Anyone hoping for the property insurance market in New Zealand to start easing is perhaps just setting themselves up for disappointment – not only is it poised to become harder, but also considerably so.
“In 2023, it is anticipated that the property insurance market will become significantly harder,” noted Aon New Zealand in its latest Insurance Market Insights report. “The combined effects of the Auckland Anniversary Weekend flooding and Cyclone Gabrielle have left local insurers dealing with the most significant weather events in New Zealand’s recent history, with significant commercial, rural, infrastructure, and domestic losses.
“The two main insurers, Suncorp and IAG, have both had to fully reinstate their treaty reinsurance only two months into their annual policies.
“This is in addition to the past two years which saw insurers experiencing an increase in the number and severity of natural catastrophes, large commercial fires, and general claims costs, which are being further impacted by inflation and supply chain constraints.”
Initial provisional estimates from the Insurance Council of New Zealand Te Kāhui Inihua o Aotearoa in terms of natural catastrophe claims this year, under the commercial category, stand at $672.5 million as of March 23 – a massive surge from last year’s more than $100 million and 2021’s $95 million.
“An increasing number of weather events and rising claims costs have significantly impacted insurers’ reinsurance programmes worldwide, including New Zealand, as international reinsurers increase their pricing, [and] reduce cover and capacity,” highlighted Aon. “Insurers with catastrophe property treaty reinsurance renewals in January 2023, experienced some of the most challenging renewals in a generation.
“The increased frequency of extreme weather events, coupled with organisations increasing demand for additional capacity due to the impacts of inflation on asset values, means insurers and reinsurers are reassessing their risk appetites, pricing, and capacity.”
According to the broking giant, local insurers have taken a “much more technical approach” when it comes to underwriting and loss modelling while at the same time maintaining caution in relation to exposing capacity where values are also increasing substantially.
Perils-wise, Aon said there will be a continued and increasing focus on flood risk and storm damage.
“As well as increased pricing, insurers may seek to limit the impact of flood losses by limiting coverage and increasing deductibles,” stated Aon, which also pointed to the need for up-to-date valuations for insurance purposes.
“Prior to the Auckland Anniversary Weekend flooding and Cyclone Gabrielle, it was anticipated that pricing may increase circa 10%. Following these two events, one major insurer announced in mid-March 2023 that April renewals onwards and immediately for new business, they will in require a 20% increase in overall premiums, to be made up from a mixture of rate, sum insured increase, or excess variation.”
Meanwhile, more than 20% may be necessary for higher-risk occupations or poorly performing risks.
“Where an increase in sum insured is required following a revaluation exercise, it can, for some risks, result in capacity constraints for the existing insurer(s), meaning additional support for the full placement will be needed,” declared Aon. “This may come at additional cost or necessitate a programme restructure from full value to loss limit based on maximum probable loss.”
For Aon, it’s important that the price paid by organisations for their insurance is an accurate reflection of what it costs the insurer to provide the cover.
“As a result of the cost of recent loss events, premiums will go up, and the increase may vary depending on factors such as location, risk, and loss history,” the broker said.
Are you prepared for an even harder property insurance market? Discuss in the comments below.
