NZ’s largest insurer joins trend to increase premiums on risk-prone homes

Tuesday, 22 August 2023

The country’s largest insurer is following Suncorp and Tower down the path of greater risk-based pricing, charging owners of homes at higher risk of natural disasters more for their insurance.

But IAG New Zealand chief executive Amanda Whiting said she was not pulling too hard on the risk-based pricing lever.

“We absolutely have the modelling available. We can put those prices into market, but we are very conscious of the role we play,” Whiting said.

“We’re very mindful, being the largest general insurer, that we want to make insurance affordable, and accessible.”

IAG, which owns the State, NZI and AMI brands and is the number one house, contents and car insurer, announced a drop in profit for its New Zealand operations on Monday.

But like rival insurers, that decreased profit was earned on significantly higher revenue, with IAG collecting $3.6 billion in premiums in New Zealand, up 12% on the previous year.

Since the Christchurch earthquakes just over a decade ago, insurance premiums have been on the rise, and high inflation and an increase in extreme weather events, continues to push them ever higher.

“We will expect to see some price increases going through in the next 12 months,” Whiting acknowledged.

The risk-based pricing moves by Tower and Suncorp may send signals to homebuilders and buyers on where is sensible to live, but they also pose a threat to IAG.

If IAG does not respond, it could end up with the lion’s share of the risk.

“That is a challenge, and one we are really alert to at a market level,” Whiting said.

But, for Whiting there was a delicate balancing act the country had to achieve on risk-based pricing

between the moral risk of continuing to insure customers who were not taking any action, and the risk of pricing people out of the market.

“If we cut to the chase here, the biggest problem is we need to rethink what general insurance does as an industry in this country,” Whiting said.

Speaking at the Financial Services Council conference in Auckland earlier this month, Cyclone Recovery Minister Grant Robertson said it was a question that needed to be tackled.

“What is the place of the insurance industry in a period of time when the risk-modelling approach is challenged by climate change? How much does government and the private sector partner, so people do feel more secure?

“This is one of the most important bits of work the government has got to do,” Robertson said.

“Is this the time for an EQC-style levy on other events like floods, if they are going to be that regular? Now, I haven’t taken a position on that, but it’s a conversation that we need to be having,” Robertson said.

The Toka Tu Ake EQC scheme principally covers the first $300,000 plus GST of damage to homes from certain natural disasters such as earthquake and volcanic eruption, as well as providing some limited coverage for damage to land, including some damage to land from flooding.

It effectively allows people all throughout the country to share a large portion of the risk of earthquakes, with people in some places considered at less seismic risk like Auckland effectively subsidising people in shakier parts.

But, while the EQC scheme has worked well to help communities recover from earthquakes, Local Government New Zealand says “flooding is the number one naturally occurring hazard in Aotearoa”.

There were many models for national flood-risk schemes around the world, Whiting said. “Some are government-run, some private-run, some a mix of both.

“I’m hopeful these conversations will continue, and we can create some action.”

“Our model needs to ensure that risk mitigation occurs, and is rewarded. If we can build a model that does that, if we can build a fund that does that, we would really support it,” she said.