2024 July 10
Power, water, rates – everything is going up and, unfortunately, insurance is no exception.
Our latest market update explores why and how we can help you manage rising premiums.
There are two key things that are playing a part in rising insurance premium costs -
Firstly, the inflationary environment is resulting in an increase in the cost of materials to repair or replace property and vehicles. Added to this is a rise in costs for insurers to run their businesses including staffing, compliance, and insurance assessment costs.
Secondly, reinsurance premiums (paid by our local insurers to protect themselves from catastrophic events) have escalated. With the Cyclone Gabrielle and Auckland Anniversary claims reported to be over $3.75b, this has driven reinsurance prices up even further.
All these costs then of course get passed on to businesses and consumers. As a result of the above factors, we believe premiums for house and contents insurance, as well as commercial property, will likely continue to increase in the future. However, the rate of that increase will abate, provided the incidence of catastrophic events reduce.
It is not just rising costs that have become an issue but challenges around capacity, which we highlighted in our update in October last year.
Put simply, there is currently more demand than supply of insurance, bringing about yet another upward pressure on the cost of insurance.
We anticipate insurers will increase their use of technology to identify high risk locations and conservatively underwrite each risk. This means that their location data will become more accurate and their risk selection more cautious. Terms quoted by insurers may include higher flood deductibles or excesses, the insured perils might be reduced, site specific terms might be imposed, and premiums will continue to rise.
Capacity issues can be moderated by using different insurer or additional insurers co-insuring together. Until now, this has mostly been used for larger property owners.
Businesses and organisations can mitigate some of the consequences of the insurance market conditions by exercising sound loss prevention or reduction measures. As brokers, we then pass on those positive elements of your risk profile to the insurers.
Farming assets are not immune to the rates increases either. Shearing, dairy, storage sheds, barns, wind and sun shelter structures are all subject to similar premium pressure as other commercial buildings.
Not only is personal property subject to price increases, but insurers are a lot more focused on properties that are at a higher risk of weather-related damage. They are using comprehensive land data to identify individual properties that are more exposed to climate events. This means, for example, a house at the flood prone end of a street could be difficult to insure, and attract a much higher premium, than a similar house at the elevated end of the street.
It is also unsurprising that insurers have adopted a more cautious stance towards properties situated in coastal areas, areas prone to flooding, or susceptible to landslides.
The classification of land by local authorities has introduced an additional unfavourable aspect, particularly when decisions are delayed, causing uncertainty on the insurability of certain properties. It may be determined, for example, that some Category 2 and Category 3 land is unhabitable due to anticipated landslips or flooding risk.
The February 2023 weather events have also had an ongoing impact on vehicle premiums.
The Insurance Council of New Zealand reported 15,663 claims, costing insurers $206.8 million. The cost of these claims is more than twenty times the amount insurers would expect to pay for all motor claims over any other three-day period.
It becomes more influential on future premiums because insurers operate their motor portfolios at close to a break-even position.
Factor in inflation and the escalating cost to repair newer vehicles and there is also increasing pressure on private and commercial motor premiums.
We are of course deeply concerned about the affordability of insurance.
Putting insurers under competition on your behalf is one strategy to address this problem. However, when necessary, adjustments to coverage, such as reducing insured perils, introducing higher excess amounts, or switching to instalment-based premium payments, may be considered.
These options are more prudent than reducing the sum insured or cancelling your cover.
As always, we are here to help. If you have any concerns about the cost of your premiums or how to manage them, please get in touch.