Tower insurance premiums put the squeeze on homeowners

Wednesday, 20 June 2018

Auckland homeowner Satyan Mehra 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.

The Green Bay house was built in 2014 and while it has four bedrooms and three bathrooms, he said it was nothing too flash or particularly risky.

But instead of $2089 for a year's cover, it now costs $3012.

​Mehra said it made him wonder if another insurer would offer a better deal. Whether he would shift would depend on whether he could get an equally fulsome policy elsewhere.

**READ MORE:

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* All earthquake-prone houses could face insurance hike**

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.

It comes as a Wellington homeowner, Ursula Egan, complained on social media that her Tower policy had increased from $2200 to $7200 a year.

Some of the change is due to an increase in levies associated with insurance policies – both the Fire Service levy and the Earthquake Commission (EQC) levy have increased. 

From November 1 last year the EQC levy increased from $180 for house and contents policies to $240 a year. The fire levy increased by a maximum $30 a year for houses and $6 for contents.

But Tower is making some other changes that affect what customers pay.

It announced in April that it was going to start pricing premiums based on how at-risk a property was for earthquakes.

Chief executive Richard Harding said at the time the company would stop 'subsidising' higher-risk properties in order to send a clearer message to home-owners about the risks in their backyards, and to more fairly distribute costs. 

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 would see a hike greater than $2000.

The pricing of flood coverage would soon change according to risk as well, he said.

The move is a change from the traditional approach of insurance, which is to pool risk across policy-holders.

Tower has been approached for comment about these policy increases.

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.

'Remember there is a difference between uninsurable and unaffordable,' he said.

'I hear anecdotal speculation that if there is another large earthquake in a city centre in New Zealand, parts of New Zealand may become uninsurable.

'The key to it is the reinsurers.  If they won't provide catastrophe reinsurance cover, the local insurers may not be able to provide earthquake cover because they cannot shoulder all the earthquake risk on their own, otherwise they could face insolvency.'

Insurance Council chief executive Tim Grafton said he was not aware of other insurers taking the same step.

'Insurance is about the transfer of risk so all insurers take risk into account when calculating prices,' he said.

'Insurance is a competitive market and all insurers will make underwriting and pricing decisions based on their own appetite for risk. In New Zealand, this unavoidably includes earthquake risk, as well as flood risk and other risks associated with climate change. 

'The way risk is priced also sends an important signal to authorities about the need to mitigate and adapt to that risk, such as what kind of building standards are needed and where to consent housing. For example, consenting a house to be built on a near vertical slope where there is risk of an earthquake causing a landslide that could take the whole house away is not a good idea.'

He said it was unlikely an insurer would withdraw existing cover from a customer based solely on changes in their pricing model.

'Rather, the cover would remain available but the way it's priced might change. So rather than a property becoming uninsurable, it might simply become more expensive to insure. This is why we recommend those looking to purchase and insure a new property apply to the vendor's insurer for cover if they are encountering difficulty in obtaining their own.'