Weather pushes insurance premiums

Insurance premiums are likely to rise as a result of the increasing frequency of destructive weather events associated with climate change, Tower Group says.

The transtasman insurer yesterday updated the market on $5.1 million in net claims resulting mostly from recent floods and last month's South Island snowstorm which the Insurance Council said had caused industry losses of about $35 million.

Although Tower had not changed its earnings guidance as a result of the claims as they were "tracking closely" to management expectations, the company's shares tumbled 24c to $3.27.

Tower chief financial officer John de Zwart said the South Island snowstorm had cost the company about $2.7 million in net claims - mostly related to snow damage to roofs and gutters.

Gross claims, not including reinsurance, amounted to about $3.5 million and were likely to stretch to about $4 million over time.

Meanwhile, the Dunedin and Mosgiel floods in April had generated $550,000 in net claims, last week's North Island floods were expected to cost the insurer about $1 million and there had also been a seasonal increase in house fire claims.

Tower had also incurred about $850,000 in net claims resulting from the Solomon Islands riots in April.

While reinsurance cover reduced the cost to the company of any individual event generating claims of more than $2 million, "unfortunately this hasn't been one item, it's been a series of events".

After a long period of profitability in its New Zealand general insurance business, the increasing frequency of costly weather events meant the losses so far this winter were not unexpected.

"We have seen this over the last two or three years," said De Zwart.

"We always grit our teeth when we see the weather reports."

The type of severe weather events seen recently had previously been referred to as one in a 100-, one in 200-, or even one in 500-year events, "we seem to be getting them more frequently now".

"Whether it's a deterioration in the weather events or global warming, it's something we're watching closely and we're making sure we keep our reinsurance cover in place to protect us."

De Zwart said there was increasing evidence that the events were caused by man-made climate change.

"It is a worrying trend. We're seeing enough of these events on a frequent basis and, if you look overseas, you're starting to see this as well."

As a result, Tower was looking at the pricing of its general insurance products.

"That's being drawn out even more by the level of claims we're continuing to see and we're only halfway through winter. A number of our competitors have started to move their pricing in the last six months as well."

House insurance payouts last year were well in excess of 100 per cent of premium payments and the losses had been unsustainable for several years.

"It's something the industry very broadly needs to consider."

Insurance Council of New Zealand chief executive Chris Ryan said while he did not wish to be seen as "talking the market up", there were now "forces in place globally that will impact on premiums".

Recent events such as floods in Europe and hurricanes in the Gulf of Mexico "seem to be slightly more common now than in the previous hundreds of years" and were driving up the cost of reinsurance.

"Events here won't drive premiums but climate change internationally will."