Life insurance premiums rose by only 0.6 per cent in the year to the September quarter, while health insurance premiums jumped 7.1 per cent.
Insurance Council of New Zealand chief executive Tim Grafton put the rise in home, car, and contents insurance down to three factors: high construction costs, insurers needing to recoup losses from the series of severe weather events in the North Island earlier in the year, and rising reinsurance costs.
The trouble for homeowners is that insurance premiums are soaring, as local council rates also rose by 9.8 per cent between the September 2022 and 2023 quarters.
Local councils are grappling with inflation, as they’re trying to upgrade infrastructure using limited pools of revenue. Meanwhile, credit ratings agencies are keeping a close eye on them as they come up against their debt limits.
The faint silver lining is that price rises are generally slowing (annual consumer price inflation fell to 5.6 per cent in the September quarter). Meanwhile, Grafton doesn’t expect insurance premiums to keep rising by as much as they have over the past year or so.
While insurance companies are using more granular modelling to price risk, warning owners of particularly risk-prone properties that insurance may not always be available to them, Grafton saw some of the factors that have been pushing premiums up abating.
Construction cost price rises are slowing, while the reinsurance market is plateauing, having hardened on the back of extreme weather events and inflation around the world.
Grafton explained reinsurers had been providing insurers less cover, leaving insurers to carry more risk on their own balance sheets.
He said he would like to think we are in a more benign period now.
Nonetheless, the chief executives of IAG and Suncorp – the two Australian-owned general insurers that dominate the New Zealand market – in August told the Herald policyholders should continue bracing for premium hikes.
Suncorp chief executive Jimmy Higgins explained that prior to 2023, reinsurers didn’t believe New Zealand faced material flood and cyclone risk. Rather, it was known for being earthquake-prone.
Now, reinsurers must figure out whether the events of earlier this year were outliers or the “new normal”, notwithstanding the fact climate change is increasing the severity and frequency of severe weather events.
Speaking to the Herald in March, Higgins said he worried the state of the country’s water infrastructure wouldn’t help allay reinsurers’ concerns.
“You can model a flood from a river if that breaks its banks,” he said.
“It’s much more difficult to model a flood in a built environment because you’re working on the assumption that stormwater drains are able to cope and are maintained. And you’re also working on the assumption that wherever the buildings are going up, the catchment areas around [them] are suitable to mitigate the flood risk.
“I don’t think that’s happening, and I don’t think that’s well understood. If it was understood, it would’ve been properly priced for.”
Until the risks are properly understood, and reinsurers update their models, Higgins said they would consider New Zealand high-risk and price for that accordingly.
Coming back to Grafton, he wanted to see the new Government focus more on climate change adaptation.
He said it was important to reduce risks, as they can’t keep being shifted to insurers.
Nonetheless, deciding who pays to better protect property, and at the extreme end of the spectrum – pushing people to move to lower-risk places – Grafton admitted the costs couldn’t be borne by New Zealand’s small population alone.
He believed it needed to be shared across generations, using both public and private finances.
Furthermore, Grafton said people couldn’t continue building in high-risk areas, then expect bail-outs.
He hoped a proposed National Policy Statement for Natural Hazard Decision-Making, which is currently being consulted on, would effectively help decision-makers consider risks in planning decisions relating to new developments under the Resource Management Act (RMA).
The previous Labour-led government did a considerable amount of work to start repealing and replacing the RMA with three new pieces of legislation.
One of these new pieces of legislation was to address the issue of adaptation, and especially look at how property owners might be compensated should they have to move.
National campaigned on repealing and replacing the RMA using a different approach.
Grafton said the National Policy Statement for Natural Hazard Decision-Making was important in the absence of an RMA replacement.
Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
