Suncorp CEO warns poor infrastructure could push insurance premiums up

The head of one of New Zealand’s largest insurers believes the country’s lack of quality water infrastructure could push premiums up.

Speaking to the Herald, Suncorp New Zealand chief executive Jimmy Higgins said the insurer was in talks with its reinsurers about how Cyclone Gabrielle and flooding in the upper North Island would affect the country’s risk profile.

He believed that not only would the frequency of adverse weather events caused by climate change lift premiums, but so too would the inability of some of the country’s infrastructure to withstand these events.

Higgins said the severity of the January floods and cyclone took reinsurers by surprise.

“It was always earthquake risk. Now it’s earthquake, cyclone and flood.”

He said reinsurers were asking insurers what insight they had into both infrastructure and climate change risk in New Zealand.

Suncorp, which sells general insurance via Vero and AA Insurance (which it part owns), is updating its models accordingly.

“You can model a flood from a river if that breaks its banks,” Higgins said.

“It’s much more difficult to model a flood in a built environment because you’re working on the assumption that stormwater drains are able to cope and are maintained. And you’re also working on the assumption that wherever the buildings are going up, the catchment areas around that are suitable to mitigate the flood risk.

“I don’t think that’s happening and I don’t think that’s well understood. If it was understood, it would’ve been properly priced for.”

Floods and cyclone expected to cost Suncorp $600m

By the end of last week, Suncorp had received around 15,000 claims related to flooding in the upper North Island, and 9000 claims related to Cyclone Gabrielle.

Around 60 per cent of these claims were for home insurance, 25 per cent for contents insurance and 15 per cent for motor insurance.

With 50 to 80 new flood-related claims, and 200 to 300 new cyclone-related claims, trickling in per day, Higgins expected the disasters to come at a gross cost to Suncorp of $500 million to $600m.

More than 100 Australian-based Suncorp staff are helping handle claims, meanwhile the company has 60 Australian assessors lined up to do assessments on the ground.

Suncorp is looking at getting Australian building companies to temporarily shift to New Zealand to help with the rebuild. Higgins said the insurer was eyeing four or five large companies, two of which were ready to go.

Insurers want more of a say before building occurs

Looking to the future, Higgins was concerned about houses being built in the wrong places, without adequate infrastructure.

He wanted insurers to have more of a say on future insurability before building began.

“Instead of being the ambulance at the bottom of the cliff, we need to be the gate at the top.”

Nonetheless, Higgins couldn’t specify exactly where in the process he saw room for insurers to have their say.

He believed too much of the focus was on plugging the housing shortage at the expense of considering where houses were being built.

“I think there will come a point in time where insurance may not be available if nothing gets done about it,” he said.

“There will be areas where we just will not accept the risk because we know it floods every year. Insurance is about protecting against unknown risks. When you know the risk is there, you just don’t take the risk.”

Asked whether Suncorp could assure policyholders that premiums would in fact fall if investment was made to reduce the risk, Higgins said, “All else being equal, if the risk reduces, the premium reduces.”