There is no doubt that the cost of insured losses caused by natural catastrophes, accidents and other incidents is increasing rapidly. These trends are not spikes that are expected to diminish, fluctuating up and down. The claim costs evidence a steady increase over a period of time to the extent that some insurers must address their pricing to keep their products sustainable.

The performance of New Zealand based insurers is recorded each year by the Insurance Council of New Zealand (ICNZ).  For the year ended 2017 the accumulated margin is negative $4.30 per $100; the insurers are losing $4.30 every time a client pays $100 of premium. A small profit was achieved in 2016 and in 2015 the ICNZ figures show a break-even position. These results are after insurers have recovered funds available from reinsurers and paid their operating costs. Overall this is not a sustainable position.

Increasing premiums is just one mechanism that insurers can use, which we are experiencing now. The other method, which we expect to see in the future, is a restriction on some covers. Wider cover may be offered but only for an additional premium.


Market Conditions affecting some commercial covers

Liability Products – Influences on Liability premiums are a little different from other types of insurance. Liability insurance is often referred to as ‘long tail’ because claims are usually not immediately apparent and once they are notified to the insurer, the settlement of a legal issue can be protracted by its nature and because of Court processes.

New insurers have entered the Liability sector during the last three years, some of these offering new Liability products to help generate fresh streams of income for insurers. These are good influences for insurance buyers because it adds competition and better products to the market.

However legal remedies are becoming more frequent in New Zealand therefore insurers are drawn into more litigation, ultimately paying the associated legal expenses and settlements.

Potential fines are substantially higher than they were a few years ago. Apart from the obvious flow-on effect that claim payments will be more, the larger fine motivates defendants to adopt a more determined position which increases the legal expenses and potentially the amount paid by insurers.

Never-the-less the overall result has been a stable premium position for Liability accounts with good claim records, notably this does not include financial advisers, valuers, property advisers and others who provide forecasts of a financial nature. Premium increases are evident for high risk industries although these are generally less onerous than the increases being applied in the property market.

Motor – Motor premiums continue to be determined by claim performance and there is evidence across the market that the position is deteriorating rapidly. A large and well managed fleet with a clean claim record will attract positive attention from insurers but this is likely to do no more that hold the expiring premium. However placement is often influenced by the availability of cover for the related property insurance when it becomes necessary to compromise for a better overall outcome.

The overall country average increase for Motor accounts is 14%.


Market Conditions affecting some domestic covers

The influences on Domestic products are similar to those being experienced for commercial property. House insurance is the most significantly affected because this is the portfolio where the Canterbury and Kaikoura earthquake claims, weather related claims and methamphetamine contamination has been so significant.

Premiums began to increase from mid-2017, particularly those in seismic regions and for rental properties. It is more difficult to predict where weather related claims will occur next. This unpredictability may be attributable to global warming and the rapid change of weather patterns.

The overall country average increase over 12 months is 12.5% however this will increase as the latest premium increases take effect. There are already extreme increases of up to 50% in some parts of New Zealand. Examples of premiums increases for residential rentals in Christchurch and Wellington are up by as much as 45% and by up to 25% in other regions.

Increases for Domestic products are likely to continue throughout 2018 and 2019 as insurers recover their portfolios to a more sustainable position.

Purchasing Domestic insurance is complex. It is not as simple as some online sellers suggest. We believe the changes impacting Domestic products and the addition of technology (for example, e-bikes, drones, entertainment and other electronic products, and AirBnB) increases the importance for house owners to receive sound advice from professional brokers.

Direct insurance providers, using call centres and bank intermediaries, may not be suitably experienced or have access to a range of products to help insurance buyers.

Strategies for Insurance Buyers

‘Information hungry’ has been a phrase often attributed to insurers in recent years. Provision of full and accurate information to insurers about commercial and domestic assets, revenue exposure and the measures being taken to mitigate risks has never been as important as it is today.

It’s more important than ever to start the renewal review as early as possible.  For most commercial clients this means a preliminary meeting with your broker at least three months before the renewal date and for domestic clients at least one month before renewal date. This will provide adequate time to gather the necessary underwriting information, compile it into a presentable form to the insurer and sufficient time to consider any coverage changes that are being imposed or any options available to reduce the cost of insurance.

Therefore if you are an insurance buyer there should be three things on your mind: first select a professional insurance broker, second ‘provide reliable information’ and third ‘start early’. This will put you in the best position to make decisions in what is currently an awkward insurance market but by early 2019 may become extremely difficult.

Contact one of experts to make sure you’ve got the right cover for you.

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