In the early months of 2024, the New Zealand insurance market faces a series of structural shifts that will ask hard questions of all industry professionals.
Consumers of insurance are looking to professionals to provide answers as changing dynamics influence both the domestic and commercial sectors.
Insurance is facing an unprecedented range of pressures caused by a combination of local and international factors, including the response to last year’s catastrophic weather events, which flows onto reinsurance dynamics and inflationary pressures on premium costs.
Shifting consumer behaviour in relation to cost of living pressures, a new government, and the impact of CoFi (Conduct of Financial Institutions) legislation add to the sense of uncertainty for brokers.
However, even with so much change, industry professionals are confident the sector is strong and will continue to guide consumers
with confidence.
Reinsurance impact
Reinsurance plays a pivotal role in the risk management strategies of insurers, particularly in a market susceptible to natural disasters
like New Zealand. Insurers are monitoring the impact of reinsurance costs following Cyclone Gabrielle and the Auckland anniversary floods last summer.
IAG, the country’s largest insurer, has now received over 52,000 claims from both events, of which 99% of motor, 99% of contents and 96% of home claims have now been settled. IAG’s insurance payouts surpassed $1 billion, second only to the Canterbury earthquakes.
With evolving risk perceptions, changing market dynamics, and capacity constraints, insurers are tasked with finding the right balance between risk transfer, cost efficiency, and capital management in their reinsurance strategies.
IAG announced its first-half results, with Amanda Whiting, CEO of IAG New Zealand, stating that the firm wanted to build a resilient business that could underwrite for the long term.
“Our focus continues to be on delivering for our customers by building a strong and resilient insurance business, so we can be here
for New Zealanders when they need us the most.”
Given the frequency and severity of natural catastrophes, such as earthquakes, floods and storms, robust reinsurance arrangements are imperative.
Insurers are exploring innovative structures and alternative risk transfer mechanisms to bolster resilience and mitigate volatility. Collaborative partnerships between insurers and reinsurers are crucial for navigating the complexities of the reinsurance market, fostering stability and capacity amidst uncertainty.
NZ brokers are watching and waiting on these developments and monitoring the long-term impact on capacity and pricing for clients. Brokers must communicate the complex market dynamic to clients and ensure they remain protected despite capacity constraints and price pressures.
Claire Holt, financial adviser for general insurance at Sharenz, explained that even reinsurers are “evaluating their ratings and understandings of large events. Typically New Zealand has been seen as a country with fewer events than others, but this perception has changed somewhat, with such large events of the last few years.”
These large-scale events are having a marked impact on how reinsurers view the general risk of New Zealand, and this is showing in general premium and underwriting changes, which look set to continue into 2024.
Inflation also poses significant challenges for insurers in pricing risk, managing liabilities, and preserving underwriting profitability. New Zealand grapples with rising construction costs, escalating labour expenses, and disruptions in global supply chains, contributing to inflated claims costs and replacement values.
Suncorp NZ CEO Jimmy Higgins suggested the reinsurance market, inflationary pressures, and last year's weather events could push premiums higher, but indicated premiums would not rise as sharply this year.
“I am hopeful we won't see the level of premium increases our customers experienced in 2023,” Higgins added.
Inflationary pressures
Moreover, inflationary pressures have eroded consumer purchasing power, influencing insurance demand and retention rates. According to a recent Consumer NZ report, nearly one in ten NZ homeowners have let their home insurance policy expire due to rising premiums.
Brokers will play a key role in guiding homeowners and businesses through the storm.
“This is one of the hardest insurance markets I’ve seen for a number of years,” explained Holt. “It’s on par with what we experienced after the Christchurch earthquakes, in relation to underwriting changes and market shifts in perception of risk and how underwriters are treating policies.”
Holt said there was still capacity in the market, but that capacity was evolving as underwriters better understood flood risk. This is something she predicts will continue across 2024.
In response to inflationary pressures, insurers are also focusing on enhancing operational efficiency and cost containment measures to mitigate the impact on their bottom lines.
Underwriters are expected to leverage technology and optimise resource allocation as they look to adjust to market pressures and maintain profitability.
Changing consumer behaviour
Consumer behaviour within the insurance market is undergoing a profound transformation, driven by evolving demographics, technological advancements, and changing socioeconomic trends.
In 2024, consumers demand personalised experiences, transparent communication, and value-added services from insurers and brokers, necessitating a fundamental reimagining of traditional business models.
Insurers are increasingly turning to data analytics, digital platforms, and customer-centric strategies to meet the evolving expectations and preferences of their clientele.
In response to shifting consumer preferences, insurers are ramping up their efforts to enhance customer engagement and satisfaction through personalised products, omnichannel distribution, and proactive risk management services.
By leveraging customer data and analytics, insurers can gain valuable insights into consumer behaviour and preferences, enabling them to tailor their offerings and service delivery to meet evolving needs effectively.
New government impact
The outcome of last year’s election raised questions about regulatory changes in the industry, but the picture has become clearer in the early months of 2024.
Coalition leader National has signalled plans to keep CoFI but to streamline the regulation to reduce its operational burden on the industry. There are hopes the revised regime will have less of an impact on consumer costs.
Brokers hope that steps will be taken to reduce duplication in the licensing process and that the final regime will also avoid duplicating the FMA’s existing oversight of the industry.
Now that CoFI’s fate has been decided, insurers and brokers can look ahead to the new regime, knowing they have already taken strong steps on the road to compliance.
CoFi will promote the fair treatment of customers, enhance transparency, and foster greater accountability across the financial services sector. Brokers will be at the forefront of adapting to the new rules and communicating changes with clients.
As we traverse the NZ insurance landscape in 2024, brokers are faced with a range of challenges out of their control. Yet there will also be opportunities to bolster their value proposition and client relationships.
Holt says brokers must demonstrate “how important having a good insurance broker is during challenging times like these.”
Brokers will need to communicate effectively about complex pricing and capacity issues and ensure that clients remain fully protected from existing and emerging risks.
Amid the uncertainty, clients will look to their brokers for guidance, support, insight and professionalism. The industry will need to rise to the challenge.
