2024 December 01
Our latest insurance market commentary looks at where insurance costs are changing and why.
Insurance is very cyclical in its nature. Prices can dramatically increase, based on various factors, and prices can also drop.
Whilst we may be hit with rising costs in relation to our personal property premiums, the good news is that the price of commercial property policies has started to reduce. This trend is not only being seen in New Zealand but also in Australia.
Premiums for corporate commercial property insurance in New Zealand began to reduce several months ago. By the second quarter of 2024 we saw costs reduce between 5% and 10% compared to last year.
This is due to the insurance market softening, which not only brings lowers costs but increased competition amongst insurers.
Large corporates are usually the first to feel the benefit of price reductions, simply because they pay larger amounts for insurance.
As these larger organisations generally employ good risk mitigations strategies, and are highly desirable clients for insurers to obtain, they also benefit from more competition when it comes to getting a ‘good deal’.
Small and medium size businesses (SMEs) may question why they cannot benefit from the same price reductions and competition between insurers.
Those with a good claims record and solid risk mitigation measures in low-risk regions will have an advantage when their renewal is negotiated. Other businesses however are likely to experience small premium rate increases.
The good news however is that while our two largest local insurers had difficult reinsurance renewals in 2023, smaller niche markets like underwriting agencies had more positive outcomes when their agreements were renegotiated around the middle of 2024. This means there is a possibility for some businesses that more insurers will be competing for their renewal.
With rural properties being a lot more vulnerable due to climate change it has adversely affected the cost and availability of insurance.
Due to the increased risk of hailstorms, floods, fire, and drought, in some areas (and therefore the increased number of claims) we have seen a continuing rise in rural insurance premiums.
The changing weather conditions not only affect the cost and availability of insurance but also interrupt a farmer’s ability to produce, thus diminishing their income.
Unfortunately, we don’t expect the pattern of rising premiums to change in the future.
As has been reported on numerous occasions, house, contents, and private car insurance premiums have been trending upward significantly for at least three years.
In fact, the Quashed Quarterly Index (Q3 2024) reported that house premiums have increased by 17% in the last twelve months, contents by 12%, and private cars by 18%.
Regions that are subject to earthquakes and severe weather events have experienced even higher increases.
This a worldwide issue, however whilst New Zealand’s premium pool is small on a global scale, as a country, we have posted three catastrophic events that are noticeable on a global scale.
It may mean that house and contents premiums continue to increase over a longer period here than elsewhere in the world.
Motor insurance premiums are usually influenced by a predictable accident frequency. This usually results in stable premiums which are also subject to accident history, repair, and parts inflation.
Coming into play now is the escalating cost to repair newer vehicles that incorporate windscreen, bumper, and other technology. Add inflation into the mix and costs start to increase.
As a result, we believe that that there will be increasing pressure on commercial motor premiums.
Having good fleet management practices will not only help to mitigate your risks but also reduce your premiums. An example of this is the utilisation of vehicle safety technologies and telematics. These types of measures assist with representing the fleet as ‘better than average’ to insurers.
There may also be an opportunity to generate competition between insurers for fleets with a good claims record.
For small businesses especially it can be hard to manage these ups and downs, especially in areas where costs are rising.
As always, we are available with a friendly ear to listen to your concerns and help you put the right plans in place, along with helping you to manage your insurance costs.
Please drop us a line if you would like our assistance.
0800 644 444