Insurance customers are increasing their excesses to cope with higher premiums - Tower boss says

Wednesday, 23 November 2022

Tower chief executive Blair Turnbull is overseeing a simplification of the insurance business.

Households experiencing cost of living pressures are increasing the excesses on their house insurance, Tower chief executive Blair Turnbull said.

“What we’re seeing is a bit of affordability challenges coming through,” said Turnbull, who announced an after-tax profit of $18.9 million, for the insurance company, down from $19.3m the previous year.

The decline happened despite the premiums collected from household and business customers increasing by 13% in the year to September 30.

Tower customers could tweak their insurance cover online , and there had been a tick-up in people doing it as inflation took a bite out of people’s spending power, Turnbull said.

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“They can increase their excess to reduce their premium, adjust some of their cover,” Turnbull said. “We are seeing a little bit of that, not too much.”

Tower had observed some other methods households were using to cope with rising costs.

“Some people have sold assets, maybe they work from home a little bit more, and maybe replace that second car with an e-bike,” Turnbull said.

High inflation meant people should also check that the sum they had insured their homes for was high enough to cover its replacement, if it was totally destroyed, he said.

Tower had grown its customer base during the year.

Policyholders paid $445.6m in premiums, compared to $396m the previous year.

IAG is not a name familiar to many households, but the many insurance brands it owns are: State, AMI, NZI, Lantern Insurance, Swann Insurance, NAC Insurance, and Lumley.

Turnbull described the result as strong, saying the insurer recorded a 31% rise in its underlying profit, an internal measure companies use to gauge their progress.

He said Tower had taken decisive actions to combat record inflation, global supply change blockages, and increasing frequency and severity of large claims events.

Claims for large events were $19m for the 2022 financial year, compared to $13.9m in the previous year, he said.

“These included the one-in-a thousand-year Tongan volcanic eruption and subsequent tsunami, and multiple storms, and floods across New Zealand,” he said.

The claims cost for Tower from the Tongan volcanic eruption in January was $6.8m, but Turnbull said the insurer took large events like the eruption in its stride.

Several others costs had impacted the business, including Toka Tū Ake The Earthquake Commission continuing to pass new “over cap” claims to the insurer from the Canterbury Earthquakes of more than a decade ago.

Tower had $36m of open claims for the earthquakes at the end of September, and had a dedicated team working to finalise claims, but the insurer had had to set aside another $7.5m during the year towards those claims.

The company had also set aside $2.6m to pay back customers for overcharging them by failing to properly apply multi-policy discounts given to people who had more than one policy with it.

“We’re righting a wrong,” said Turnbull.

It’s not only Tower policyholders being hit by large price rises in excess of inflation, partly the result of rising claims for weather-related events.

Suncorp, which owns Vero and has a majority stake in AA Insurance, in August announced its New Zealand after-tax profits slipped 23% to $165m in its most recent financial year, despite a huge increase in premiums paid by home, car and business owners.

The gross written premiums it collected in New Zealand in the 12 months to the end of June increased from $1.87 billion in the previous financial year to $2.13b.

That included the gross written premiums paid by vehicle owners rising from $460m to $527m, and premiums paid by homeowners rising from $616m to $708m.

Australian insurer IAG, which owns State, AMI and NZI, increased premiums collected by 7% in New Zealand over the same period, with the growth mostly driven by premium increases for policyholders, investors were told.

IAG published a list of extreme weather event claims costs it said were pushing up costs.