Changes to Home Insurance Premiums

The frequency and severity of extreme weather events is intensifying. This summer’s devastating Auckland Anniversary Weekend flooding and Cyclone Gabrielle collectively, caused widespread damage to our communities and will change the face of insurance in New Zealand.

Although it is early days in the recovery, 96,586 claims have been paid out from these combined events and they are expected to cost the industry $2.47 billion, according to the Insurance Council of New Zealand*. For context, these events have surpassed the total cost ($357 million) and number of claims (21,464) from all extreme weather events in 2022.

The price you pay for your insurance needs to accurately reflect what it costs insurance providers to provide coverage. As the volume of claims rise, the more insurers have to pay out on claims and the more they’ll charge for insurance premiums.

Insurance providers are also looking at other ways to cover the increasing costs of extreme weather events and this includes limiting the availability of flood cover in some areas, and greater use of risk-based pricing.

Supply chain, inflation and construction costs are contributing to the rising cost of home insurance premiums.

• Supply chain: The costs for shipping and freight services continues to rise. In fact, shipping prices have increased more than six-fold according to the Ministry of Foreign Affairs and Trade**. This has an inflationary impact on the cost of building materials and replacement equipment.

• Inflation: Annual inflation in New Zealand remained high at 6.7% in the March 2023 quarter with food and housing being the largest contributors, according to Statistics New Zealand. ***

• Construction costs: Increasing construction costs are being seen across the industry. Prices for building a new house increased by 11% in the 12 months preceding March 2023, according to Statistics New Zealand***. This is primarily being driven by the higher costs of materials and labour.

• Earthquake Commission (EQC) cover provides natural disaster insurance for residential homes. From 1 October 2022, the EQC natural disaster cover increased from $150,000 to $300,000 - so the amount payable to the EQC by way of levies increased by $180 per household, regardless of where you live in New Zealand.  

• Previously, high seismic areas such as Wellington and Canterbury carried a larger share of the insurance premium. Now, some of these costs have been redistributed to areas where there is lower earthquake risk to help share the load.

• It is likely that as an outcome of the Auckland Anniversary Weekend flooding and Cyclone Gabrielle there will be some hard decisions about where homes are allowed to be built in the future.

• If you’re looking to buy a new home or investment property, talk to your broker in the early stages to better understand the insurability of the property. Your broker can help you assess the insurance costs and risks associated with the potential new property.