Earlier this month, Aon reported that New Zealand’s 2024 insured losses were almost zero dollars compared to $3.8 billion the year prior. Any business leaders that read the broker’s Climate and Catastrophe Insights Report could be forgiven for thinking that premium reductions would follow. After all, if insurers have less costs, wouldn’t it make sense to pass on some savings to customers?
Brokers know this isn’t how an insurance market works.
“A single quiet year does very little in terms of leverage,” said James Knight (pictured), Aon’s head of APAC, View of Risk Advisory. Knight said insurance premiums don’t fluctuate year on year with the experience of the weather.
“If changes in the observed weather drove reactions in premiums, we’d see ups and downs all over the place,” he said.
Knight said some of the variables that influence the price of insurance covers include rebuild costs, the value of items over time, inflation, taxes and the costs of reinsurance.
However, he said 2024’s minimal nat cat losses was good news.
“Yes, it was a very welcome relief following the last four to five years of well above average insured losses from extreme weather events,” said Knight.
The relief, according to some stakeholders, has likely slowed the upwards movement of some premiums. Unfortunately for policyholders, the premiums situation is clearer when an unanticipated and costly nat cat event takes place: premiums usually go up.
The Aon broker also said there are ways brokers can help clients, if not bring down their premiums, at least increase their leverage during renewals negotiations. One way for property industry stakeholders to do this, he said, is by providing insurers with more complex and data rich information.
“It’s becoming common for companies in the commercial property space to build up a view of risk across site locations,” said Knight. “Showing how specific sites were not impacted by any recent events, or were more resilient in these events, does help with negotiations.”
The broker said this could involve developing a better understanding of specific buildings that sit in a floodplain.
“Building up a view of risk also provides great leverage in negotiating both coverage and price with insurers, particularly if it shows a greater resilience to potential loss down the track,” said Knight.
This process facilitated by a broker, he said, can use the same or similar underlying data that insurers use to underwrite and price with.
“This gives more confidence to the company on what specific coverage is needed and why,” said Knight.
He gave a hypothetical example of a commercial site on high ground in the Esk Valley region.
“This region may be considered a risk by insurers following the inundation of the valley through cyclone Gabrielle,” said Knight. “If the company can definitively show the site is not exposed to the floodplain, and wasn’t impacted by Gabrielle or other prior events, that is a strong message to provide.”
Knight said, apart from its low losses, 2024 also felt very quiet because it directly followed the large insured losses year of 2023. In that year, Cyclone Gabrielle and the Auckland Anniversary weekend storms each contributed about $2 billion in losses.
Those events occurred about two weeks apart.
“The total loss from Cyclone Gabrielle and the North Island Floods, currently estimated at NZ$4,013 million, therefore highlights the extraordinary scale of the two events occurring so close to each other,” said PERILS Asia Pacific head Darryl Pidcock in August 2023.
Knight said that before 2023, the largest insured loss event from extreme weather since the 1960s was a hailstorm through Timaru in 2019. The event, he said, had an insured loss total of $200 million, normalised into current dollars.
“Both Gabrielle and the Auckland storms in 2023 completely eclipsed this prior record from an insured loss perspective,” he said.
What’s your view of how 2024’s low loss year impacts insurance premiums and your work as a broker? Please tell us below
