A $5000 increase: Here's why your insurance might be going up
Friday, 22 June 2018
Insurance premium hikes for Tower Insurance customers have stunned homeowners - with one facing a $5000 hike and another a $1000 increase.
Ursula Egan's premium on her Karori home, which is insured with Tower, is going from $2200 to almost $7200, according to RNZ.
Auckland homeowner Satyan Mehra told Stuff reporter Susan Edmunds he was shocked to discover his Tower house and contents policy would cost almost $1000 more for this year's cover than it had the previous year.
His four-bedroom, three-bathroom Green Bay house was built in 2014 and, instead of $2089 for a year's cover, it now costs $3012.
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Auckland investor Shelley Begg, meanwhile, said the cost of two of her policies had also increased, one by 40 per cent. She received the policy renewals this week.
She said she was told the change was about Tower wanting to more fairly reflect and distribute the cost of earthquake insurance.
Earlier this year, Tower warned customers it had switched to risk-based pricing, and people in earthquake-prone areas - and towns like Wellington, Napier and Gisborne - would be most likely to pay more.
Chief executive Richard Harding said at the time the company would stop 'subsidising' higher-risk properties in order to send a clearer message to homeowners about the risks in their backyards, and to more fairly distribute costs.
Has your home insurance premium skyrocketed? Share your story by sending an email to leith.huffadine@stuff.co.nz.
Harding said the majority of the company's 350,000 customers would not see any significant change in their premiums, with less than 2.5 per cent receiving a hike of more than $250, and 1 per cent seeing a hike greater than $2000.
The pricing of flood coverage would soon change according to risk as well, he said.
Traditionally, insurers have pooled risk to even out the cost of insurance among customers.
However, the Insurance Council of New Zealand (ICNZ) has previously warned the cost to New Zealand of natural disasters will increase without risk reduction.
It's not just Tower customers who may be facing larger insurance bills.
IAG's general manager of corporate relations, Bryce Davies, has also warned of insurance premium increases due to earthquakes, flooding and climate change-related sea level rise.
At-risk areas exist throughout the country - including Hawke's Bay, Dunedin, Wellington, Auckland, Christchurch and other rural locations.
Insurance law specialist Crossley Gates said other insurers might follow Tower's move.
That could make it hard for some people to get insurance at all. However, he noted there was a difference between 'uninsurable and unaffordable'.
To explain a bit more about changing insurance premiums, here's a Q&A with ICNZ's chief executive, Tim Grafton.
- Can you please provide a short comparison of community vs risk-based pricing?
'With purely risk-based pricing, risk is calculated for a particular property or asset and price is assigned so that the insured carries the full cost of that risk.
'Community-based pricing is a method of spreading the cost of insurance across a population to reduce the costs people pay for higher-risk assets or properties. In this model, a large number of people pay slightly more for their insurance to facilitate lower prices of those insuring higher risks.'
- Does the council know of other cases of insurance premiums being hiked?
'We are aware of the cases that have been reported in the media. We are also aware that the CE of Tower has said that less [than] 1 per cent of its customers will face rises of over $2000, so this is a very, very small proportion of houses in New Zealand.'
- When will a shift to risk-based pricing like this become a norm (or at the least more common)? Is this likely to be a gradual shift or a quick jump?
'You cannot assume that other companies will follow suit.'
- What is likely to drive changes to risk-based pricing?
'It will depend entirely on a company's appetite for risk and how it wishes to price that risk.'
- What areas in New Zealand are likely to shift to risk-based pricing?
'Areas where the risk of losses are frequent.'
- How much could premiums go up by?
'As an industry representative body, it would inappropriate for us to comment on possible changes in premiums. Each insurer will make their own decisions based on their appetite for risk and how they wish to price that.'
- What options do homeowners in at-risk areas have?
'It's important people understand the risks their properties face. They can get a copy of the LIM (Land Information Memorandum) report and also look through any risk modelling their local council has done for things like floods and erosion. If people in high-risk locations or high-risk properties are unable or unwilling to move to lower risk locations, they can look to mitigate and adapt to some of the risks they face.
'For instance, people with houses on hills may wish to undertake work to reinforce the land above and below them to reduce the risk of a landslip. When property owners do this sort of work, they can inform their insurers so their insurers more accurately understand the risks their property faces.'
- What factors affect an insurer's decision to increase premiums?
'In general, insurers will take into account changes in risk levels, levels of knowledge about the possibility or certainty of risks, costs, and claims histories, as well as applicable taxes and levies, such as the EQC [Earthquake Commission] levy and the Fire Service levy.
'Ultimately, insurers are commercial businesses and their decisions regarding pricing and premiums are wholly up to them.'
- Should insurers notify people in at-risk areas that premiums could rise?
'House insurance is renewed annually and that is when any change in premium is notified.'
Tower has been contacted for comment.