Brokers need to be having conversations with their clients about potential hikes in property insurance due to the $2.5 billion in insured losses New Zealand has suffered over the past 12 months, industry leaders have warned.
Insurance Council of New Zealand (
ICNZ) CEO
Tim Grafton said the Kaikoura earthquake, of November 14, 2016, will cost
ICNZ’s members roughly $2 billion in insured losses, while weather related damage, such as the Edgecumbe floods, will cost $231 million, with the remaining losses covered by offshore providers not part of
ICNZ.
By contrast to the $2.5 billion in insured losses, the gross written premium (GWP) for ICNZ’s members for the past year would be sitting around $5 billion. The last 12 months have had a “significant impact on our members,” Grafton explained.
“There have been huge losses in New Zealand, which are very large compared to the total market,” he continued.
“Brokers have a role in representing the insured, so they should keep them informed about the market. There have been significant increases in government levies and taxes (this year) - there was a 40% increase to the Fire Insurance Levy that applies to all commercial and residential property on July 01. On the first of November, there will be a 33% increase to the Earthquake Commission’s Levy [this will only affect residential properties].”
ICNZ has 26 members, including major insurers and reinsurers Cigna,
IAG,
AIG,
Munich Re and
Swiss Re. These members represent 95% of the general insurance market in New Zealand. Grafton said ICNZ’s members protected assets and liabilities would total around $600 billion, which includes other lines of insurance such as life.
We’re currently in renewal and reinsurance season, and the past 12 months in New Zealand will have more of an impact on reinsurance costs than what’s happening around the world, Grafton said.
“The jury is out on the impact the four hurricanes and earthquakes in Mexico will have on global reinsurance costs. I don’t think it will be enough to impact the global market, which is awash with capital.”
Grafton said reinsurers had told ICNZ that there would need to be over US$100 billion in insured losses suffered for there to be a significant market shake that would affect New Zealand.
He said reinsurers and insurers would base their risk assessment on historical events such as the Canterbury and Kaikoura earthquakes.
Grafton estimated the earthquakes in Mexico would bring total insured losses of around US$2 to $3 billion and most of that would come from commercial losses as Mexico is underinsured in the personal residential property space. Insured losses from the hurricanes are still unclear, but early indications are within US$30 to $40 billion, he noted.
Legal insurance expert and partner Duncan McGill, of Duncan Cotterill, said it was “logical” to expect premium increases for residential and commercial property insurance.
“We experienced that with Canterbury and there should be a similar increase with Kaikoura,” McGill said.
“Reinsurers and insurers will assess risk based on historical profile. New Zealand has a history of earthquakes and this will be taken into account when assessing property insurance and weather associated costs. Also, the frequency of events will have an impact on reinsurance costs.
“Brokers should be having conversations with their clients about reinsurance costs as premiums are likely to increase for property insurance in the wake of the Kaikoura earthquakes,” he added.
McGill said the global situation (with Mexico and the hurricanes) could have a small, marginal impact on New Zealand but the main increases would be attributed to historic risk.
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Reinsurers might want to re-negotiate post-Kaikoura
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