Terrorism costs hit NZ industry

By CHRIS DANIELS

New Zealand businesses will pay more for less insurance cover, thanks in large part to the events of September 11.

The bad news was delivered at an Auckland seminar organised by the Corporation of Insurance Brokers.

The effects of the terrorist attacks on the US include reduced cover and higher premiums, as those companies who specialise in insuring and reinsuring risk are themselves becoming more risk-averse.

Royal & SunAlliance Insurance managing director Roger Bell told the seminar that the consequences of September 11 had been huge for reinsurers, the companies who cover the insurance companies.

"Reinsurers were amazed and appalled to see they picked up most of the risk," he said.

The big reinsurance businesses had not allowed for anything like the attacks on the World Trade Centre and the Pentagon, and were now demanding that the insurance companies take up much more of the risk of big claims.

Reinsurers had demanded huge premium increases for "treaties" (policies) coming up for renewal.

Bell said there had been increases of between 100 per cent and 600 per cent for New Zealand insurers from the start of this year, despite none of the companies ever having made a "catastrophe claim".

Even more hefty increases were expected next month when many more treaties were due for renewal.

He said premiums for New Zealand businesses were about to rise significantly, returning to the levels last seen in 1995 before a bout of heavy discounting caused by an extremely competitive market.

Insurance policies would now be more specifically worded, and some firms might even find themselves uninsurable in such a tough market.

Selina Man, senior financial analyst with insurance rating firm A.M. Best, said the world's big reinsurers could not sustain another loss of the magnitude of September 11 in the next five to six years, and were becoming risk-averse.

She did not expect the market to improve till at least 2004.

Allan Morris, past president of the Corporation of Insurance Brokers, said businesses would start having to retain more risk themselves, perhaps dispensing with the extras that insurance had previously covered.

He expected cover for things such as business interruption would become harder to get.

Clients had been used to getting cheap insurance, so price increases would naturally be seen as being out of all proportion to other cost rises.

But it was not all doom and gloom at the seminar. ASB Bank group strategist Rodney Dickens said the US economy was about to start performing strongly, especially among the manufacturing sector and smaller-sized businesses.

This recovery was starting to suck in imports from Europe, Japan, Australia and New Zealand.

He expected annual economic growth for New Zealand of 3 per cent, not the 1.3 per cent others predicted.