“Rarely have we seen so many unfavourable influences simultaneously.”
Those were the words of insurance broking collective NZbrokers in its fresh market commentary that examines the woes being faced by the Kiwi industry following catastrophic weather events and amid continuing economic pressures.
“It is impossible to begin such a commentary without reflecting on the severe weather events that have occurred over the past two months where the impact on insurance could be of a similar character to what was experienced following the Canterbury and Kaikōura earthquakes in 2011 and 2016, respectively,” declared NZbrokers. “In the year following these events, insurance premiums increased and the availability of cover decreased, particularly in the affected regions.
“Elsewhere in New Zealand, the impact was less severe; however, across the country, the prospect of better insurance market conditions diminished. Over the past six years insurance premiums have continued to rise, though at a much slower rate than during the period immediately after the Canterbury and Kaikōura earthquakes. Increasing claim costs associated with severe and regular weather events, as well as the inflationary economic environment, have prevented property insurers from achieving the profitability that is necessary to stabilise the market.”
Then came the double whammy of the Auckland Anniversary flooding and Cyclone Gabrielle, either of which as a standalone occurrence would have been the costliest extreme weather event recorded in the country.
“The two recent weather events will create another premium spike in regions that, until now, avoided the most significant premium increases after the Canterbury and Kaikōura earthquakes,” stated NZbrokers. “In fact, the recent weather events have highlighted to insurers and reinsurers that any part of New Zealand might be exposed to similar events more regularly in the future.”
For NZbrokers, while such disasters don’t only happen on the land of the long white cloud, the Kiwi insurance market has certain characteristics that make the impact a lot more significant.
“Severe weather events are not unique to New Zealand; they are occurring all over the world,” said NZbrokers. “The problem for the New Zealand market is that our premium pool is negligible on a global scale; however, the cost of insured claim events has disproportionately elevated us to a notable country of risk, drawing the attention of reinsurers.”
Even insurers, according to the broking collective, were “surprised” by the size of the Auckland Anniversary floods and Cyclone Gabrielle combined.
“Further compounding the situation are serious inflationary pressures, affecting claim costs and property sums insured, which in turn are intensified by product and labour shortages,” added NZbrokers, which noted that limitations in the amount of available cover has been evident for a number of years in the Wellington seismic region, with similar restrictions now becoming apparent in other parts of the country where properties are exposed to flooding and landslip or where it’s simply too high-risk.
Meanwhile, Insurance Council of New Zealand Te Kāhui Inihua o Aotearoa data cited by NZbrokers show that insurers’ net claim costs are increasing faster than their net premium income despite corrective measures in 2020 and 2021.
“This trend, along with the product and labour shortages, suggests more premium increases are likely, especially for those risks which insurers regard as high hazard, and because inflation factors are yet to fully impact on insurer results,” warned NZbrokers, which also listed reinsurance premiums as another influence on insurance prices in New Zealand.
Indeed, as far as insurance availability and cost are concerned, an easy ride soon is far from probable.
“The insurance claims associated with the Auckland storm and Cyclone Gabrielle will be more than $1.5 billion, easily exceeding the previous New Zealand annual record levels for weather events which came in at $274 million in 2020, $324 million in 2021, and $355 million (estimated) in 2022,” said NZbrokers.
“Rarely have we seen so many unfavourable influences simultaneously. While it is difficult to forecast the rate or change so soon after the Auckland storm and Cyclone Gabrielle, it is clear that difficult market conditions, for property insurance, will persist for at least the next year.”
NZbrokers Management was awarded as the Best Insurance Companies to Work for in Australia and NZ. Read the full report here.
How are you preparing for an even harder property insurance market? Feel free to comment below.
