The period of benign weather this year has meant insurer profits have increased substantially, especially when compared to the lower-than-average returns in 2023 that were due to the impacts of the Auckland floods and Cyclone Gabrielle, says Taylor Fry, an analytics and actuarial consulting firm.
In Taylor Fry’s RADAR New Zealand FY2024 Snapshot, Mr Ross Simmonds, a director at the firm, says that since these events, insurance premiums have risen – particularly for property and motor risks. Inflation data from Stats NZ shows insurance costs for all personal lines classes of business have increased by more than 20% over the past year, partially driven by the fire and emergency levy, which rose by 13% from 1 July 2024. For home policies and contents policies, the overall percentage rise for personal lines is in addition to earlier increases of 15% for home and 10% for contents in 2023.
Reinsurance a major driver
Reinsurance costs are a major factor driving the volatile environment, with reinsurers reacting to the previous year’s losses by raising premiums – and the limits at which reinsurance cover starts – effectively passing on their overheads to insurers.
The expectation is for reinsurance rates for property risks to remain at current levels, given the 2024 US hurricane season resulted in two significant events. For New Zealand policyholders, this suggests no substantial relief from insurance premiums due to international factors such as reinsurance costs, for the foreseeable future, says Mr Simmonds.
Affordability and transparency top of mind
As prices rise, affordability continues to exert pressure on New Zealanders, leading to calls from consumer advocates for more transparency on how insurance premium prices are calculated.
Adaptation key
These challenges highlight the need to improve adaptation responses to the risks arising from natural disasters, particularly as the impact of climate change exacerbates the risks. Efforts are already underway to advance progress. The Climate Change Commission and New Zealand’s Parliament have released reports to variously address areas requiring urgent action in managing costs, providing appropriate resources and ensuring market ability to contain risk. The insurance industry will play a part, but significant input from government is vital.
Regulators focus on customer treatment
Regulators are increasingly focusing on insurers and the fair treatment of customers. Among a raft of changes, the RBNZ is currently revising the Insurance (Prudential Supervision) Act 2010 (IPSA). Industry expects the revised IPSA will enable the RBNZ to undertake more proactive and intensive supervision of insurers. In this environment, it will be crucial for insurers to continue placing policyholders front of mind in every decision they make for their business.
Cyber growing, but take-up slow
The Snapshot also looked at cyber. While New Zealand shares only a fraction of the global cyber insurance market – about NZ$45m ($25.9m) of a total NZ$26bn in gross written premium – the local cyber market is growing, albeit slowly. Only 8-10% of New Zealand businesses are estimated to hold cyber policies, significantly less than peer countries, and this figure is even lower for small and medium-size enterprises.
Cyber risk continues to be a focus for regulators and policymakers in New Zealand – the RBNZ and the New Zealand Government among entities implementing new rules with implications for all general insurers.
