Bounce back to the black for insurer Tower after move to risk pricing

Tuesday, 21 May 2019

Richard Harding chief executive of Tower Limited has reported a big return to profit.

Tower says its new risk-based insurance strategy has reduced claims thanks to 'improved' pricing and good weather.

Risk pricing is when people pay more for insurance in areas considered higher earthquake, flood or weather risks. Some consumers in Christchurch and Wellington have reported that their premiums soared from about $2000 to more than $10,000.

The risk pricing, and picking up more customers, helped Tower bounce back from an $11.6 million loss for the six months ending March 2018, to an $11.9m profit for the same period ending March this year.

Risk-based pricing had allowed Tower to lift its house insurance exposure in Auckland and Taranaki by 17 per cent, and reduce exposure to high risk areas by 16 per cent.

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

'Tower's new, simpler products and fairer risk-based pricing contributed to a reduction in house and contents claim frequency,' chief executive Richard Harding said.

'Unfair subsidisation' of premiums in Wellington would be largely removed over the next 12 months, Harding said.

Former insurance manager Melissa Heath said owners of many homes that have had insurance cover in the past will find it unaffordable in future and it will affect the value of those properties.

Heath confirmed anecdotal stories of insurance increases of $5000 to $15,000 in Wellington and Christchurch, and she offers a residential risk analysis to help home buyers avoid a purchase 'that might ruin them'.

Insurance Brokers Association chief executive Gary Young said risk pricing had probably affected Wellington most.

Perception of risk was based on historical data, and it was arguable whether Christchurch was now safer because all the rickety buildings had come down, he said.

The risk for the North Island - where Tower has focused on gaining market share - was topical cyclones, Young said.

'But overall I don't think there's an enormous market shift among insurers. None are pulling out totally but it's more a matter of price now that insurers have information to judge risk house by house in the same street.

'IAG has also moved to risk pricing but they've made a point of saying they haven't quit Wellington,' Young said.

The tail of claims from the Canterbury earthquakes had a $4.7m effect on the after-tax profit as more claims over the EQC cap of $100,000 were paid. There were 132 outstanding claims.

Tower chairman Michael Stiassny said the company would try to recoup costs from settling over cap claims from EQC 'where past incompetence and negligence has contributed to the claim going over cap'.

'It is not our shareholders responsibility to pay for situations arising from EQC's past incompetence, and the negligence of its repairers,' Stiassny said.

Gross written premiums for homes, vehicles and contents grew 8.9 per cent in New Zealand as Tower wrested more business from rivals.

Bross written premiums rose 12 per cent, house premiums 7.8 per cent, and contents 2.9 per cent.

Another improvement was a rise to 46 per cent of new sales online from less than 10 per cent in 2016, with the aim of increasing all transactions online to about 70 per cent.