Knowledge is power! Staying up-to-date with changes in the insurance market will better equip you to plan ahead for your personal insurance. And with cost increases standard across all business sectors post-COVID, it will likely come as no surprise that there are changes on the horizon.
To help you prepare for what to expect when your insurance policies renew, we’ve put together some information about upcoming market changes and how external factors are causing price adjustments across the board in the insurance industry.
Risk-based pricing
In the past, New Zealand insurers have attempted to balance or standardise the cost of home insurance across the whole of NZ, with people in lower-risk locations essentially subsiding those in higher-risk ones. Insurers are now moving to an individualised approach to pricing home insurance, this is often referred to as “risk-based pricing”.
Insurers will now assess and model the likelihood and impact of certain events for individual locations, rather than the country as a whole. In New Zealand, the most likely of these events are earthquake, flood, landslide, and erosion – all of which have increased in severity and frequency over the past 2 decades.
All Insurers that offer home insurance are moving to risk-based pricing, but the timeframes may differ, which can mean that while initially one Insurer may seem more competitive on pricing for high-risk locations, they will eventually need to increase pricing as claims increase or their pricing model takes effect.
Rising claims costs
This year, the move to risk-based pricing is combining with an increase in the cost of claims (due to inflationary impacts of the costs of parts and labour for repairs or replacement goods), which will lead to an increase in the price you pay for your personal insurance.
One of the most effective ways to mitigate these increases is by selecting a higher policy excess. It is worthwhile considering if you are able to pay the cost of a small claim yourself, in exchange for a discount on your premium. Insurers will generally provide a premium discount when you have all your policies with the same insurer.
The impact of inflation on the cost of construction and replacement goods means it is also time to ensure you have insured your home for the correct rebuild cost. Your broker can discuss this with you, but it is critical that you protect yourself from a devastating shortfall at claim time.
NZ Government Changes to Earthquake Cover
You may have seen some information in the media about upcoming changes to the cover provided by the Government for homes in the event of a natural disaster. The cover provided by the Earthquake Commission (EQC) is increasing from the 1st of October 2022. The maximum cover under the scheme is increasing from the first $150,000 of damage caused by a natural disaster to $300,000 per dwelling. Policies renewing after 1 October 2022 will see an increase of $207 including GST for statutory EQC levies. Any reduction in insurer premiums due to the EQC change will undoubtedly be offset by the introduction of risk-based pricing and increases due to claims performance (for both natural disaster and non-natural disaster losses). Almost all home insurance in NZ will rise over the next 12-24 months to accommodate these changes.
Navigating these changes
Most of the above changes are a result of external factors beyond what even the insurers themselves can control. However, an experienced broker can help you to navigate these industry changes in a way that will minimise their impact on both your budget and your coverage.
From premium funding to selection of deductibles, there are various solutions a broker can present to help you stay adequately insured through inflation and rising costs. Remember that while it can be tempting to reduce cover to save a small amount in the short term, you do not want to be out thousands or even hundreds of thousands in the case of a large claim. Talk to a BWRS broker today and see how we can help you.