Why are insurance premiums soaring and is this the start of ‘uninsurable’ properties? - The Front Page

Adverse weather events could continue to impact insurance premiums if a long-term solution isn't found. Photo / Warren Buckland

The Insurance Council expects insurance premiums to level out in the next year, but wants more long-term conversations about the growing risk of extreme weather events for certain parts of the country.

Recently released data shows premiums for house, content and car insurance have soared over the past year. The cost of insuring a house increased six times faster than incomes for the year to March, while car insurance premiums were up 40 per cent in the March quarter compared to the same period a year ago.

Kris Faafoi, chief executive of the Insurance Council, told The Front Page that weather events such as Cyclone Gabrielle and the Auckland Anniversary floods are to blame for these rising costs.

“What happens usually after a big event is that the global reinsurance market takes a pause and reassesses the risk in the country. Now, traditionally we’ve been a seismic risk, but I think increasingly, the risk of flooding, adverse weather, climate change-related weather is becoming an issue.”

He said, “touching wood”, if there are no further extreme weather events then these costs should eventually even out.

“We hope if there’s some clear air in terms of the big events, we should see those increases level out. So we acknowledge that’s tough, but a rather large input into the cost of a premium is the reinsurance costs, and they took a spike as they do after big events. So, again, we’d hope that that gets to calm down in the 12 months ahead.”

As for car insurance, Faafoi said a spike in vehicle thefts is impacting insurance rates but the council wants to work with the automotive industry to make repairs more cost-effective to help balance that out.

The extreme weather events of 2023 have left many damaged houses uninsurable, while also highlighting the dangers of building near the sea or on or near cliff faces. With other houses and apartment buildings, particularly in Wellington, struggling to get insured due to their earthquake risk there are growing concerns some properties may become too expensive to insure.

Faafoi said difficult conversations will need to be had in the coming years between local and central government, banks and insurers to address these concerns.

“[These groups] need to get their heads together to say, actually, in the next 15 or 20 years, some of these places could be marginal, so what do we do? Do we get in there and build infrastructure to protect those communities? Do we look at the individual houses and see how we can mitigate? Or there might be some communities, where some very difficult conversations need to be had.

“And the insurance sector wants to be part of those conversations because we do want natural hazard risk to be thought of when we’re making planning decisions, when we’re making decisions about where and how we build infrastructure, because essentially, we’re a risk-based business and assessing risk and if we can reduce risk to protect communities, that’s great. That will make sure insurance is sustainable for the future.”

Listen to the full episode to hear more about rising insurance premiums, the struggle to get buildings insured, if we need to change to risk-based pricing, and what can be done in the short term.

The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5am. This episode was hosted by Georgina Campbell, a Wellington-based reporter who has a particular interest in local government, transport, and seismic issues.

You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify, or wherever you get your podcasts.