Kiwis should not ‘set and forget’ their insurance policies: Consumer NZ

A price comparison survey of home and contents insurance by Consumer NZ found that if people don’t shop around, they may end up paying hundreds of dollars more on policies.

Consumer NZ, an independent, non-profit organisation that covers a wide range of activities relating to consumer protection and information, found a difference of more than $2000 between the cheapest and most expensive policies for a standard-sized house.

The survey data collected across eight insurers in five main centres of Auckland, Hamilton, Wellington, Christchurch and Dunedin found that cost for house and contents insurance premiums have risen 5.6 percent in the 12 months to September.

This is on the back of increases of more than 150 percent over the past 10 years. The areas with the biggest rise are Wellington, followed closely by Christchurch.

Consumer NZ Head of Communications and Campaigns, Gemma Rasmussen said, “Wellington and Christchurch faced the biggest price hikes in the past year. Wellington median prices increased 16 percent for our standard house and 18 percent for our large dwelling. In Christchurch, median prices increased 8.5 percent for our standard house and 17 percent for our large house.”

Price hikes can be attributed to the rising value of housing, but the biggest factor is the shift by insurers to full risk-based pricing for natural disasters. It meant that those living in Wellington, Christchurch or anywhere in New Zealand with a higher chance of earthquakes, will be charged more for insurance.

Almost all insurers changed to sum-insured policies after the 2011 Canterbury earthquakes. These policies make the owner responsible for calculating the costs to rebuild their home and insuring it for this amount. The sum insured is the maximum an insurer pays if a home is damaged or destroyed.

Insurers were now factoring climate risks, such as flooding and coastal erosion, into their calculations for premiums. According to Lloyds researchers, New Zealand has ranked as the world’s second-riskiest country for natural disaster behind Bangladesh, because of its flood risk.

Consumer NZ says the Earthquake Commission (EQC) levy, which is paid with the insurance premium, can also contribute to price increases. The levy covers the EQC’s residential building pay-out, which is what the commission contributes to claims when a natural disaster strikes.

In September, EQC Minister David Clark announced that from October next year the EQC cap on pay-outs will be doubled from $150,000 to $300,000 plus GST.

This will add an extra $207 a year to homeowners’ premiums. The levy amount paid by each homeowner will depend on their sum insured, but will be a maximum of $552. The current levy amount is $345.

Clark said he expects insurers to lower their premiums as the government is taking on more of the risk. If that doesn’t happen, the government might investigate.

Consumer NZ thinks a review of the insurance industry to ensure its competitive and working for homeowners is well overdue.

Sumita Paul, Certified Financial Planner, Athena Wealth said that going forward, general insurance companies are likely to have a more specific risk-based approach to property insurance. She said, “In New Zealand, the impact of climate change will be reflected in the general insurance premiums due to the unprecedented floods we saw this year.”

Tower earlier this year warned that it would lift premiums for owners of flood-prone homes. Will we see others follow?

Paul said, “Yes, I think we will. The companies that can cushion the effect of increasing reinsurance costs have a high capital reserve and can afford to pay out claims without relying on a reinsurer.”

Rasmussen says that home and content insurance premiums are likely to continue to rise. She said, “We’d recommend New Zealanders don’t ‘set and forget’ because there are large savings to be made if you shop around.”

Paul concurs and encourages consumers to always shop around for your car, house and contents insurance. She add, “Unlike your health and life insurance, there is no medical or pre-existing conditions that you need to protect in.”

She suggests shopping around for a good policy every few years.

She adds, “Negotiate your premium discount with your existing provider. It is better for your insurance company to retain an existing client than look for a new one. So, companies will be open to giving you any promotional deals they have for new clients even if you are not one. But you must ask.”

Oliver Pereira, Insurance Specialist at OPM Insurance Services recommends people to seek good advice, and properly plan out their insurance policies. He said, “People get disillusioned, and cancel their policies after two or three years because they think they haven’t made a claim for many years, so why do we need it now? This type of thought is not guided by proper advice.” 

He suggests rather than cancelling their policies, people should do their own due diligence and research while engaging a good insurance advisor.

A price comparison survey of home and contents insurance by Consumer NZ found that if people don’t shop around, they may end up paying hundreds of dollars more on policies.

Consumer NZ, an independent, non-profit organisation that covers a wide range of activities relating to consumer protection and information, found a difference of more than $2000 between the cheapest and most expensive policies for a standard-sized house.

The survey data collected across eight insurers in five main centres of Auckland, Hamilton, Wellington, Christchurch and Dunedin found that cost for house and contents insurance premiums have risen 5.6 percent in the 12 months to September.

This is on the back of increases of more than 150 percent over the past 10 years. The areas with the biggest rise are Wellington, followed closely by Christchurch.

Consumer NZ Head of Communications and Campaigns, Gemma Rasmussen said, “Wellington and Christchurch faced the biggest price hikes in the past year. Wellington median prices increased 16 percent for our standard house and 18 percent for our large dwelling. In Christchurch, median prices increased 8.5 percent for our standard house and 17 percent for our large house.”

Price hikes can be attributed to the rising value of housing, but the biggest factor is the shift by insurers to full risk-based pricing for natural disasters. It meant that those living in Wellington, Christchurch or anywhere in New Zealand with a higher chance of earthquakes, will be charged more for insurance.

Almost all insurers changed to sum-insured policies after the 2011 Canterbury earthquakes. These policies make the owner responsible for calculating the costs to rebuild their home and insuring it for this amount. The sum insured is the maximum an insurer pays if a home is damaged or destroyed.

Insurers were now factoring climate risks, such as flooding and coastal erosion, into their calculations for premiums. According to Lloyds researchers, New Zealand has ranked as the world’s second-riskiest country for natural disaster behind Bangladesh, because of its flood risk.

Consumer NZ says the Earthquake Commission (EQC) levy, which is paid with the insurance premium, can also contribute to price increases. The levy covers the EQC’s residential building pay-out, which is what the commission contributes to claims when a natural disaster strikes.

In September, EQC Minister David Clark announced that from October next year the EQC cap on pay-outs will be doubled from $150,000 to $300,000 plus GST.

This will add an extra $207 a year to homeowners’ premiums. The levy amount paid by each homeowner will depend on their sum insured, but will be a maximum of $552. The current levy amount is $345.

Clark said he expects insurers to lower their premiums as the government is taking on more of the risk. If that doesn’t happen, the government might investigate.

Consumer NZ thinks a review of the insurance industry to ensure its competitive and working for homeowners is well overdue.

Sumita Paul, Certified Financial Planner, Athena Wealth said that going forward, general insurance companies are likely to have a more specific risk-based approach to property insurance. She said, “In New Zealand, the impact of climate change will be reflected in the general insurance premiums due to the unprecedented floods we saw this year.”

Tower earlier this year warned that it would lift premiums for owners of flood-prone homes. Will we see others follow?

Paul said, “Yes, I think we will. The companies that can cushion the effect of increasing reinsurance costs have a high capital reserve and can afford to pay out claims without relying on a reinsurer.”

Rasmussen says that home and content insurance premiums are likely to continue to rise. She said, “We’d recommend New Zealanders don’t ‘set and forget’ because there are large savings to be made if you shop around.”

Paul concurs and encourages consumers to always shop around for your car, house and contents insurance. She add, “Unlike your health and life insurance, there is no medical or pre-existing conditions that you need to protect in.”

She suggests shopping around for a good policy every few years.

She adds, “Negotiate your premium discount with your existing provider. It is better for your insurance company to retain an existing client than look for a new one. So, companies will be open to giving you any promotional deals they have for new clients even if you are not one. But you must ask.”

Oliver Pereira, Insurance Specialist at OPM Insurance Services recommends people to seek good advice, and properly plan out their insurance policies. He said, “People get disillusioned, and cancel their policies after two or three years because they think they haven’t made a claim for many years, so why do we need it now? This type of thought is not guided by proper advice.” 

He suggests rather than cancelling their policies, people should do their own due diligence and research while engaging a good insurance advisor.