IAG may not provide contents insurance cover in some Wellington homes

Tuesday, 12 March 2019

Content cover may now be more difficult to obtain for Wellington homeowner and renters.

The decision by New Zealand's largest insurance group to no longer provide contents cover to all Wellington homes will not necessarily create a domino effect, says one industry expert.

The announcement came after Insurance Australia Group (IAG) - which owns State, NZI and AMI - said it would be taking a 'conservative approach to writing new business in Wellington due to the high earthquake risk in that part of the country'.

Insurance group IAG will no longer provide content cover for all Wellington homes.

The firm, which also underwrites the general insurance provided by ASB, BNZ, Westpac and The Cooperative Bank, said the new policy would be implemented across its brands.

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Tim Grafton, Chief Executive of Insurance Council New Zealand, says having one company make this decision did not necessarily mean all others would follow suit.

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The Minister of Commerce and Consumer Affairs, Kris Faafoi, says he is closely following the issue.

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'Wellington remains a high risk area with regard to natural perils such as earthquakes and IAG is taking account of that in its pricing and underwriting approach,' an IAG spokeswoman said.

'As a result, people living in Wellington approaching IAG for contents insurance may find they are unable to obtain cover.

'The IAG approach includes a commitment to give first priority to existing customers. However each approach is considered on a case by case basis and IAG is continuing to write new business in Wellington.'

The news will come as a shock to both homeowners and renters in Wellington, but Tim Grafton, Chief Executive of Insurance Council New Zealand, said having one company make this decision did not necessarily mean all others would follow suit.

'Where one or some insurers may see a need to reduce their exposure or business growth in Wellington, others may see an opportunity to expand their portfolio of domestic cover there.

'The price of insurance is heavily influenced by risk – both the likelihood of future events and the real costs of past events. Wellington faces earthquake risks from multiple fault lines as well as tsunami, flood and landslide risks, depending on which area of the city is being considered.

'Events of the past decade and increased availability of data have helped insurers understand better than ever what it takes to help communities recover from large-scale events. Insurers tend to account for this in their premium pricing, allocating higher premiums to riskier properties to cover the likelihood of a large scale event causing a spread of total sum insured payouts.'

Other insurance companies have moved quickly to insist they will still provide home contents cover to Wellingtonians.

A spokeswoman for AA Insurance said its approach hadn't changed. 'We are continuing to offer contents insurance in Wellington to new and existing customers.'

Vero's approach remained unchanged. 'We continue to accept applications for house and contents, subject to normal underwriting conditions,' a spokeswoman said.

Kiwi insurer Tower also said it was offering insurance for new and existing customers in Wellington.

'It is disappointing to see other insurers remove choice from customers by putting these types of broad embargoes in place, instead of moving to a model that sees customers pay more fairly for the risk they face,' a spokesperson said.

Kris Faafoi, Minister of Commerce and Consumer Affairs, said he was closely following the issue.

'Insurance is a good thing for Kiwis to protect them to some degree from financial shocks so, with colleagues, I will continue to monitor the situation.

'I have received information today to suggest other insurance companies are still generally offering policies and do not intend to withdraw from the market. However, I am aware there is an approach across the industry towards greater risk-based pricing and that some companies are being selective in offering policies.

'I am keen to hear from insurance companies and for them to share more information with consumers so they can be better informed about availability of policies and risk-based decisions.'

IAG acquired State in 2001, NZI in 2003 and AMI in 2012 and its portfolio includes insurance companies in Thailand, Vietnam and Indonesia, as well as joint ventures in Malaysia, India and China.