Largest insurer expects to pay $383 million in flood claims

Friday, 3 February 2023

Furniture and household items line the streets of Shackleton Road in Auckland's Mount Eden on Thursday morning, as flooding around the city clears.

The country’s largest insurer says it has had more than 15,000 claims from the Auckland and North Island floods, and expects to pay out more than $383 million in claims.

In an announcement to investors, IAG, which owns the AMI, State, and NZI brands, said it would be able to claw back part of the A$350m (NZ$383m) claims cost from its reinsurers.

Despite that, under its reinsurance arrangements, it has to pay for the first A$236m (NZ$258m) of claims on the house, contents, car and other insurance policies it has with New Zealand households and businesses.

Chief executive Nick Hawkins told investors: “The gross costs for the Auckland event are expected to exceed A$350 million.”

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IAG’s rivals Suncorp, which owns the Vero and AA Insurance brands, and Tower have also announced large claims numbers.

Tower has had 1900 flood claims so far, while Suncorp has had more than 3000 claims.

The flooding has now become the most expensive extreme weather event in New Zealand insurance history, having far outstripped the Timaru hailstorm of November 2019, which cost insurers around $170m.

Hawkins said IAG now expected to pay out A$70m more for natural perils claims in the first half of the company’s financial year than it had forecast.

Despite that, Hawkins said IAG would remain in profit.

That was partly a result of premium rises households in New Zealand and Australia had had to swallow.

Hawkins expected IAG to collect 10% more in premiums from policyholders in the current financial year.

“This reflects further increases in premiums in response to inflation, natural perils experience, and additional reinsurance costs,” he said.

Reinsurance is the practice of insurers like IAG paying global reinsurance companies for insurance against being hit with claims costs after natural disasters that they cannot manage by themselves.

After calling on reinsurance, the amount of reinsurance available to IAG for any further catastrophe events during 2023 is now A$192 million.