Increasing levies on insurance policies look to have reduced the amount of cover that some policy-holders are taking out.
Over the past year, the sector has been hit with two major levy increases.
The fire service levy increased by 40% in July, followed by an EQC levy increase of 33% in November.
Insurance Council chief executive Tim Grafton said those levies would be passed directly through to insurers’ customers.
Anecdotal evidence suggested that less cover was being taken out at as a result, particularly in commercial property insurance.
“There are instances where people are paying more in the fire service levy than they are in insurance premiums.”
The levy on residential property increased from 7.6c per $100 of cover to 10.6c, capped at $100,000 of cover for homes.
The levy on commercial and rural insurance increased by the same amount but is uncapped.
Recent research showed that the cost of dwelling insurance increased 259% between 2007 and 2017, compared to 99% for health insurance and 28% for vehicle insurance. Contents insurance increased by 53%. Wages lifted over the same period by 31%.
Grafton said other factors increasing the cost of insurance were the repricing of risk after the Canterbury earthquakes and the regulatory requirement for insurers to hold more capital.
The Reserve Bank increased the solvency margin for insurers after the failure of AMI in 2011, which was bought by IAG.
Instead of having enough access to capital to cover a once-in-200-year event they have to have enough to cover a once-in-1000 year event.
Insurance Brokers Association chief executive Gary Young said increases in price were challenging for brokers.
“At least a broker has the opportunity to explain why the price has increased and to point out that price is not everything, the extent of cover is crucial.”
Paul Munton, executive general manager – broking branches, at Rothbury Insurance Brokers, said advice and service were more important than the lowest price. It was part of the adviser’s job to educate clients on why price increases were needed, he said.
“While the rising cost of insurance does make conversations with clients more challenging, it is necessary. The New Zealand insurance industry is no longer making money due to a number of factors including bad weather events and natural disasters, the number and frequency of claims being made, and material and repair costs amongst other things,” he said.
“This is simply a market reality. We’re seeing some industry players having to employ tactics to mitigate high costs through product rationalisation, restructuring, offshoring, and improving their technology. However this alone will be insufficient for them to remain sustainable. “
Brokers needed to help their clients navigate the dynamics of a changing environment and find solutions within their budgets.
“Rothbury expects its brokers to facilitate this through robust discussion with clients. We must take into account their appetite to retain or transfer their risk and balance that with managing their risk exposure.
“The more we understand our clients’ needs the better we will be able to achieve their objectives. The best insurance solutions may not be the cheapest, but when it comes to claims time, the discussion is never focused around the premium – it’s all about the willingness and ability to pay out. At the end of the day, client education, guidance and advocacy is our raison d’etre.”
