Insurance premiums likely to continue to rise 3% to 5%, analyst says

Monday, 15 February 2021

In today's dollar terms, New Zealand has had 13 natural disasters that cost insurers more than $60 million in claims.

Insurance premiums are likely to continue to accelerate at between 3 and 5 per cent a year as companies pass through higher reinsurance costs and raise rates to compensate for lower investment returns, according to an analyst who tracks industry trends.

Kieren Chidgey, who is head of financials research at Jarden in Australia, said the hikes to premiums which have showed through in financial results of insurance companies for the six months to the end of December look set to continue.

“We would expect premiums to keep rising near term in New Zealand,” Chidgey said. “There is more to do on both those fronts to recoup those headwinds that are still rolling through. There is probably a similar sort of price momentum to what you have seen in the six-month result just reported.”

Increases were being driven by higher global reinsurance costs, as reinsurers played catch up after increased competition pushed down prices, and as insurance companies raised prices to compensate for lower investment returns after falling interest rates pushed down bond yields.

Insurers dealt with higher disaster claims than expected in the six months to December, including fires that destroyed many homes at Lake Ohau Village.

Insurance companies were more likely to increase the amount they earnt from premiums through price hikes rather than volume growth as population growth slowed while borders were closed, he said.

Last week, Insurance Australia Group (IAG), the country’s largest general insurer with the State, NZI, AMI and Lumley brands, reported that its six-month profit increased 3.8 per cent to A$162 million (NZ$174m).

IAG’s income from premiums rose 2.8 per cent to $1.47 billion, helped by increases in rates, strong customer retention and new business. Its business division increased rates by about 4 per cent while its consumer unit lifted rates about 2 per cent.

Suncorp, which owns the Vero, Asteron Life, and AA Insurance brands, lifted profit for the six months by 19 per cent to $129m, driven by higher profit in both its general insurance and life insurance businesses.

Its general insurance income from premiums increased 5.4 per cent to $923m. Profit for that unit rose 6.4 per cent to $100m.

In the company’s life insurance unit, profit doubled to $29m. Premiums increased 3.7 per cent to $283m due to inflation and age-related growth, there were fewer claims, and it gained new business.

Chidgey said both insurers were doing fairly well, even though they dealt with higher-than-expected claims from the Northland floods in July, the Lake Ohau bushfire in October and the Napier floods in November