'Cheapskate' insurer too risky: rivals

AMI Stadium was damaged during the Christchurch earthquake. Photo / Greg Bowker

Bitterness has emerged against cash-strapped AMI Insurance for undercutting rivals' policy premiums then being forced into a $500 million Government bailout.

Competitors lashed out at what they said was a cheapskate business which grew too fast, took ridiculous risks, undercharged, failed to accumulate enough capital and was then hammered by the disaster.

"They price everyone else out of the market with their stupid rates and then go running to the Government for a handout. Now it's just another socialist free ride for the people of Christchurch after AMI has been run like a cheap shop," said one angry insider.

Vero, one of New Zealand's largest in the business underwriting billions of dollars of insurance, spat hostility against cheap insurers generally.

A spokeswoman warned against cut-price policies shortly after Finance Minister Bill English's AMI rescue deal emerged at 10am.

"If people are looking for cheap insurance, they should not in future. You don't just go for the cheapest. You go for the company that you know will be able to pay the claim," the Auckland Vero spokeswoman said.

Vero is owned by Suncorp Group. The huge Australian-headquartered business, she said, had extensive resources acquired over many years and was able to meet its obligations as a intermediated business, underwriting insurance.

"We are financially stable. We're on a massive recruitment drive.

"We're boosting our earthquake claims team ... We've got about 40 people now handling Christchurch claims and we're looking to double that," she said.

Vero has general insurance partnerships with ANZ National Bank and AMP. Its parent company co-owns New Zealand's AA Insurance.

AA Insurance chief executive Chris Curtin reassured customers, markets and the wider community saying it had no association with AMI.

Sir Roger Douglas said the bailout has "led us to the precipice of economic collapse". He said the company gained a large market share through low premiums and having too little reinsurance.

AMI chief executive John Balmforth told Close Up last night the company was well run, had good management and he was comfortable with a Government appointee on the board and examining accounts.

He strongly defended the business which he said had a proud and long history and he reassured existing customers. But he said the February 22 earthquake was a disaster of unprecedented proportions and AMI had a large Christchurch customer base.

Insurance premiums for all New Zealanders now look certain to rise after the bailout and the Christchurch quakes.

Although no experts could put a precise number on the price rises, they said global reinsurers would charge more, handing on the higher cost to NZ insurers who in turn would be forced to pass down the burden to customers to survive.

Ian McLean, former Earthquake Commission chairman and an international insurance expert, said premium price rises were inevitable.

"It's going to increase the rates reinsurers charge so premiums across New Zealand will go up," he said, but added he was confident EQC had the ability to meet demand. He refused to be drawn on the precise scale of the imminent price increase but other experts fear the rises could out-price insurance for many New Zealanders forced to risk their assets so they can pay food, electricity, petrol and other bills.