The Reserve Bank (RBNZ) is warning that while insurance premium growth for residential dwellings is likely to soften, high-risk properties may see further insurance premium increases.
In its latest Financial Stability Report (FSR) on Tuesday, the RBNZ says the recent lack of large natural catastrophe claims has helped property insurers achieve stronger profitability.
Conditions in reinsurance markets have improved and global reinsurers have also benefited from fewer major insurance events, the FSR says.
“This will help to ease cost pressures faced by local insurers. For vulnerable properties, flood risk premiums are becoming more common as the trend towards risk-based pricing continues,” the RBNZ says.
“Growth in premiums for residential dwelling insurance is likely to ease overall, although high-risk properties may see further increases.”
The FSR also says excess levels on reinsurance remain high for insurers, requiring them to hold higher levels of capital to cover potential claim costs.
“Premium growth has been strong as property insurers pass on additional reinsurance costs and improve their pricing of natural hazards,” the RBNZ says.
The RBNZ publishes its FSR twice a year and the report provides the RBNZ’s analysis of the strength and effectiveness of New Zealand’s financial system.
Earlier this year, the central bank’s May FSR explored the impact of dwelling insurance becoming more expensive or unavailable in some locations around the country.
The RBNZ found premiums for residential dwelling insurance had “significantly outstripped” the general rate of inflation over the last decade. In the central bank’s view, this could lead to people being unable to afford home insurance in the future.
The RBNZ said in May it expects insurance for high-risk properties to gradually become less available and says some owners may find insurance “increasingly unaffordable”.
The November FSR released Tuesday notes insurance premiums have continued increasing.
“Since May, the trend towards greater risk based pricing appears to have continued. For example, slightly more properties in flood prone areas have had premiums added to their insurance costs,” the report says.
However, the RBNZ says there hasn’t been “any material change” in online quotes availability for dwelling insurance and owners of houses in almost every suburb can get online quotes from more than one insurer.
“This means dwelling insurance cover is widely available,” the FSR says.
While general insurers’ profitability had benefited from low claims from large catastrophes, the FSR says life and health insurers had experienced weak premium growth due to cost-of-living pressures reducing insurance demand.
“Cost-of-living pressures have led to more people cancelling or not renewing policies and fewer new customers. Health claims expenses have experienced double-digit inflation rates, while premium increases have lagged,” the RBNZ says.
The central bank expects financial performance in the health market to stabilise as inflation pressures ease.
8 Comments
UncleB. Council flood maps based on multiple nearby property sites LIDAR and other data readings, are increasingly reliable at the individual house level. Notwithstanding the recent HB example where the council data was not granular enough or there had been entry errors. The insurer was willing to rectify. Liquefaction potential less so as a property's individual data is normally inferred from the nearest available drill sample. Individually checking council data for each site would be cost prohibitive.
I'm not sure what that statement means,
Cost-of-living pressures have led to more people cancelling or not renewing policies
Those with mortgages have no choice, they have to pay insurance, is this being enforced?
The people with more than one home, and no mortgage, which I assume are the ones who are cancelling, are the ones who can afford insurance but are making the decision to self insure.
The rich have the money to buy on the high ground, away from flood risk, ever noticed that the more expensive suburbs are on higher ground. Whanganui is a good example.
It appears like the rich taking from the poor, the rich probably through funds or directly, have shares in the insurance company, the whole principle of insurance is to spread the risk, and the recent increases in premiums, is having the opposite effect
look at a section in NP next to a stream. Following came to light after a general info request from the RE. I already knew a flood risk from the Council LTP but its extent was not quantified on that particular map. This is the Council commentary
" New minimum floor level RL level2 this is an increase in height of 25cm from RL level1 as stated in the attached subdivision consent notice. (for reference our new house floor height is RL level1-0.15m) Section 73 is applied to titles unless the building platform is determined to be ground higher than RL level1-0.5 A surveyor will determine this. (redacted)." Section 73 I need to find out what that is about.
The house could be built with a high floor level such that there would be no flooding issues but I felt insurance cover would be an issue, either none or at east 25 % more than an equivalent house in a non flood risk area. From my limited experience you cannot get piecemeal insurance ie I don't want flood cover but need earthquake and fire insurance. I would accept the flood risk based on building higher.
Another episode with an insurance company was requesting an indicative quote on an unbuilt house of a specific size on a known section with inundation and mitigation measures required by council fulfilled, high floor level. No quote. The house has to exist.
I have no doubt some unfortunate will buy this section and find it is highly unlikely to obtain insurance.
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