Wellington's insurance shake-up: IAG's 'conservative' approach set to ripple across industry
Insurance premiums look set to rise in the Wellington region, making home buying a dicier prospect, now that the country's largest insurer is taking a more "conservative" approach to new polices, experts say.
The former head of the Earthquake Commission (EQC), David Middleton, believes the decision by IAG – owner of insurance brands State, NZI and AMI – to turn away some Wellingtonians seeking new policies due to the region's seismic risk would impact how other insurers approached the area.
IAG also underwrites house and contents cover sold by Westpac, ASB, BNZ and the Cooperative Bank. Its companies provide about half of the homes in Wellington.
Its major rivals Vero, AA Insurance and Tower continue to offer cover but Middleton believed that cover would become increasingly expensive, as was already evident in Tower's recent premium hike in Wellington.
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"I changed my insurance policy because Tower wanted too high a premium increase, and when I went to the new insurance companies, they reluctantly offered me cover but warned me the premiums would go shooting up over the next several years," he said.
"So they're all going to put them up."
In a press conference at its Auckland headquarters on Wednesday, IAG's Kevin Hughes said the company was committed to providing house and contents insurance in the capital.
Existing customers moving house would also be able to get insurance and roll their cover over each year.
"We are not withdrawing or retreating from the Wellington market," Hughes said.
But two weeks ago, IAG companies tightened their criteria for taking on new customers from Wellington, Porirua, Wairarapa and Hutt Valley.
The more "conservative" approach would mean more applications from new customers would be denied, he said.
"Our approach is about being sustainable and being there for customers now, and in the future."
Middleton, who was chief executive of EQC from 1993 to 2010, said Kiwis were witnessing the breakdown of the insurance industry in real-time.
"You can understand the insurance companies' position, they've got a business to run and they're accountable to their shareholders," he said.
"But it does mean that when a big market participant like IAG withdraws, the others have got to look at their market share and they don't want an unbalanced market in what they consider a hazardous place like Wellington when it's not offset by issuing policies in less hazardous areas."
The lack of capacity for insurers to take on the seismic risk facing Wellington homes was, in part, due to the "progressive marginalisation" of EQC, Middleton said.
Its $100,000 cap on cover, which has never been adjusted for inflation, was no longer enough to allay the fears of private insurers if a natural disaster was to hit.
The cap is set to rise to $150,000 in July, but Middleton said this was too little, too late. He advocated for EQC to abolish the cap or at least raise it to $400,000.
He also believed the insurance industry should be pressured by the likes of Dr Megan Woods, minister responsible for the Earthquake Commission, and Wellington Mayor Justin Lester into offering named peril insurance, which includes fire coverage but can exclude natural disasters.
Woods said on Wednesday that IAG's decision would not directly affect EQC policy, saying Wellingtonians could still get private insurance through other companies.
"As EQC is taking on risks that insurers would otherwise need to cover; private insurer premiums are lower than they would be if EQC didn't exist."
Lester said he had received assurances from the Government and business leaders that the impact of IAG's decision on Wellington would be minimal.
It would not not have any bearing on his council's planning policy or the way it approached building consents, he said.
"While it may seem alarming, I'm not at this stage concerned ... IAG have around 50 per cent of the Wellington market and they are over-exposed. This is them correcting that overexposure."
John Bolton, CEO of Squirrel, one of the country's largest mortgage insurance brokers, said without securing house insurance people would not be able to get home loans.
"Homebuyers in Wellington should make sure they get insurance quoted on a new home before they go unconditional or buy at an auction. It can be scary being declined for insurance when you've already purchased."
Real Estate Institute of New Zealand chief executive Bindi Norwell said the impact of IAG's decision would depend on whether other insurance companies followed suit.
It could make insurance unaffordable for purchasers, while changing policies could also cause banks to no longer accept the insurer when approving a loan.
Additional costs or risks with insurance may impact the viability of investing in property, Norwell said.
INSURANCE HUNT A 'BLOODY NIGHTMARE'
Aaron Mcleigh's hunt for insurance has been a "bloody nightmare".
The Wellington man said he was told by AMI, AA Insurance and State that they would not insure the Upper Hutt home he wanted to buy.
"They basically said the risk is too great within Wellington and they're declining to take on any new insurance. As soon as I said the address they all said 'no'."
The current owners of the property he wanted to buy were insured through AMI, but when Mcleigh rang the insurers back to ask if they would extend the existing policy, the reply was the same.
"I didn't even get out the policy number before they said 'no'. They didn't even ask my name, they just said once it was sold they will no longer cover the house."
It isn't Mcleigh's first home purchase but his apartment's insurance was provided by the body corporate and he didn't have contents insurance.
"It means I'm technically a new customer. It's a bloody nightmare."
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