Tower Insurance readies its next risk-based pricing tool as CEO says he loves being the insurance underdog competing with bigger Aussie-owned rivals

Michael Stiassny, the chairman of Tower Insurance, says New Zealand’s banks are “missing in action” when it comes to taking steps to mitigate climate risks in their financial frameworks.

“[They are] seemingly reluctant to actively embed climate-related risks in their business operations and risk management frameworks, but nevertheless content to continue making record profits,” he said in an analyst and investor call about Tower’s half-year results on Tuesday.

Stiassny said the Reserve Bank (RBNZ) had called on insurers “and more notably the banks” to take action in its recent Financial Stability Report which was published in April. The central bank raised concerns around insurance availability and risk-based pricing.

“I look forward to seeing how the banks choose to respond to RBNZ’s challenge because insurers can’t – and shouldn’t – be shouldering the burden alone,” Stiassny told the analysts call.

Tower chief executive Blair Turnbull told interest.co.nz after the briefing that while insurers had to play a lead role, climate change was a “team sport”.

“We need councils, government, insurance industry and the banking industry to all be actively involved in helping ensure that we don't build in places that are prone to weather events and that we do support homes in that area to ensure that they do get some levels of protection going forward,” he said.

“The key point there is, again, climate change is a team sport. All parties need to be involved to help manage this.”

Tower netted $36.6 million in underlying net profit after tax (NPAT) for the six months ended March 31 – a turnaround from the $3.7 million loss the insurer experienced in its first-half of 2023. 

It’s more than the “greater than $35 million” guidance the general insurer gave the share market back in mid-April for the whole 2024 financial year.

Chief financial officer Paul Johnston told interest.co.nz on Tuesday that the company was being cautious in its full-year profit estimates in case of a catastrophe event in the insurer’s second half.

The general insurer has $45 million set aside to be used for any catastrophic disasters in the rest of the 2024 financial year which will then be added to Tower’s full-year underlying net profit if it doesn’t get used up. 

Turnbull said 2023 had been “ incredibly unique [and] unprecedented in the level of weather events,” and described it as “unusual” that so far this year there had been no large catastrophe events at all.

“We are appropriately conservative. We're not looking for a large event, but we will provide allowance for it. But if it's not used, it’ll go back into underlying performance,” Turnbull said.

Underdog

Alongside a boom in its underlying net profit, gross written premiums (GWP) also soared 20% to $291 million for Tower in its first-half result. 

Questioned in the analysts call on if Tower’s GWP growth would continue into the second half, Turnbull said Tower expected to see that growth settle between 10% and 15% in the full 2024 financial year. 

He added that the insurer also expects to see similar premium growth between the 10% and 15% benchmark going into the 2025 and 2026 financial years as well. 

“We want the right risk, right price. Risk based pricing is at the heart of everything we do,” he said. “And as we look forward, we see those insurance premium increases start to level up a little bit and we'll be very competitive in the risks that we want to target.”

Tower also plans to continue its risk-based pricing tools for customers, which began in 2021 with the release of its flood risk assessment tool.

Turnbull said a landslide and coastal hazards tool will be accessible to customers this side of Christmas.

“At the moment we do it through our underwriting,” he said. “But we do want to automate that so that all customers can see that.”

Tower said on Tuesday morning that its management expense ratio (MER) had shrunk from 36% in the prior year to 32.2% in the six months to March 31.

Turnbull said the insurer’s business as usual (BAU) claims ratio was at 49.7% compared to 51.1% the 2023 first-half period and the ratio was “back within target range”.

Although Tower’s GWP has risen $46 million in the six months to March 31 compared to the same period in 2023, its insurer competitors are outstripping Tower by the billions when it comes to premium growth.

Suncorp NZ reported its GWP was up by almost 20% to $1.4 billion while IAG NZ reported its GWP climbing 18.8% to over $2 billion. 

Despite being up against some hefty Australian-owned general insurance competition, Turnbull told interest.co.nz Tower believed it could be the “leading provider of insurance”.

“We've got a unique footprint between New Zealand and the Pacific and we've invested very heavily in technology, digitisation and data and we think those areas are shining through and that's come through our recent results.” 

However, he added: “We love being the underdog. It’s kind of our personality.”