No doubt you recall the devastation we saw earlier this year with the flooding and cyclone in Auckland, Hawke’s Bay and surrounding regions. The damage was immense, and there’s still plenty of work to be done in those regions to bring them anywhere back to where things were before these natural disasters.
These disasters impacted a significant number of households, and as at early March there had been more than 48,000 claims in relation to the Auckland floods and a further 30,000 claims in relation to Cyclone Gabrielle. These two events resulted in twice as many claims as were made as a result of the Kaikoura earthquake in 2016.
Claims from the Auckland flooding has totalled more than $1.65 billion, with Cyclone Gabrielle already resulting in $890 million in claims, with more expected over the next few months. These claims come from homeowners who have seen their houses, vehicles and possessions destroyed, as well as business owners who have seen their property, plant, stock, crops and livelihoods severely damaged as well.
So how do these events affect your insurance premiums?
Insurance premiums can change from year to year for a number of reasons, but the three key factors that contribute to these increases are:
- More and higher frequency weather events
- Rising claims costs
- Rising reinsurance costs.
Weather events
We’re seeing more and more stories about severe weather events. From the bush fires in Australia and California (not to mention here in New Zealand too) to floods, cyclones and in the past 15 years significant earthquakes.
Since August 2022 the insurance industry has recorded 11 significant weather events, resulting in a 34% rise in weather related damage compared to the same period in the previous year. Furthermore, the flooding and the cyclone this year are the two most significant non-earthquake events in New Zealand’s history.
Claims costs
The profile and frequency of these natural disasters coupled with the impact of rising building and construction costs over the past 2 years has also meant insurance claims cost has risen sharply. Whilst we expect inflationary costs to flatten out over time it remains a cost pinch point for the Insurers to manage.
According to data provided by the Insurance Council of NZ (ICNZ), construction costs have increased 28%, building materials by 12-18%, and vehicle parts by 10%.
Demand and supply chain imbalances remains a challenge and that feeds also through to higher claim costs.
Reinsurance costs
Recent weather events globally has highlighted the change, size and frequency of weather related loss. Insured losses globally are expected to top $50 billion for the third year in a row. The war in Ukraine, rising interest rates and the rapid increase of inflation has also contributed to an revision in risk appetite from global reinsurers.
New Zealand’s reliance and use of reinsurance protection to cover large scale natural disasters means this cost that we all contribute to will continue to rise, International reinsurers will assess patterns, recent weather related losses and the frequency of events and reset their rates. We are of course expecting the reinsurance costs to rise and this will impact your premiums.
Given all these factors the combined result will see an increase in our premiums. So what can you do? The key is to ensure your policy settings are current and accurate. It’s essential your property sums insured (the amount you insure for) reflect current replacement values, vehicles are listed alongside their current market values and any recommendations for other policies are carefully reviewed and considered. If you need help with any of your policy settings, excess levels and/or further options then please contact us, We are here as your qualified adviser to give you the right advice needed.
