. Electronics, furniture, and jewellery values can shift quickly, and many people underestimate the total replacement cost of their household goods. Certain items – including watches, cameras, bicycles and collections – may need to be specified individually under a policy, and jewellery valuations should be kept current given frequently changing gold and diamond prices.
For vehicles, Gallagher drew a distinction between market value cover, which reflects a car’s retail worth at the time of loss, and agreed value cover, which fixes a set amount for the policy period regardless of market fluctuations. The insurer advised policyholders to review agreed values at every renewal, noting that some reduction is expected as vehicles age.
“Being properly insured means you’re able to recover faster from unexpected events without the added financial burden of covering gaps in your policy,” the report noted.
