Insurance premium worry: flood may see NZ's biggest insurer blow its budget for 'natural perils'

Monday, 30 January 2023

The City of Sails is bracing for more rain, with fears already-damaged properties will be hit again.

Auckland’s flood could see the country’s largest insurer, trans-Tasman insurer IAG, blow its near billion-dollar budget for “natural perils” claims this year.

Consumer NZ spokesperson Jessica Walker said it was too soon to say whether that could have implications for people’s insurance premiums, but that was an issue the consumer group planned to look into.

IAG, which owns the State Insurance, AMI and NZI brands in New Zealand, said in a statement to the Australian Securities Exchange (ASX) on Monday that it was too early to determine the financial impact of the flood.

But it indicated that, under its reinsurance arrangements, its own maximum exposure would be capped at A$236 million (NZ$258m).

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Severe flooding damage at an Auckland home on Friday night.

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In August, IAG chief executive Nick Hawkins announced it was lifting the amount it was budgeting for “natural perils” across Australia and New Zealand in the year to the end of June by 19% to A$909m “to deal with the increasing severity and frequency of extreme weather events”.

Trans-Tasman insurer IAG, which owns the State, AMI and NZI insurance brands, saw its market value slip by about $525m on Monday morning, giving one indication of the possible cost of the Auckland flood.

But the insurer suggested on Monday that it could now exceed that budget, telling the ASX in the wake of the Auckland flood that it might “review its estimate for natural peril costs this year”.

IAG shares fell by 4% shortly after trading opened on the ASX on Monday in an otherwise relatively flat share market, shaving about A$480m off its market value of just under $12b and giving one possible indication of the likely cost of flood claims.

Flooding wreaks havoc across Auckland.

Although IAG may need to raise its budget for natural perils, it has substantial capital and reinsurance it can draw on to meet the cost of multiple larger disasters.

That includes just over A$4.3b of its own capital that regulators assess it could use to meet claims, and back-up cover of up to A$10 billion each to meet the cost of up two separate major disasters in either New Zealand or Australia this year.

Hawkins said IAG’s priority was the safety of its customers and communities.

“The tragic loss of life and the vision of the damage to Auckland is devastating.”

The Insurance Council is starting to gather information on the number of early claims from Auckland’s flood but said it might be a month before insurers were able to release their first estimate of the possible costs.

Spokesperson Christian Judge said it knew the number of claims would rise in the days and weeks ahead.

Judge would not comment on suggestions total claims from the flood could run to somewhere between $400m and $1.5b.

It normally took about three months to report on the final approximate costs of a disaster, “but clearly this is going to take longer than three or four months before it is done”, he said.

IAG said on Monday morning that it had received 5251 claims for damage to homes, contents, vehicles and businesses.

It expected the number would “continue to rise” as its customers assessed damage and those who had been evacuated returned to their homes.

NZX-listed insurer Tower said on Monday afternoon that it had received about 1900 claims, of which about 1000 were house claims and the remainder motor and contents claims.

But chief executive Blair Turnbull said it expected to receive further claims as customers assessed their damage.

Tower had robust reinsurance arrangements in place that covered house, contents and motor losses, in addition to providing $934m of catastrophe cover, and its profit guidance for the year was unchanged, he said.

Its shares were down almost 5% in late afternoon trading.

Amanda Whiting, chief executive of IAG’s New Zealand arm, said its immediate focus had been supporting customers with temporary accommodation and other emergency support.

She asked customers outside the areas impacted by the floods to wait to lodge insurance claims unless their matter was urgent.