Insurance premium rises likely to ease up

JASON KRUPP
Last updated 05:00 23/01/2013

Relevant offers

Money

Commission warns lenders to take care or risk having to repay customers Queenstown house prices shoot through the roof Regional growth pushes national house price higher: QV Chronic shortage of houses for sale across NZ, Auckland sales fall 30pc Sales soar at Patea as buyers find cheap houses and seaside lifestyle Canterbury mum goes to jail for $186,000 fraud Experts offer tips on how to beat the competition at a property auction Ten ways to build your household's financial resilience Annoyed by too much ice in your drink? Just say no Contact Energy increases price of electricity bill

Households and businesses can look forward to some relief from rocketing insurance premiums in 2013 as the costs of reinsurance levels off.

That's because 2012 was relatively catastrophe-free for the global re-insurance industry, according to industry players.

The past 12 months have been a mild one in terms global risk for reinsurers, with Hurricane Sandy, which slammed into the east coast of the United States, the only major catastrophe to hit the already beleaguered industry.

Even then reinsurers got off lightly.

An analysis by Insurance Insider shows the sector bore only US$3 billion (NZ$3.5b) of the US$20b to US$25b in damages from the storm, with insurers absorbing the rest.

Risk consultant John Sloan said there had also been resistance from the market against rising insurance costs, especially from small and medium-sized businesses, which have had to wear the spike in reinsurance premiums over the past two years.

"The absence of a major earthquake in 2012 does not mean insurers or re-insurers will suddenly reduce their premiums, but there are early indications of some alleviation in the market," Sloan said.

Those alleviations are likely to see prices stabilise in 2013, but a return to pre-2010 levels is still nowhere in sight.

That is partly because reinsurers do not have any room on their books to cut rates.

The slow pace of global economic growth has depressed investment earnings from bonds, with central banks keeping interest rates near zero - a level that's likely to remain in place for at the next two years.

New Zealand insurance companies are also facing rising domestic cost pressures.

A Vero spokesperson said it expected premium increases to slow in the year ahead as reinsurance costs came off the boil, but it was still dealing with a spike in claims from the Canterbury earth-quakes and some of those costs would flow through to customers.

Gary Young, head of the Insurance Brokers Association, said insurers also had to bear the cost of regulatory changes which would force firms to bolster their balance sheets.

For example, under the current rules firms have to have sufficient financial resources to withstand claims equivalent to a 1-in-250 year event.

The Reserve Bank is looking to lift that to a 1-in-1000 year event (equivalent to the February 2010 earthquake) to prevent insurers from collapsing.

Ad Feedback

- BusinessDay.co.nz

Special offers

Featured Promotions

Sponsored Content