Insurance price hikes may leave more Kiwis without cover

Consumer NZ urges a government-led climate adaptation framework to keep insurance accessible by 2035. Photo / Getty Images

By Susan Edmunds of RNZ

Insurance has had the largest price rise of any item tracked in the consumer price index since 2000, Consumer NZ says, and there’s a risk that more people may not be able to access it at all in future unless there are industry changes.

Consumer has released a report into the insurance industry, investigating how climate change is affecting the cost and availability of house and contents insurance.

It noted the cost of insurance had gone up 916% since 2000. That is ahead of the increase in the price of cigarettes and tobacco, which were up 608%.

The price increases were prompting people to drop their insurance, Consumer NZ investigative team leader Rebecca Styles said. She said it was particularly an issue for retirees on fixed incomes. “They’ve come to me and they’re like ‘I can’t keep paying these, 15%, 20%, 30% increases year-on-year. We can’t afford it any more’.”

She said, in 2022, 7% of those who had dropped their house insurance had done so because of the cost. This year, the proportion was 17%.

“The anecdotal feedback we’ve received is people are making what seem like extreme pragmatic decisions – ‘oh my mortgage is paid off, well I’ll drop my insurance as soon as that’s done’. I asked them, ‘what will you do if there’s a natural hazard or something, you’re not covering for that;… they’re like ‘oh well I’ll live in a caravan’. Taking big risks with their financial future, really.”

She said options were limited for people struggling to pay. “You can switch around, we’ve got very low switching rates in New Zealand… but if you live in Wellington and Christchurch, it’s harder to switch. You might not be able to get the quote online, you have to ring around, which you know is the life admin of reading the policies… it’s not a five-minute job.”

High-risk areas might find it hard to get cover elsewhere, she said.

Climate change and the cost of increasing weather events were pushing up the cost of insurance, the report said.

“Stats NZ figures show the cost of house insurance started tracking up significantly in 2011, again in 2017 and once more from 2022 to 2023.

“These spikes are probably due to the impact of natural disasters on insurers. In 2011, Christchurch experienced a devastating earthquake, with $21 billion worth of insured losses. 2017 was declared the worst year on record for weather-related losses, with $242 million paid out by the insurance industry.

“This has since been eclipsed by the Auckland Anniversary weekend floods and Cyclone Gabrielle in 2023, with the losses that year currently calculated as costing $3.8 billion.”

Styles said, for insurance to be affordable and remain available, the industry wanted effective climate adaptation legislation and a related framework.

“Such a framework would clarify which homes are at risk and whether mitigations, adaptation or retreat is the best way to keep people and property safe. Without such a framework, insurers might retreat from insuring homes, communities, cities and even entire countries if the risk proved too great.

“Without serious intervention in the form of a government-led adaptation framework, with cross-party support, it’s possible that many New Zealanders will not be able to get insurance by 2035.”

She said Tower’s recent announcement of more risk-based pricing was potentially the start of another round of insurers stepping back. “I think the numbers are just going to keep going up if we don’t get a climate education framework in place to help communities adapt.”

She also recommended the Financial Markets Authority review the pricing of house and contents insurance to confirm New Zealanders were being charged fairly, based on accurately assessed risk, and to ascertain why householders in this country were paying more than Australians.

She said, at renewal, insurers should offer clear and transparent information about what had changed, including the difference in price, and how cover would be affected. They should also be more transparent about natural hazards data so people could see how it related to their house.

Styles said the Government should also develop a comparison and switching platform to make it easier to change insurers, and create an avenue for policyholders to contest high premium price hikes.

She called for the Government to review how many houses were not adequately insured, and banks could check when a mortgage refixed that there was sufficient cover in place.

Insurers should also report to the Financial Markets Authority on the postcodes they were no longer insuring.

She said a big question was who would pick up the bill for the changes required. “Our research shows that people expect central and local government to pay, insurers to chip in, as well as individual property owners ... but we need leadership and government.”

The Insurance Council said it recognised that it had been a challenging time for New Zealanders facing cost-of-living pressures.

“As Consumer NZ highlighted, there are a number of drivers of premium levels, some outside insurers’ control, including building cost inflation, global reinsurance, and government taxes and levies.

“Insurers are moving toward more risk-based pricing as understanding of hazards like earthquakes and flooding improves. They’re also working to help customers manage their protection more cost-effectively, and we encourage people to explore options and shop around.

“We’ve consistently said that New Zealand must take a long-term view of natural hazard risks, especially as climate-related events become more severe. Like Consumer NZ, we support government leadership on climate adaptation and standardised risk data to avoid building in high-risk areas and invest in resilient infrastructure like flood protection.

“By acting now, we signal to global reinsurers that New Zealand is addressing rising climate risks and working to keep insurance accessible for future generations.”