Tower warns some homeowners will only be able to afford partial insurance cover

Thursday, 23 November 2023

Before-and-after photos show this beautiful country estate before Cyclone Garielle came through in February.

“The unpalatable truth is that not everyone is, or will be, able to afford to insure their home in the way they do now,” Tower chairperson Michael Stiassny says as the NZX-listed insurer posted a loss despite collecting 17% more in premiums.

Tower will not pay a full-year dividend to shareholders after announcing a loss of $1.2 million in the year to September 30, following a profit of $18.9m in the previous year.

Claims from the extreme weather that hit the county in January and February, as well as having to set more money aside to pay for overcharging customers by not giving them the multi-policy discounts they were due, contributed to the loss.

Tower collected 17% in gross written premiums from its customers, with three-quarters of that coming from charging them higher premiums, and the rest from new customers it had attracted from its rivals.

The company was responding to the loss by increasing premiums for its house, contents and vehicle insurance, auguring continued premium increases for households in the next few months.

Chief execuctive Blair Turnbull said Tower would continue its focus on delivering targeted customer and premium growth.

It also intended to continue to expand its risk-based pricing, where it charged higher premiums to customers with homes at heightened risk of things like earthquake, flood and coastal erosion.

Tower insurance chief executive Blair Turnbull says, “Tower has long urged New Zealand to stop building in risky areas.“

“We will also build on our leading risk-based pricing by expanding our model to include landslide and coastal hazards,” Turnbull said.

Its two larger rivals IAG, which owns the State, AMI and NZI brands, and Suncorp, which owns Vero and has a majority stake in AA Insurance, have both signalled they intend to do more risk-based pricing.

But the move towards risk-based pricing threatens to leave some people unable to afford to insure their homes, or to insure them in the way they currently do, Tower said.

Stiassny said that “for Tower to remain a sustainable, resilient business, we must not only be more selective about the risks we take on, but also develop cost-effective alternatives to traditional, comprehensive insurance cover”.

That would include kinds of policies not seen before in New Zealand, including policies that only cover houses for some risks, but not all, leaving homeowners without cover for some damage to their homes.

“Over time, a range of options are likely to be offered including parametric cover which has already been successfully trialled in the Pacific,” Stiassny said.

“Customers are also likely to be offered the opportunity to choose the risks they want , and can afford, to cover. For example, offering fire only policies in flood-prone areas,” he said.

Cyclone Gabrielle brought slips and flooding to the north Waikato town of Port Waikato.

“This approach is already common in many other parts of the world and, while it will take some getting used to, it will likely replace comprehensive cover for at least some New Zealanders.”

“The New Zealand market enjoys strong insurance penetration and people will be loath to give up all protection. So, while affordability is currently presenting challenges, the desire and need for insurance will not dissipate.“

Parametric cover is insurance that pays out a fixed sum should a defined event occur, such as a cyclone that exceeds a specified level of severity.

Turnbull said Tower had invested to improve efficiency through digitisation.

January’s Auckland Anniversary weekend storm had a devastating impact on hundreds of Auckland homes.

Earlier this week the insurer signalled it would stop selling farm insurance.

It had also increased the amount it expected to have to pay in refunds to customers who it failed to apply multi-policy discounts to, meaning they overpaid for their insurance cover.

Tower now expected the costs associated with the refund programme would be about $11.2m, up from $6.2m.

It is making refunds to about 5000 customers. The insurer has about 321,000 in total.

Large events had cost the insurer $55.6m compared to $19m in the previous year.

Data from the Insurance Council of New Zealand Te Kāhui Inihua o Aotearoa indicated just over 55,000 house insurance claims as a result of the Auckland Anniversary Weekend floods in January, and Cycloine Gabrielle in February.

Turnbull said Tower had settled 84% of claims for the Auckland and upper North Island weather event and Cyclone Gabrielle, and 88% of claims for Cyclones Judy and Kevin in Vanuatu.