Despite the uncertainty brought by the COVID-19 pandemic, New Zealand’s general insurers have enjoyed a period of profitability over the past calendar year, according to a report by analytics and actuarial consultancy Taylor Fry.
Few weather-related events between June 2018 and October 2019 heavily influenced this outcome, the report said.
“A flow-on effect for 2020 is a 0.4% annual inflation in home insurance for the year to June 30, compared with three previous years of increases greater than 5%,” said Taylor Fry senior actuary Ross Simmonds.
However, policyholders have also seen premiums for home and contents insurance rise steadily for the past five years.
“This is because the premiums New Zealand homeowners pay are strongly influenced by the global reinsurance market,” said Simmonds. “And the losses seen globally have risen due to increases in natural disasters and their severity, as well as growth in the size of the market.”
As the global reinsurance market feels the brunt of the COVID-19 pandemic, the report said that signs are pointing to reduced capacity for reinsurers to write business, as well as New Zealand property risks continuing to rise as reinsurance costs increase.
According to Simmonds, the largest impact for New Zealand general insurers will be on claims volumes, especially in the personal lines and commercial SME classes.
In the longer term, climate change and its associated perils, and regulation, are the two main issues insurers face.
“Independent analysis by research institute Motu on the effect of climate change on residential property damage estimates insurance losses of between 7% and 8% between 2020 and 2040, and an increase of between 9% and 25% from 2080 to 2100,” Simmonds said.
As for regulatory risks, the Reserve Bank of New Zealand has stated that current solvency levels of insurers are too low, and that it will resume its previously suspended review of the Insurance Act of 2010. Insurers should also pay attention to the recommendations coming from the inquiry into the New Zealand Earthquake Commission.
“One of the recommendations, to lift the current EQC cap on cover from $150,000 to $400,000, would have a substantial impact on home insurance if it were undertaken by a future government,” Simmonds said.
Despite these challenges, Simmonds said that there is still a positive outlook for the New Zealand general insurance industry.
“In 2020, New Zealand insurers have shown a business agility and willingness to embrace change – promising signs the industry is well placed to continue adapting to its ever-changing future,” he said.