New Zealand insurance market battling capacity constraints

New Zealand insurance market battling capacity constraints | Insurance Business New Zealand

New Zealand insurance market battling capacity constraints

Facing capacity constraints, insurers in New Zealand are looking closely at their portfolios, with a view to managing their exposures to individual risks, according to Crombie Lockwood.

Most of this review has been around material damage and business interruption exposure in areas with high seismic activity, particularly the Wellington region, the brokerage said. The situation is compounded by inflation, as revaluations are significantly driving up property sums insured, often by over 20%.

“We are seeing some major insurers only prepared to maintain existing capacity when a sum insured increases in Wellington,” Crombie Lockwood said. “This means that other insurers will need to be sourced to accept the increase in sum insured. This can be difficult and may result in increased premiums.”

The brokerage also noted the increased scrutiny of construction materials, which affects many P&C lines.

According to Crombie Lockwood, insurers are carefully reviewing the value of single site exposures for certain risks, irrespective of the seismic exposure. These is especially prevalent where the construction of a building includes expanded polystyrene panel (EPS) or aluminium composite panel (ACP). Globally, both EPS and ACP have been at the centre of large fires that have resulted in major insurance claim settlements.

“In New Zealand to date, EPS has been more of a concern than ACP, but we are now seeing insurers look closely at ACP buildings,” Crombie Lockwood said. “With both EPS and ACP, it is vital that time is taken to demonstrate to potential insurance providers that there are solid risk management procedures in place.”

Certain areas of the liability market are also affected by capacity issues. Previously, insurers tended to take on large limits of indemnity on risks such as D&O liability and professional indemnity. An individual insurer would commit capacity of $30 million or more to a single risk.

However, increased litigation and more expensive defence costs have prompted insurance companies to review their positions. Insurers now attempt to mitigate their exposure by committing less capacity to each risk, Crombie Lockwood said. This can lead to the need to find additional insurance support from other insurers, which can take more time and sometimes lead to increased premiums.