Mind the excess
Insurance costs rise
The country’s largest insurer says Kiwi drivers have been crashing so much, it is raising excesses on policies to stem the rising cost of claims.
IAG, which owns the AMI, State and NZI insurance brands, revealed the move in a briefing to fund managers on the release of its annual result to the end of June. In this period it collected $2.373 billion in premiums from Kiwi homeowners and businesses.
‘‘Working claims experience... was higher than expected, principally in the personal lines books of business where higher average claim costs and frequency were experienced,’’ investors were told.
The insurer blamed ‘‘increased motor vehicle usage’’ as a result of cheaper petrol prices, and a ‘‘higher incidence’’ of wetter weather.
As a result, it’s started a programme to raise standard excesses on its car insurance from $300 to $400, meaning drivers will shoulder a higher share of the costs to fix damage done in crashes.
The other Australian insurance giant Suncorp, which owns the Vero and AA Insurance brands, says it is investigating whether to follow suit.
Shelley Huang from IAG said: ‘‘When costs in any business rise, steps need to be taken to maintain the sustainability of the business.’’
Steps include cost-cutting, but also passing costs back onto drivers.
‘‘Adjusting the excess rather than the premium means that rather than all policyholders paying for the increases required to pay for the claims, only those who claim do,’’ Huang said.
‘‘Because of increased costs in our personal motor vehicle portfolio, at the time of policy renewal we have begun informing customers of an increase in their basic excess of $100 taking that excess to $400.’’
Suncorp spokesman Tony Reid said: ‘‘Vero Insurance has seen an increase in the number of motor claims it receives and an increase in the average value of those claims.’’
‘‘We are responding to this industry-wide issue by reviewing our premiums and excesses in the motor vehicle book, and focussing on efficiencies in the end-to-end claims process.’’
‘‘There are a number of reasons for this, including an increase in the number of vehicles insured with Vero, lower fuel prices meaning more people are opting to use their cars, more vehicles on the road generally which we are seeing through an increase in the
"We are responding to this industry-wide issue by reviewing our premiums and excesses." Tony Reid
number of new motor vehicle registrations, and an increase in the average cost of repairs.’’
It’s not the first time that a sudden spike in claims has led to IAG hiking excesses on policies.
‘‘IAG implemented excess changes to the Home insurance products two to three years ago, as a similar response to rising costs in the home portfolio,’’ Huang said.
Figures from the Insurance Council, the industry body for general insurers, shows that the ‘‘loss ratios’’ on vehicle insurance, which includes both household and business vehicles, have been rising.
The loss ratio is the difference between the premiums insurers collect, and the claims they pay. In the twelve months to the end of September 2011, insurers paid out just over 65 cents in claims on every dollar of premium they collected.
In the year to the end of September 2015, it was 69.5c, a year in which claims topped $1b for the first time.
Ministry of Transport spokesman Gavin Middleton said the past two years had seen rises in crashes logged where there had been injuries, but long-term crash trends were down.