Takeovers reducing brokers' insurance options

By KEVIN TAYLOR

Brokers are concerned the insurance industry is shrinking, putting in jeopardy its capacity to meet the cost of a disaster such as a big earthquake.

The Corporation of Insurance Brokers and the Independent Insurance Brokers Association says recent events show the industry is contracting.

These include the move by Insurance Australia Group (IAG) to buy British company Aviva's Australian and New Zealand general insurance businesses, CGU and NZI Insurance.

This means the second and third largest general insurers, State and NZI, will merge. IAG New Zealand trades under the State Insurance and Circle brands.

The brokers are also concerned at Royal & SunAlliance plans to float its Australasian businesses to raise capital, and British insurance group Lumley's sale of its general insurance and financial services operations.

Corporation of Insurance Brokers president Gary Young said the merger of State and NZI alone could hit the insurance market, especially its capacity to meet the cost of a major earthquake.

Robert Martin, president of the Independent Insurance Brokers Association, said this was a particular issue for commercial property owners in Wellington.

"There is only just enough earthquake capacity there at present," he said.

New Zealand had specific risks, such as earthquakes and flooding, which presented some challenges for the local market.

Young said that when two insurance companies merged, the insurance capacity they bought was often cut.

"All we are saying is that we are concerned that with them merging, yet again there are fewer insurers in the market."

He said that in the past 10 years the number of insurers in the market had probably halved.

He did not know who would buy Lumley's assets, but if it was swallowed by an existing player their capacity would be lost to the market.

Likewise, if Royal & SunAlliance was to list locally rather than part of a global group, that would affect the ability of the reduced-size insurer to obtain capacity.

"What we are seeing really is the European insurers pulling out of this part of the world.

"They don't want to tie their capital up in this part of the world so they are floating their companies off."

Asked if New Zealand was in danger of becoming underinsured against a major disaster, he said any further cut in the number of companies meant there might not be enough cover for large risks such as a Wellington earthquake.

He said it was getting a lot harder to obtain insurance for clients.

Insurance Council of New Zealand chief executive Chris Ryan said there were still about 27 insurance companies in New Zealand, which was a significant number.

Consolidation of insurance companies had occurred around the world and was not unique to New Zealand.

"We are reasonably comfortable with what's happening," he said.

"There's a general view New Zealand has been oversupplied with insurance companies for some time."

Ryan said he had no concerns about the ability of the industry to cover a major disaster.

IAG New Zealand chief executive David Smith said he believed the concerns of the brokers could be solved, but he was constrained from commenting because the merger had not been completed.

Australian regulatory approval was still awaited for the A$1.86 billion ($2.09 billion) purchase.

Smith said IAG believed any job losses from the merger of NZI and IAG New Zealand would come from attrition.

"We think the merger's a very positive thing for this market," he said.

Royal & SunAlliance New Zealand chief executive Alan Bradley said no decision had been made yet on any listing on the New Zealand Stock Exchange.