A closer look at property damage for New Zealand landlords

Rental properties generate income and grow in value over time, but they can also come with unique risks and costs.

One common question for landlords is, “What damage is most likely to occur at my rental property?” Knowing the risks and how to reduce them is key to protecting your investment.

A shift in claim trends: weather makes its mark

In 2023 we experienced exceptional circumstances, notably the Auckland Anniversary storms and Cyclone Gabrielle. Our, and industry, data shows a 10x increase in weather-related claims in the past year. Damage from floods and rain saw a substantial rise in claim payouts compared to 2022, while wind and storm-related claims also showed a notable increase.

Now, more than ever, natural hazard risks such as flood susceptibility, land stability, coastal surge and slope failure (all of which are being identified by local councils) are key to determining a property’s insurability.  For existing properties, and for those you intend to purchase, it is essential that you do your research and this could affect future costs, and even saleability.  

Outside of natural hazards, other risks still exist, and focusing solely on weather-related issues might leave you unprepared for other landlord challenges.

A closer look at 2023 rental property losses

Flood & rain damage: 

For initio in 2022, this category of damage represented 9% of the total number of claims lodged. However, in 2023, this has increased to 21% of the total number of claims. This underscores the substantial financial impact of flood and rain events. The damage to rental properties ranged from minor ceiling leaks to total destruction of the property.  

Wind & storm damage:
Unsurprisingly payouts rose by just over 50% compared to the previous year. While the number of claims lodged was similar between the two years, the severity and cost of damage was significantly higher, partly due to rising construction costs.  

Other water-related damage:
These are typically problems like bursting pipes and leaking hot water cylinders. In 2022, these made up 22% of claims lodged, dropping to 16% in 2023.  The most common water damage claim in both 2022 and 2023 is hidden gradual water damage (HGWD), such as pipes leaking under the kitchen sink, and blocked sewage pipes.  HGWD is often excluded from standard rental property insurance policies, but some policies like initio’s offer limited cover (usually $2,000 – $3,000) through a special extension.  The key to proactively managing this risk is regular property inspections and educating tenants to notify as soon as they see something damp.  

Accidental damage:
We’ve seen a wide range of claims in this category. These usually include unexpected incidents like broken windows, damaged cooktops and carpet stains. Accidental damage made up 13% of claims lodged in the 2023 period.  Not every accidental damage loss allows the landlord to hold the tenant responsible for the insurance excess.  Understanding where your responsibility as a landlord ends and the tenant’s begins will guide your communications with tenants following any damage.   

Other rental property incidents (by number of claims, not value):

• Malicious damage from tenants (3.8%) 
• Fire (accidental and arson combined) (1.8%).   
• Meth contamination (1.7%) 
• Problems with keys and locks (2.7%) 
• Impact damage, typically involving vehicles (2.5%). Eg, car versus garage.

While fire is a relatively rare type of loss, its severity is substantial when it does occur. The average value of a fire claim in 2023 is just over $50,000.

Loss of rent:
Loss of rent applies when damage occurs and the house can no longer be lived in. The floods in early 2023 displaced many tenants, resulting in loss of rent payments to landlords.  During the floods insurers needed to be practical and work with landlords in situations where the property was partially damaged and still able to be lived in.  

In situations where a tenant can no longer reside at the property due to an event like a fire or flood, the tenant must pay for their own relocation and temporary accommodation. It is not your responsibility as a landlord.  If a tenant has their own contents insurance this will usually cover these displacement costs.  

Some policies, like initio’s, also cover rent in scenarios where there is no physical damage to the house.  So this includes eviction or tenant abandonment. These situations made up 2.7% of total claims lodged in the past year.

Final word

Taking a proactive and sensible approach to managing risks as a landlord is its own kind of insurance. From what we observe in daily claim reports, landlords who prioritise choosing the right tenants, conducting thorough tenant checks, carrying out regular property inspections, installing fire extinguishers in kitchens, and keeping up with routine maintenance such as clearing gutters, plumbing and electrical work, have fewer damage issues and don’t add to the above statistics.

Selecting an insurance provider well-versed in landlord risk and that offers tailored policies for rental property owners complements a comprehensive strategy to reduce the risks you face as a landlord.

The statistics presented in this article are based on analysis of claims data from initio. The annual period being  October to October.  Please note that all figures are rounded and in some cases, where the claim type is embedded within a larger loss type, have been calculated to provide a representative view of the claim trends during this period.  Data from the Insurance Council of New Zealand was also utilised.