Some homeowners could find it harder to get flood insurance cover in the future while the cost may rise for others, an industry expert warns, while an analyst has predicted the Auckland flooding could cost the industry close to $1 billion in claims.
Mel Gorham, chief executive of IBANZ - the industry body for insurance brokers, said brokers and insurers had had a very busy weekend after Friday’s flooding and were now bracing themselves for what could be coming over the next 24 to 48 hours with more heavy rain predicted.
She said it was possible the flooding could push up premium costs in the future for house, contents and car insurance.
“Certainly it’s possible depending on what the eventual size of the event is across all those different lines.”
Gorham said it would be based on how much damage there was and the severity of it.
“You have obviously got a number of red and yellow stickered houses that have been reported at the moment. And then coupled with that is the potential for the event over the next 24 -48 hours in regions from Northland through to Coromandel and probably even further.”
It’s still early days for the number of claims but so far IAG - New Zealand’s largest insurer whose brands include State Insurance, AMI, NZI and Lumley, has received around 5000 claims (this number has since risen to 7226 claims as of 10am Tuesday) while Suncorp - the owner of Vero and part owner of AA Insurance - has received around 3000 (this has since risen to 4500).
Tower Insurance also said it had received 1900 in an announcement to the stock exchange yesterday.
Analysts from investment bank and broker Jarden say based on the market shares of IAG and Suncorp it estimates there will be around 11,500 claims across the industry so far.
“Given it is only two to three days since the event started [on January 27], further significant development is likely.”
Based on claim reporting patterns from Australian flood events in 2021/22, they estimate claim numbers could grow by three or four times that number from here and assuming an average claim size of A$20k ($21,824) this implied an industry loss of A$700 million-$900m ($764m-$982m).
That would make it the most expensive natural disaster event since the November 2016 Kaikoura Earthquakes which cost $2.27b, according to Insurance Council data.
Last year the most expensive weather insurance event was flooding around the North Island in March but that only cost $119.6m
Gorham said insurers would be looking at their data to consider the frequency of the events to see if there was a trend forming.
“If there is a trend in a negative or positive way then you can expect there will be some refinement of pricing up or down.”
It could mean pockets of Auckland could find it more expensive or harder to get insurance.
“You are already starting to see that developing in parts of the country. Insurers are certainly looking at flood risk and people’s proximity to that flood risk. And it can be quite different even from one side of the road to the other.
“Insurers are going to get more and more sophisticated with how they rate both regions and individual properties as they try to understand the risks that are posed and whilst insurance is a pool much like motor vehicles those who pose a bigger risk do tend to get a significant premium.”
She couldn’t rule out the risk that some property owners would be unable to get flood cover insurance in the future.
“Ultimately I don’t think you can rule that out. Whether or not that is happening at the moment I’m not sure.”
It’s the second major weather event to hit Auckland in recent years with parts of west Auckland affected by severe flooding in August 2021 - an event that cost the industry $62.39m.
But Gorham said that event was reasonably isolated by comparison to this one.
“So you have got West Auckland quite badly affected, South Auckland, North Shore and even central Auckland. That’s probably the defining difference is just the numbers of people and number of suburbs that have been hit.”
She said it was not clear how many people had been affected although it still seemed to be relatively low given around 1.5 million people lived in Auckland.
“That’s the difficulty at this point - understanding the severity of this event and also what the next 48 hours is going to do - given the water table will be reasonably full.”
Gorham said it would take some time to quantify the cost with the initial costs like pumping out water then followed by carpets to replace and walls to repaint and furniture replacement.
“Certainly the industry with the likes of the quakes is used to dealing with many times those numbers of claims and dollars. In terms of getting up to a billion is a very significant event if it gets there.”
How much of an impact it had on the industry would depend on what other claim events occurred within an insurer’s financial year.
“The insurers look at what happens over the year - if they are fortunate enough to otherwise have a reasonably quiet 12 months - it is a little early to tell - I would not be surprised if there was an impact because of this. But I think insurers are already on the journey to look in far more detail at the individual risks that are presented and floods certainly are an area of focus.”
In November 2021 Tower announced it had moved to a risk-based pricing model for flood risk which meant around 10 per cent of its customers saw a rise in the flood risk portion of their insurance premiums.
Gorham said it was unlikely there would be enough insurance assessors to handle the workload.
“There will be delays. They will be prioritising based on those most in need.”
She urged people to get their claims in as soon as possible and ensure they photographed the damage.
Amanda Whiting, IAG NZ chief executive, said this weather event was unlike anything it had seen before and the loss of life and livelihoods was devastating.
“We have a large team assisting people with their claims and are continuing to add further resource to support our customers. With the heavy rain continuing, it’s important to prioritise your safety, and not to attempt to enter homes and premises that may be unsafe.
“The benefit of being a trans-Tasman team is that our Australian colleagues are already working alongside us – it’s all hands-on deck. We are committed and here to help.”
The insurer had teams on the ground assessing the damage and those with the highest needs were being prioritised first.
“I’ve witnessed the devastation first-hand here in Auckland and it’s been a very traumatic experience for those who have literally lost everything.
“We encourage customers who are safe and out of immediate danger to contact us online or over the phone so we can provide support and lodge claims.”
She also asked customers outside of the affected areas to delay lodging other claims.
“We appreciate that our customers up and down Aotearoa will also need support – claims elsewhere don’t stop. However, given the nature of this event we would ask customers outside the impacted areas to wait to lodge their claims unless it is urgent.”
A spokeswoman for Suncorp which owns Vero and part-owns AA Insurance alongside the New Zealand Automobile Association, said claims were still increasing steeply.
“We’re putting all our resource into supporting our customers and employees, scaling up our operations and prioritising claims of those most in need.”
AA Insurance acting chief executive Simon Hobbs said the weather event was shaping up to be the largest event it had seen since the Canterbury earthquakes of 2010-11 with close to 3000 claims made to it so far.
“The continuing heavy rain is falling on already saturated ground which may cause slips or worsen existing damage. AA Insurance wants to reassure customers that if you have made a claim related to this storm, any subsequent storm-related damage from this event will be covered under the same claim – there’s no need to make another claim.
“Our assessors will work with you to understand the extent of the damage. The best thing to do is take photos of damage, hold onto receipts if you make emergency repairs, and keep damaged items if it’s safe and practical to do so.”
Customers who hold multiple policies would also only pay one excess, Hobbs added.