Insurance costs to rise everywhere

Insurance premiums are expected to rise nationwide as insurance companies look to recoup some of the massive losses from the Canterbury earthquake.

Insurance Council chief executive Chris Ryan said the quake would probably result in foreign reinsurance companies increasing the premiums they charged local insurers.

Insurance companies spread their risk from a disaster by reinsuring themselves with giant reinsurers such as Swiss Re and Gen Re in the United States.

The majority of the claims from the Canterbury quake, expected to run into hundreds of millions of dollars, would be paid from those reinsurance policies, Mr Ryan said. An estimated 100,000 of the 160,000 houses in the quake zone were damaged.

The Earthquake Commission covers the first $100,000 in repairs of an insured property, with insurance companies picking up the balance. Claims to the EQC for damage to homes are likely to cost close to $2 billion.

Reinsurance companies usually set premiums on a global basis, making adjustments for individual countries only in response to a major domestic event.

"It would be logical to expect premiums to rise if there has been an event of this sort of magnitude, which appears to be extremely large," Mr Ryan said.

A more accurate assessment of the total damage bill in Christchurch could be known in about a week. It was too soon to say how much premiums could rise by, but any rise would be passed on to home and business owners.

Increases would be spread across all customers, rather than target specific regions.

"The earthquake risk in New Zealand is a national risk." Stiff competition among New Zealand insurance companies had kept a lid on premium increases, causing housing insurance policies to lose money for five years. But premiums rose about 10 per cent in the past years to catch up with a steep rise in rebuilding costs.

Insurance companies have sought to recover some of the nearly $500m in losses resulting from natural disasters, including $124m paid out after the 2004 Manawatu floods and $30.5m after the 2007 Gisborne earthquake.

- © Fairfax NZ News