“All of that compounding is putting pressure on insurance margins and premiums.”
Higgins’ comments come as insurance costs rose by 3.1 per cent in the June quarter, according to Stats NZ’s consumers’ price index.
This was a much greater jump than in the March quarter when insurance costs rose by 1.7 per cent, and the June quarter last year, when they were up 0.4 per cent.
Cyclone Gabrielle and flooding in parts of the North Island earlier in the year saw Suncorp’s natural disaster claims cost rise by more than 50 per cent in the year to June.
This saw its general insurance business’s profit fall by 56 per cent to $65 million.
Higgins said the adverse weather events meant Suncorp had to buy more reinsurance at a higher cost.
He explained that prior to 2023, reinsurers didn’t believe New Zealand faced material flood and cyclone risk. Rather, it was known for being earthquake-prone.
Now, reinsurers must figure out whether the events of earlier this year were outliers or the “new normal”, notwithstanding the fact climate change is increasing the severity and frequency of severe weather events.
Speaking to the Herald in March, Higgins said he worried the state of the country’s water infrastructure wouldn’t help allay reinsurers’ concerns.
“You can model a flood from a river if that breaks its banks,” he said.
“It’s much more difficult to model a flood in a built environment because you’re working on the assumption that stormwater drains are able to cope and are maintained. And you’re also working on the assumption that wherever the buildings are going up, the catchment areas around that are suitable to mitigate the flood risk.
“I don’t think that’s happening and I don’t think that’s well understood. If it was understood, it would’ve been properly priced for.”
Until the risks are properly understood, and reinsurers update their models, Higgins said they would consider New Zealand high-risk and price for that accordingly.
Suncorp has made payouts in relation to 66 per cent of the 32,000 claims it received on the back of Cyclone Gabrielle and flooding in the North Island.
By value, it’s fulfilled over half of the claims it received, worth more than $1 billion.
Higgins said Suncorp had settled all of the motor, and a significant portion of the contents claims, leaving building claims to work through.
He said insurers were working closely with local and central government to better understand the options for customers to be able to move forward, including the potential buyout solutions being proposed.
But, without knowledge of the pathways available, it was taking longer to settle claims.
“If you put aside those customers who are in category three and/or have a land claim attached to it, the others are progressing quite well,” he said.
“We’re pretty confident we will have broken the back of it by the end of the year.”
Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.