Insurance premiums likely to increase

Insurance premiums could rise up to 10 percent this year, as insurers try to maintain earnings.

An increase in house and content claims, especially in winter, combined with reduced returns on investments were behind the increases, Insurance Council finance and regulation manager Terry Jordan said.

The cost of claims was rising because of high rebuilding costs, including materials, and tighter building rules.

The economic downturn and slowing housing market could also be factors in the sharp increase in house fires in some areas in the second half of last year.

House fire claims to one insurance company in at least one region had doubled to 16 by October, compared with the whole of 2007, Mr Jordan said.

Other insurers had had similar experiences. "When times get tough, claims do increase and insurers look fairly closely at marginal claims," Mr Jordan said.

The council was asking insurance companies to provide more information to get a clearer picture of what was behind the increase in house fires.

Preliminary Fire Service data shows that 3600 residential fires were attended last year, up about 100 on 2007, but about 150 less than four years ago.

Fire Investigators' Association president Michael Chopping said it could be difficult to determine arson in a house fire if no obvious evidence of accelerants or deliberate action existed.

Mr Jordan said tough economic conditions also led to a rise in crime-related claims.

It was difficult to be exact about how much premiums would increase, given the competitive insurance market. "It could be 5 percent to 10 percent" for home and contents cover.

Motor vehicle insurance would probably also increase.

Profits on home and contents policies had fallen considerably in the past three years, he said.

Losses on premium income had been offset by good investment returns during the bull market.

But big falls on world stockmarkets meant that insurance companies would look to customers to maintain profits.

Deutsche Bank estimated the turmoil in financial investment markets could wipe more than 30 per cent from the country's biggest insurer, Insurance Australia Group.

- © Fairfax NZ News