Many home and vehicle owners across New Zealand have recently noticed an unwelcome hike in their insurance premiums.
New Zealand’s Consumer Price Index (CPI) confirmed the extent of these increases, revealing that home insurance premiums increased by 17.9% last year, with car insurance premiums increasing by 5.7% and contents insurance premiums by 5.9%.
These surging costs are primarily due to an increase in claims payouts. Industry figures collated by the Insurance Council of New Zealand showed that the loss ratio for insurers was higher in the year to September 2017 than it has been in previous years. Insurers paid $76.77 in commercial and private motor claims for every $100 they received in premiums, a substantial jump from previous years, while property claims raised from $55 paid out for every $100 received, to $59.68. There are several situational factors that have resulted in these increases.
Earthquakes & Extreme Weather Events
In recent years, earthquakes in New Zealand have caused significant property damage, resulting in a rising number of claims. Furthermore, the last 3 years has seen the number of storm and flood related insurance claims in New Zealand increase by 56%. The intensity of major weather events is expected to continue to increase as the climate warms. Insurers have to price appropriately for these risks so that they can continue to pay claims if an earthquake or severe weather event does occur.
Increase in Building Costs & Materials
Insurance premiums have been adjusted to keep up with increasing construction costs that have affected repair and rebuild costs. Recent building tragedies in Melbourne and London have also highlighted the fire safety risks associated with using combustible
cladding, particularly in multi-story buildings. Since these disasters, the Building Research Association (BRANZ) estimated that about $232m has been spent annually in order to fix non-compliant products in commercial and residential buildings. These costs also factors into Insurers’ pricing.
Frequency and Cost of Motor Insurance Claims
Motor Insurance premiums have increased significantly due to the frequency of claims, which is primarily due to the increasing population leading to an increase in the number of vehicles on the road. There are also more new vehicles on the roads, which are fitted with in-car devices that can be a distraction for drivers, and new vehicle owners are more inclined to claim for damage.
The average cost of claims has increased with the average market value of vehicles on the road. New vehicles are also more expensive to repair as they often come with advanced technology such as intelligent braking systems, bumpers with sensors and cameras, and windscreen rain sensors. Insurers have to take all of this into consideration when setting their premiums.
Insurers across New Zealand are trying to control claims cost inflation and will make sure customers premiums are fair and accurately reflect changing risk. However, if you are concerned about your premium costs or have any questions about your rates, get in touch with your broker. They have a wealth of knowledge on this topic and will be able to ensure you have the right level of cover for your risks at a cost-effective price.
Conditions apply for each policy and the information expected from you for a policy to trigger. Coverage may differ based on specific clauses in individual policies. Please ask your broker to explain the additional benefits and exclusions pertaining to your policy.
The information provided is general advice only and does not take account of your personal circumstances or needs. Please refer to our financial services guide which contains details of our services and how we are remunerated.