Severe weather events dominate in local insurance market 

Severe weather events dominate in local insurance market 

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2023 June 07

Part of our commitment to our clients is to keep you regularly updated on what is happening in the insurance market. Here we provide a summary from the latest NZ Brokers market report on key factors influencing the availability and cost of insurance, and how you can help to manage your premiums in challenging economic conditions.

It is impossible to begin commentary about the current insurance market without reflecting on the severe weather events that have occurred over the past few months.  We believe the impact on insurance could be of a similar character to what was experienced following the Canterbury and Kaikoura earthquakes in 2011 and 2016 respectively. In the year following these events insurance premiums increased and the availability of cover decreased, particularly in the affected regions. However, unlike the earthquakes, severe weather events are not one-off events and are increasing in regularity and severity.

Increasing claim costs associated with severe and regular weather events, as well as the inflationary economic environment, have prevented property insurers from achieving the profitability that is necessary to stabilise the market.

In fact, the recent weather events have highlighted to insurers and reinsurers that any part of New Zealand might be exposed to similar events more regularly in the future.

For a number of years, insurers have become more selective about where they will provide cover. The availability of insurance in coastal and flood prone regions has reduced but usually not to the extent that makes cover impossible to obtain. The Insurance Council of New Zealand (ICNZ) has recognised the enormity of the recent weather events, saying: “Now is the moment to reset and ask questions about whether to rebuild in some locations, and if we do, how to rebuild better to protect ourselves.

Looking at the global picture, Martin Bertogg, head of catastrophe perils at Swiss Re, summed up the predicament of global insurers and reinsurers when he recently said: “While inflation may subside, increasing value concentration in areas vulnerable to natural catastrophes remains a key driver for increasing losses. For our industry, this is a call both to reflect (on) the latest exposure even more carefully in risk assessments while continuing to support society in being better prepared.”

The New Zealand Government is also aware of the growing threat from weather events as evidenced by the introduction of the Natural and Built Environment Bill and release of a National Adaptation Plan. The Bill will introduce legislation intended to reduce risks from natural hazards as a condition of rebuilding after a disaster. The National Adaptation Plan, another government initiative, discusses a variety of strategies we, as a nation, can adopt in response to the impacts of climate change.

Severe weather events are not unique to New Zealand; they are occurring all over the world. The problem for the New Zealand market is that our premium pool is negligible on a global scale however the cost of insured claim events have disproportionately elevated us to a notable country of risk, drawing the attention of reinsurers.

Reinsurance premiums, paid by our local insurers to protect themselves from catastrophic events, have been increasing for several years. This is as a result of 40 year-high inflation, costly natural disaster events, the war in Ukraine and reducing availability of capital or investment. This will undoubtedly bring about higher reinsurance premiums and diminish availability of cover in many countries.

The combination of all these factors will mean increasing premiums and more limited insurance availability in all parts of New Zealand, particularly those regions that are considered to be exposed to natural disasters.

How to manage premiums in a challenging market

There are important strategies to adopt in a difficult insurance market or when an economic decline is possible. The strategies may not bring about the premium control that you may like but typically, your broker will do their utmost to achieve the best possible outcome.     

It is important to start your insurance renewal as early as possible. For most business owners this means a preliminary meeting with your broker at least three months before the renewal date and, for personal policies, communication at least two months before the renewal date is adequate. This will provide enough time to gather the necessary underwriting information, compile it into a presentable form to the insurer and sufficient time to negotiate or consider any coverage changes that are being imposed as well as options available to achieve the best outcome aligned with your needs and objectives.

Identifying the risks your household or business is exposed to will help prioritise how to handle the risk, reduce the risk, insure the risk or accept the risk. Understanding the cost and coverage of insurance policies also goes a long way towards making the best decisions.

If you provide ample and accurate information and start your renewals early, it will put you in the best position to make decisions in what is becoming an increasingly difficult insurance market.

Have questions? We're here to help so drop us a line.