Insurance bills to soar

The insurance industry says premiums have not kept up with repair costs.

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Many homeowners face steep premium increases as insurance companies try to claw back the huge payouts they have made in recent years.

In the year ending September 2008, New Zealand insurance companies paid out a record $566 million in domestic building and contents insurance claims. Industry insiders say this level of claims means companies now have little choice but to increase their premiums if they want to stay in the black. One Wellington homeowner has been told by State Insurance that his house insurance premiums would almost double.

"Last year I paid $468; this year they want $868," he said. "I'm told they're now being particularly hard on older homes, and what they see as high risk areas in terms of natural disasters. My place is a 1920s home, as is every second house in Wellington, so there's a lot of people who are in for a shock."

Gary Young, chief executive of the Insurance Brokers' Association, said domestic insurance premiums were definitely rising: "Premium rates have fallen behind the increased cost of replacing housing.

"In New Zealand we have very good house cover in that most of the companies just replace the house and there is no [fixed] sum insured.

"The difficulty for the insurance companies is that their premiums have not kept up with the cost of building and repairs and they're now at the point where they are actually losing money. The costs have got away on them and they are now trying to play catch-up."

Insurance Council chief executive Chris Ryan said the high level of competition in the industry had helped keep a lid on premiums until now but some companies could no longer sustain the losses they were incurring.

"Some companies are losing money that's how intense the competition has been," Ryan said. He advised people to shop around for insurance and to consider adjusting their excess to keep premiums down.

New Zealand's home insurance market is dominated by State, Tower and AMI.

State said it was "responsibly moving" its prices towards a level that more accurately reflected the risks it was covering and the claims it was paying.

Executive general manager Mary-Jane Daly said New Zealand had become a riskier and costlier place to live.

Over the past five years building costs had increased at a faster pace than insurance premiums. Increased frequency of personal insurance claims and weather events such as storms and flooding, combined with economic challenges, have also significantly influenced the cost of claims.

Tower is also putting up its premiums. It, too, blames building costs, increased claims and the extreme climate events of the past year.

AMI would not comment.

- © Fairfax NZ News