The spotlight of the New Zealand insurance industry has fallen on how to best deal with endangered properties - and one of the questions that have come to the fore is whether insurers would be prepared to increase the length of their cover to prevent banks from contending with a portfolio of assets in technical default.
According to Brendan McGillicuddy, national portfolio manager for IAG, as part of the firm’s risk appetite as an insurer it sets boundaries that determine such things as the maximum period of time it is prepared to issue cover before a policy renews.
“As it currently stands, the maximum period of insurance we offer for homes is 12 months before the policy comes up for renewal,” he said. “This enables an annual review and changes to occur, such as allowing improvements to the home to be reflected, adjusting the sum insured for inflation, receiving the benefits of improved product wording as well as reassessment of the physical risks the home is exposed to.
“Longer-term contracts are considered non-conventional and would make these types of changes harder. Therefore there is not an appetite to provide this sort of cover within IAG New Zealand for home insurance.”
He pointed out that in addition to annual policies enabling changes to terms and conditions they also enable cancellation by either the customer or the insurer during the period of insurance.
“This would remain even with longer-term contracts as there can be sudden changes that mean either party wishes to make changes or cancel the policy,” he said. “A good example of this for insurers is if a fraudulent claim is made or a number of claims occur.”
McGillicuddy also emphasised that a sea level rise does not occur suddenly.
“This means we do not expect to see people surprised by a sudden change to their insurance coverage,” he said. “Councils are already taking steps to ensure that property owners are aware of the long-term risks to their property from sea levels rising.”
He said that IAG will continue to actively engage with local and central government and its customers over this matter as well as forming risk management strategies and plans.
“For example, we are part of the Climate Change Minister’s Climate Change Adaptation Technical Working Group,” he explained. “We expect there will be a good understanding of the long-term implications many years in advance, or even decades in advance, for customers and communities as the impacts of sea level rises are better understood, as are the ways that various organisations can work together to help the communities impacted.”
