The Government decided to increase the EQC cap to keep insurance affordable throughout the country by effectively getting homeowners in low-seismic-risk areas to do more to subsidise those in high-risk areas.
Consequently, it expected premiums in high-risk parts of the country to rise, and those in low-risk areas to fall.
This is what ended up happening, accordingly to EQC-commissioned research by actuarial firm Finity Consulting.
A Treasury report from December, released to the Herald under the Official Information Act, details how Finity collected quotes from seven insurance brands (underwritten by four insurers) for a sample of 2000 homes just before the EQC cap was lifted (in September) and straight after (in October).
Finity found Wellington, Marlborough, Wairarapa and Hawke’s Bay benefited from the largest premium falls while parts of Waikato, Taranaki, Northland, Southland and Otago experienced the greatest increases.
Despite having little seismic risk, Auckland and North Waikato experienced significant premium reductions, likely due to there being more competition among insurers in these areas.
Finity noted premium changes varied between regions, rising by as much as 17 per cent in some areas and falling by as much as 10 per cent in others.
Premiums didn’t fall in high-risk areas by as much as the Treasury expected.
“The inflationary environment, increases to reinsurance costs and higher natural peril costs have all led to an increase in baseline premiums,” it said.
Nonetheless, the Treasury said the general trend aligned with its expectations.
“The result of the EQC cap increase has been greater parity of premiums across New Zealand.
“This indicates that the intended increase in cross-subsidisation through the change to the EQC cap is occurring.”
Finity found that across the country, the average cheapest premium charged by private insurers fell by 15 per cent between September and October.
When the higher EQC levy was added on, the average total premium rose by 4 per cent, or $62.
The Treasury noted Finity got quotes for new policies, not policies due for renewal.
It also recognised other factors beyond the EQC cap change could influence premiums.
“This makes it difficult to entirely attribute changes to the new cap,” the Treasury said.
“As this is an ongoing exercise, we expect that trends will become clearer over time. Insurers are still adjusting to the cap increase, and things may continue to change over coming months.”