US attacks to trigger NZ premium hikes

By KEVIN TAYLOR

Big premium hikes for New Zealand businesses - and possibly households - are looming after the United States terrorist attacks.

The Insurance Council says premium rises of 100 per cent or more are being predicted.

Businesses are also likely to face more exemptions and will need to start carrying more of the risk themselves, says council chief executive Chris Ryan.

Rises will come as domestic insurance companies pass on increased charges from badly-hit overseas reinsurers coping with losses from the terrorist attacks estimated at between $US30 billion ($73.8 billion) and $US58 billion ($142.8 billion).

However, the extent of the effect on domestic premiums is not yet clear.

Mr Ryan said that even before the September 11 attacks the international insurance market had suffered poor underwriting results and was widely recognised as being underpriced.

"Internationally, substantial premium increases were predicted. It is now clear those predictions will come true far sooner than expected."

New Zealand Insurance chief executive Mike Hannan said premiums would rise but the extent of the increases was not yet known.

NZI is about to enter negotiations with its own overseas reinsurer, but Mr Hannan said the new charges were unlikely to be known until November.

However, he said it was likely to be "something in excess of 30 per cent" higher, which was pretty severe.

Other policy types besides commercial property could also be affected.

"We could anticipate that it won't be confined purely to commercial property. It may well get into the area of motor vehicles. It could be residential."

Royal & SunAlliance Insurance (NZ) managing director Roger Bell said there would be premium increases but he could not be specific at this stage.

Before the attacks, Royal & SunAlliance was already planning for rises of up to 40 per cent in the cost of the premiums charged by the company's reinsurers.



Mr Bell said people should not see the reinsurers as the villains.

"It's only through their support that New Zealand gets covered," he said. Because of the country's earthquake risk, if it did not get that support Kiwis would not get cover.

"We will pay for New York but the rest of the world will pay if there's a big earthquake event here."

Mr Ryan said New Zealand's $2 billion insurance market would be changed dramatically by the attacks. But the full economic consequences %would unfold only over coming months.



%New Zealand companies could expect to see some international insurers having difficulty meeting demands for claims payments - and some might become insolvent.

"The impact of three or so years of poor underwriting profitability means that many insurers internationally already had low cash reserves and weak balance sheets."

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