Underinsurance is an increasing problem with many homeowners unaware of how much insurance they will need to rebuild in the event of a total loss.

Property research firm CoreLogic says many of the 1014 policy holders surveyed in its latest report were seriously exposed to the risks of major property damage from such things as destructive climate change-related weather events and earthquakes.

Country manager Simone Moors says New Zealand's high home insurance rate of between 96 to 98 per cent is good, however nearly a third of homeowners are not confident their property is adequately insured.

More than a third (38 per cent) don't know what their property is insured for.

While one-in-10 selected their insurance policy because of low excess, only two-thirds know what their excess is.

"People are paying for insurance, but if the sum insured is insufficient for the cost of rebuild, they are not fully covered and may only find out about this at the worst possible time," she says.

Photo: CoreLogic / Supplied.

CoreLogic NZ's Cordell Construction Cost Index third quarter report indicated national residential construction cost pressures had continued to escalate, with both quarterly and annual rates of indexed growth reaching record highs.

"Even the most risk-averse consumers can be underinsured very quickly."

Moors says about two-thirds lacked an understanding about what it will cost to rebuild their home.

While respondents believed property values rose 31 per cent and rebuilding increased by 41 per cent in the past 12 months, more than half (56 per cent) have not reviewed their home insurance cover in the last year.

"This is not only a risk to the consumer, but for mortgaged homeowners there is a hidden risk sitting on New Zealand banks' balance sheets," Moors says.

The average homeowner only reviews their insurance cover every 2.5 years, which was seen as too long given the fast changing conditions.

Of those who did review their policy annually, just under half (49 per cent) increased their cover, while 40 per cent left it unchanged and 2 per cent reduced it.

CoreLogic head of insurance solutions Matthew Walker says the industry has raised concerns about the overall adequacy of insurance coverage.

"Coupled with the ongoing risk of earthquake, the data and insights indicate many insurance policyholders are highly exposed, most of them unwittingly - not just to the loss of their home but to serious financial harm, given that for most homeowners their property represents the bedrock of their wealth," he says.

-RNZ.