Crombie Lockwood explains how climate change drives up insurance costs

Crombie Lockwood explains how climate change drives up insurance costs | Insurance Business New Zealand

Crombie Lockwood explains how climate change drives up insurance costs

Crombie Lockwood has released an explanation of how climate change affects customers’ insurance cover.

In its Insurance Market Update for May, the brokerage said that the current hard global insurance market for the past several years has been driven by climate-related claims, as well as the economic environment, financial markets’ volatility and lack of investment income.

On the positive side, despite market commentators reporting further increases in insurance premiums in the first quarter of 2022, Crombie Lockwood observed that the trend of rating increases continues to slow down.

“For the past two years or more, most insurers have concentrated on remediating their portfolios, which entails reducing their levels of exposure to individual risks and seeking a sustainable price,” the brokerage said. “We are now starting to see international markets show a greater appetite for New Zealand-based material damage business.”

In New Zealand, severe weather events have had a large impact on the insurance market. The Insurance Council of New Zealand (ICNZ) said that since January, natural disaster insurance claims have totalled $358 million. Flooding has been the largest risk, accounting for over 90% of losses this year.

Over the past 12 months, the most significant single weather event was the West Coast flooding in July. More than $97 million in claims have been paid out by insurers as a result of these floods, ICNZ said.

Twenty-two significant weather events were recorded in New Zealand in 2021, up from 13 in 2020 and the highest number since 2011.

According to Crombie Lockwood, climate-related claims’ main impact is for material damage and business interruption policies, but these also affect the personal insurance market. This was demonstrated by West Coast flood claims, where over $87 million in losses were related to house insurance and contents insurance policies.

Insurers are now increasingly taking a more risk-based approach to assessing a client’s exposure to perils such as flood and, in extreme cases, restrict cover or increase premiums, Crombie Lockwood said.

Weather-related losses have also rocked the marine insurance market. Events such as the Tongan tsunami in January and Cyclone Dovi in February have caused some significant losses to both marine hull and the marina sector. As a result, insurance for swing moorings and marinas has become more difficult to obtain, the brokerage said.