Quakes drive GST windfall
A MASSIVE spike in insurance premiums since the Christchurch earthquakes has delivered a GST windfall for the Government.
The Insurance Council of New Zealand (ICNZ) has released the amount of total company premiums collected by general insurers on domestic house and contents insurance in the year to the end of September.
It comes to $1.17 billion, a jump of nearly $240 million from the premiums collected in the year to the end of September 2010, the month that Canterbury was hit with the first of the large earthquakes that devastated Christchurch.
The rising cost of house and contents insurance has been driven by reinsurers lifting reinsurance premiums, and exacerbated by regulatory requirements for insurers to hold more capital. But the premium hikes have delivered a GST bonanza for the Government.
The ICNZ figure does not represent the entire bill that households pay, but it gives a clear indication that the GST collected on house and contents insurance company premiums has risen by over $115m since the end of September 2009.
It is a boom that is certain to continue in current and future years, as bills landing on doormats around the country show continued dramatic premium increases.
In a December communique to policy holders, Lantern Insurance (part of the IAG New Zealand group) said its average total premium for households had jumped from $617.87 in 2009 to $1192.46 for policies being issued in late December covering the coming 12 months.
The ICNZ figures do not allow for the entire GST spike to be calculated with any accuracy without further data, because the company premium reported by the ICNZ represents only the portion of household bills that is collected by insurance companies.
It does not include the Fire Service levy of 7.6 cents per $100 of sum insured, which pays for the running of the emergency service. Nor does it include the Earthquake Commission levy of 15c per $100 of sum insured, up from 5c per $100 until last February.
On one reader’s house and contents insurance bill, the GST on the Fire Service and EQC levies equated to just under 25 per cent of the total GST payable, indicating that the extra GST collected by the Government on insurance bills since the earthquakes may have risen by as much as $140m.
The highest spikes in GST will have been borne by those with larger homes insured for larger sums.
Tim Grafton, chief executive of the Insurance Council, said insurance bills had been swelled by a combination of four factors: rising reinsurance costs, the requirement to hold more capital, a rise in the EQC levy, and the effect of GST calculated on top.
Grafton said it would be wrong to say that the Canterbury earthquake alone had driven up reinsurance costs.
‘‘It is partly the flow-on from Canterbury, but other major global catastrophies hit the reinsurance industry hard in 2011, and that has flowed on to New Zealand,’’ he said.