NZ Herald 5 December 2015

QI read your item last week on insurance advisers with interest. I have always had an aversion to insurance brokers because of what I perceived as an obvious conflict of interest, but I had not realised quite what a rort and perverse arrangement the current set-up is.

However, you do not need an adviser to make very worthwhile savings on your premiums. We have comprehensive cover (house, contents, and two private motor vehicles) and have been with the same insurer for many years. But some 18 months ago we decided it was time to review our premiums.

We phoned around and got quotes from two other insurance providers, and armed with these went back to our current provider. It turns out we are a “valuable customer” (based on demographic factors and a very low history of claims) who they were very keen to retain, and they more than matched the best alternative quotes we had obtained — all done by telephone.

We ended up reducing our newly quoted annual premiums by 27 per cent (over $700). As I rather suspected, they did try to bump our premiums back up the following year. But, again, a series of emails resulted in them bringing these back by over $400, giving an increase of some 7 per cent on the previous year, which seemed to be reasonably in line with inflation and other changes in the industry.

So, in summary, we have saved more than $1,100 over the last two years on the annual policy renewals initially quoted by our insurer.

As with power and phone charges, the providers do not make it easy. But you can certainly use the competitive nature of the business to your advantage by shopping around and applying a bit of pressure.

If insurers are prepared to pay the first two years of your premium to an adviser for new customers it is obviously in their interests to cut a deal with existing customers to stay with them!

QIn last week’s Q&A on insurance advisers, you said about a report critical of the industry, “But the report rings true to me, in light of what I’ve read and heard over recent years”.

Last week while doing an annual client review I recommended to my client to reduce his existing cover with his current insurance company, to reduce his premiums and reflect his improved financial situation.

His cover has been in place since 2003. I compared different companies’ premiums and benefits, and while his existing cover was not the cheapest or his benefits the best, they still met his family’s needs.

As a member of the Institute of Financial Advisers our code of ethics first principle is “client first”, requiring the adviser to act honestly and not place personal gain or advantage before the client’s interests. I take “client first” seriously.

Your policy churn letter writer seemed to only become unhappy after talking to “another adviser”, even though they received a disclosure statement and a recommendation stating the adviser would be remunerated by the insurance company. They also signed a replacement business advice form explaining the reasons for the recommended changes and the risks of changing policies.

They did not complain to the adviser or the adviser’s disputes resolution service or FMA, but instead wrote to you — which unfortunately discredits all advisers such as myself and unfairly reflects the work we do as professional advisers.

Q(From Anne Gibson, Herald property editor). I recently saw one of your people write “my house is freehold”. I think what they mean to say is “my house is mortgage-free”, and I would imagine it would be on a freehold, not a leasehold, site — although the title could be fee simple (most common), cross lease or unit title.

Many people say they have a “freehold” property and it really irks me.

What they actually mean is they have property that is debt or mortgage free. Let’s clean up the language and say what we really mean. Let’s try to get this right. Most people do not know what “freehold” means and I hope they never do. Only those (in many cases) victims of leasehold land are familiar with the brutal realities of the situation and know the difference between freehold, leasehold and debt-free.

The danger of leasehold land is lack of control. An annual rent which might seem entirely reasonable to begin with can balloon because of spiralling property values. Suddenly the $2000 or even $20,000 a year can become nearer $100,000 a year, making your investment potentially utterly worthless. Witness empty leasehold sites where houses were allowed to fall down, if you don’t believe me.

Always try to buy freehold fee simple titles: anything else can turn out to be a nightmare. A peaceful night’s sleep is so important for our health and wellbeing.

QMy pick is Auckland’s property prices won’t collapse. They may come back a bit but then sit on a plateau for a while. It all comes back to supply and demand. Auckland property will always be in demand and prices will remain high.

I started investing in residential properties in the late 1970s in Wellington. You could buy properties for 20 per cent below government valuation. Now I would call that a bubble burst or even a crash.

And the reason why? In the early 1970s Wellington City Council embarked on a massive programme of building blocks and blocks of council flats. They also developed large residential sub-divisions on hillsides and ridgelines around Wellington. They flooded the market. I can’t see that happening in Auckland any time soon.

Now there are too many regulations and costs that are restricting the number of new builds. I have just built my mother a new garage, knocked down her old carport etc. It cost her $8600 just to get permission to start work! Architect, engineer, resource consent and building consent. Now you have to be a licensed designer even to design an uninhabited garage.

Get used to high property prices.