Why your insurance costs more
policies were open-ended, allowing people to claim an unlimited amount for damage, he said. That model had since been scrapped, with insurers moving to a “sum insured” model where they pay out only up to a specified amount.
The Reserve Bank had also increased the solvency margin for insurers after the failure of AMI in 2011.
Now, instead of needing access to enough capital to cover a once-in-200-year event, they had to have enough to cover a once-in-1000-year event.
Insurers had had to raise capital and buy more reinsurance to cover it, “which comes at a cost as well”, Grafton said.
Predicting whether the rises in insurances costs would continue was difficult, and would depend heavily on whether there were a raft of big global disasters, or another big local one which could push up the cost of reinsurance.
“One thing we need to bear in mind — the cost of insurance in New Zealand is also a function of what happens globally.”
New Zealand’s insurance cover is based on what reinsurers charge and what happens
"If we have another big event — if Wellington was hit — the elevated risk would be quite sharp. "Tim Grafton, Insurance Council
globally affects insurance here.
Grafton said there was also uncertainty facing the sector with rising bond rates in the United States.
Riskier countries also faced paying more and New Zealand was now on the riskier nations list. “We are a very small economy producing very small premiums but have produced a significant loss.
“If we have another big event — if Wellington was hit — the elevated risk would be quite sharp. We really don’t want a big event happening.”
Counterbalancing that, improvements in technology had allowed more people to apply for insurance and make claims online, which helped to keep costs down.
Health insurance has also risen sharply over the past 10 years.
Roger Styles, chief executive of the Health Funds Association of New Zealand, said the past decade had seen a doubling of both claims and premiums, with around $1.2b paid out last year compared with $600 million in 2007.
Styles said medical inflation — the cost of hospital stays and surgical procedures — had risen much faster than the consumers price index and New Zealand was not alone in that.
Styles said most health insurers in New Zealand were not-for-profit, which meant the premiums went straight out into payouts.
Medical inflation was expected to continue rising, as it had done historically, Styles said. But there could be better news on elective surgery, with the new Government expected to pour more resources into healthcare. — NZME