Why are Home and Body Corporate insurance premiums rising?

Headline inflation, climate change and supply chain issues are contributing to rising insurance pricing for both Home and Body Corporate policies. We have shared the key information below.

Frequency of Extreme Weather Events

The effect of climate change across the insurance industry is clear. 2021 was a record year for insurance claims from extreme weather events and natural hazards with $324 million paid out in claims. The total cost of claims year to date (January to June) have reached $198 million. *

Tim Grafton, Chief Executive of the Insurance Council of New Zealand Te Kāhui Inihua o Aotearo​, stated that “It was to be expected that loss-incurring weather events would continue to have an impact on premiums in 2022 and beyond.”

The Insurance Council of New Zealand reported that New Zealand has experienced more than 150 severe weather events and natural disasters since 1968.

Effect of Headline Inflation

Annual inflation in New Zealand has reached a 32-year high. Inflation increased to 7.3% in the June 2022 quarter with the main drivers being housing and transport. **

Inflationary pressures result in an uplift in consumer prices and insurance is not immune. This is evidenced in the form of increased valuations and higher supply costs, and consequently higher claim costs for insurers resulting in the need to adjust product prices to ensure financial viability.

NZ Government Changes to Earthquake Commission (EQC) Cover

EQC cover provides natural disaster insurance for residential homes. You automatically have EQC cover if you have an insurance policy for your home (including fire insurance). From 1 October 2022, EQC provides cover up to $300,000 (previously $150,000) and the amount you pay to the EQC has increased by $180 per household, regardless of where you live in New Zealand.

High seismic areas such as Wellington, Canterbury and Hawke's Bay have to date carried a disproportionate share of earthquake pricing. To ensure sustainability of earthquake cover nationwide, this is changing with insurers redistributing costs across all areas to share the load.

Rising construction costs

The construction industry continues to face rising costs, impacting rates for home insurance policies and increasing sums insured. The annual price increase for the construction of new dwellings hit a 37-year high in the March 2022 quarter, with a 18% increase as reported by Statistics New Zealand. ***

This is being accelerated by higher labour costs, material shortages and supply chain issues. The global impact of Covid-19 on supply chains has flowed through into the insurance industry and this means insurers are experiencing delays when it comes to receiving goods sourced from overseas, such as building materials.

Please contact your broker to discuss what these changes may mean for you. At renewal, your broker can help you consider whether your level of cover is sufficient and discuss inflationary pressures.

*Insurance council of New Zealand cost of natural disasters: https://www.icnz.org.nz/natural-disasters/cost-of-natural-disasters

**Stats NZ Tatauranga Aotearoa: https://www.stats.govt.nz/news/annual-inflation-at-7-3-percent-32-year-high/

***Ministry of Business, Innovation & Employment: Building System Insights Programme | Ministry of Business, Innovation & Employment (mbie.govt.nz)