|
What is Driving Insurance Premium Increases Across New Zealand?
Many of us have noticed that our insurance premiums are increasing, and for some insurance types such as property, increases may be significant.
This year, several things have impacted pricing and availability of insurance cover. Factors driving premium increases in New Zealand include:
Claims and losses: Insurance premiums are influenced by the frequency and severity of claims made by policyholders. When there is a significant event, insurers face a surge in claims. This year has been challenging for insurers with two of the most significant weather events in New Zealand’s recent history happening within weeks of each other in the first quarter, resulting in some of the largest claims volumes ever experienced. As at the end of June 2023, insurers have paid out $1.8 bn of an estimated total of $3.18 bn with over 107,569 claims recorded from the Auckland Anniversary Weekend floods and Cyclone Gabrielle.
Underwriting: Insurance premiums are typically based on the risk profile of the policyholder. Factors such as the location of property, size or value, owned or occupied, nature of business activities, risk management (e.g. fire and security protection), previous claims history, coverage limits, specific property features or items you choose to insure along with other policyholder characteristics can affect premium calculations.
Inflation: Periods of high inflation can result in insurers experiencing higher claims and operating costs. Higher costs of materials and labour, coupled with supply chain constraints continue to drive increased costs in building. As prices increase, insurers adjust their premiums to ensure that the coverage remains adequate to protect against higher replacement and repair costs. The impact of inflation may also mean that you need to buy higher levels of insurance to ensure you remain adequately covered, which also impacts on premiums.
Government Taxes and Levies: With effect from 1 October 2022, the New Zealand Government increased the EQ Cover residential building cap and associated premium (levy) for homeowners.
Reinsurance Costs: Insurance companies purchase reinsurance to mitigate their own risks. If the cost of reinsurance increases, insurers pass this expense on to policyholders through higher premiums. At the most recent reinsurance renewals for some New Zealand insurers (1 July), significant price increases were applied as a result of the severe weather events in January and February. These effects on reinsurer appetite for New Zealand risks are likely to last for a number of years.
It is important to note that insurance premiums are determined by individual insurance companies, and the specific reasons for premium increases may vary between insurers and policy types. People need to review their insurance policies regularly and consider factors like coverage, excess, current circumstances and changes, as well as premiums before making insurance decisions. | 
