House-insurance cost to rise

Board meeting: Insurance Australia Group managing director Michael Hawker is in Christchurch.

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Insurance Australia Group (IAG) directors have been in Christchurch this week considering a takeover bid and talking about why premiums will rise in the risky house-insurance sector.

The Australian Securities Exchange-listed insurer, which owns New Zealand's State and NZI, has been in the headlines given a takeover from rival QBE Insurance.

Former Australian rugby international and IAG managing director Michael Hawker said the board had concluded QBE's bid was too low. QBE had sweetened its takeover offer for IAG, but by the end of the first day of a Christchurch board meeting, IAG had rejected a fresh "proposal", he said.

QBE approached IAG with an offer worth about $A8.7 billion ($NZ10b) that has since been revised.

"From our point of view, it (QBE's offer) is opportunistic and doesn't really reflect the value in our group. The proposal was not an offer ... if it was to convert to an offer we would currently reject it."

Late yesterday, QBE announced it had dropped its offer.

Hawker said it had been the first board meeting in Christchurch, where the insurer had moved its 500 Christchurch staff to a new purpose-built building about three years ago. IAG also had a virtual call centre in Timaru.

The company had 600 South Island staff among 2000 New Zealand employees. The group, spread over Australasia, the United Kingdom and Asia, had a total 16,000 staff.

New Zealand, run as a standalone unit, represented about 15 per cent of IAG's business as did the United Kingdom, with 70% in Australia and smaller proportions in the Asian market where operations tended to be owned as joint ventures. IAG had been growing its New Zealand market share, but here as in Australia and the rest of the world there was a tendency for premiums to rise against the rate of inflation. In the last three to five years premiums had risen 15% to 20% and were likely to keep rising at the same rate.

Spiralling home-building costs, thus replacement costs, had helped drive that rise.

Also, in the last year there had been a relatively high number of severe weather events in Australia, New Zealand and the UK.

"There have been 37 large events along the eastern seaboard of Australia, where you normally have under 10. That's a pretty significant change ...

"The key thing that interests us is how do we get the community to understand this changing nature of risk in terms of the frequency and ferocity of storms.

Global warming was contributing to that storm growth and "that is flowing through to the risk on property", Hawker added.

IAG worked with governments and local councils to ensure higher-standard building codes, and that land releases and new houses were not located in areas at higher risk of flooding or fire.

Hawkins said the industry and IAG was looking at 10% to 20% premium cost increases to cover the additional risks and events.

- © Fairfax NZ News