AA Insurance and IAG New Zealand, which are among the insurers featured in a recent study on insurance costs in low-prosperity areas in Auckland, have spoken up.
As previously reported, a study by financial information and deals website Banked found that contents insurance quotes differ based on location. In its research that was conducted in April, Banked used the same sex, age, contents value, property characteristics, and claims history. The only thing that wasn’t constant across all 240 quotes in the study was the property address.
To come up with its comparison, Banked used five properties for each of the following local board areas: Albert Eden, Devonport-Takapuna, Ōrākei, Upper Harbour, Waitemata, Hibiscus and Bays, Howick, Kaipātiki, Puketāpapa, Henderson-Massey, Whau, Manurewa, Māngere-Ōtāhuhu, Maungakiekie-Tāmaki, Ōtara-Papatoetoe, and Papakura.
The research referred to the 2020 Auckland Prosperity Index, which classifies the first five local board areas listed above as high-prosperity; next four as good-prosperity; following two as moderate-prosperity; and last five as low-prosperity.
“Our research found a clear correlation between low-prosperity areas and higher average contents insurance prices,” said Banked, pointing to what is known as a poverty premium or poverty penalty. “The three highest average quoted prices all belonged to local board areas of low prosperity: Manurewa, Papakura, and Ōtara-Papatoetoe.
“All five local board areas classed as low prosperity were in the top seven most expensive for contents cover. We found that the average quote price in the most expensive area for contents cover (Manurewa) was 40% higher than the least expensive area (Hibiscus and Bays).”
Below are the Auckland areas by average contents insurance quotes, ranked from most expensive.
|
Local board area |
Prosperity classification |
Average quoted price |
|---|---|---|
|
Manurewa |
Low |
$550.97 |
|
Papakura |
Low |
$518.31 |
|
Ōtara-Papatoetoe |
Low |
$510.81 |
|
Puketāpapa |
Good |
$504.93 |
|
Ōrākei |
High |
$500.18 |
|
Maungakiekie-Tāmaki |
Low |
$494.14 |
|
Māngere-Ōtāhuhu |
Low |
$485.93 |
|
Albert Eden |
High |
$482.34 |
|
Howick |
Good |
$476.88 |
|
Waitemata |
High |
$464.11 |
|
Henderson-Massey |
Moderate |
$453.33 |
|
Whau |
Moderate |
$447.01 |
|
Upper Harbour |
High |
$443.17 |
|
Devonport-Takapuna |
High |
$399.69 |
|
Kaipātiki |
Good |
$395.69 |
|
Hibiscus and Bays |
Good |
$392.57 |
In response to the poverty premium research, AA Insurance pricing and underwriting head Chris Taylor told Insurance Business: “Each customer’s situation is unique, and each insurer’s approach to pricing risk will be different.
“AA Insurance is committed to ensuring our customers always pay a fair price. We regularly review the different factors that make up customer premiums, to ensure they are an accurate reflection of the risk we take on.”
Meanwhile an IAG spokesperson told Insurance Business: “We can’t comment on the report without verifying the data or the details of the methodology used. However, a customer’s socio-economic status does not form any part of our pricing.
“Our premiums are based on a number of factors, including location, risk, cost, as well as past claims. Where you live reflects our claims experience in that area, as well as any natural disaster risk, for example, risk of earthquakes and weather events.”
The IAG spokesperson went on to note that pricing is future-focussed and that allowances are made for weather-related claims including the recent flooding event.
“We regularly review our pricing to ensure our customers are paying a fair amount for the cover they receive,” the spokesperson said. “Every customer’s situation is unique and, as such, we are committed to tailoring the right solution to meet their particular needs.”
Insurance Business also reached out to Suncorp New Zealand and Tower. As of this writing, they have not provided comments on the so-called poverty premium.
UPDATE
In a statement sent to Insurance Business, Tower chief underwriting officer Ron Mudaliar said: “We pride ourselves on being a fair and transparent insurer, working hard to offer sustainable and affordable insurance products that deliver value to Kiwi and Pacific communities.
“Our contents insurance premiums are based on historic claims costs data, including the frequency and severity of claims. Areas with higher claims costs will see this reflected in their premiums. We do not factor in ‘prosperity’ of a location.
“In this instance the average cost of our premiums differs by only a dollar per week for areas deemed high- and low-prosperity in this study. We are acutely aware of the cost pressures Kiwis are under right now and are continuously reviewing our pricing to ensure we are competitive.”
What are your thoughts on this insurance pricing story? Share what you think about poverty premium in the comments below.
