No-one is expecting a decline in commercial property insurance prices anytime soon, with all corners of the world affected, including the land of the long white cloud.
“Commercial property premiums in New Zealand are being impacted by several factors this year,” said broker Apex Insurance in a new market update. “One of the significant drivers of premium increases is the rising costs of building construction and equipment.”
As construction specialist MECON Insurance recently told Insurance Business, construction costs have gone up due to shortages in both materials and labour.
Similarly, Apex noted: “This is due to a high demand and insufficient supply, leading to an increase in building supply costs, particularly imported goods. Construction labour rates have also risen by 28% in New Zealand since 2019.
“Furthermore, the insurance industry has experienced multiple large fire losses over the past 12-18 months, leading to rate adjustments to ensure risks are being insured at the right price.”
Additionally, according to the NZbrokers member, companies are experiencing what Apex described as “major” delays on construction projects. These were again attributed to issues in the supply chain and in sourcing materials.
“This has a direct impact on reinstatement timeframes, leading to an increased risk of business interruption,” asserted Apex. “As such, businesses should be reviewing their business interruption indemnity periods to ensure they are adequate.”
Other drivers having a say on commercial property insurance pricing are reinsurance costs and inadequate insurance.
Apex reported: “Underinsurance is another factor impacting commercial property premiums as businesses may not have adequate insurance in place, leading to higher costs of replacing stock, machinery, and specialist equipment.
“For instance, one customer’s business had grown significantly over the years, but their business insurance cover had never been adjusted. After a review, their cover was increased from $400k to $2,000,000.”
Reinsurance, meanwhile, has a lot to do with what’s been happening on a global basis.
The broker said: “Reinsurance costs also impact the price of insurance as weather events globally increase, leading to higher insured losses. For instance, Hurricane Ian, that swept through Florida in September 2022, was the costliest weather event, costing the global insurance industry an estimated US$65 billion.
“This has resulted in the hardest ‘property catastrophe reinsurance market’ in a generation, leading to increased reinsurance costs that are reflected in customers’ premiums this year.”
According to Gallagher Re, the economic toll from Hurricane Ian amounted to US$112 billion in the US alone. The hurricane also impacted island countries like Cuba.
“Overall,” said Apex, “several factors are driving commercial property premium increases in New Zealand, including rising building costs, large fire losses, increasing reinsurance costs, underinsurance, and supply chain issues leading to business interruption.
“It is crucial for businesses to review their insurance coverage regularly to ensure they are adequately covered.”