Commerce and Consumer Affairs Minister Scott Simpson says the Government will 'consider necessary initiatives' as premiums continue to grow, raising concerns about insurance affordability and accessibility

As concerns around insurance affordability and accessibility continue to be raised, Commerce and Consumer Affairs Minister Scott Simpson says the Government will be considering "necessary initiatives in this area."

In a statement shared on Monday, Simpson says reducing cost of living pressures for households is a priority for the Government.

“With respect to insurance, we will consider necessary initiatives in this area,” he says.

The Government has been looking into insurance affordability, with Treasury producing a report called Insurance affordability future work options.

The document, released under the Official Information Act, is heavily redacted but points out how residential insurance premiums have jumped in recent years - with premiums rising three times more than CPI (consumers price index) inflation since 2011.

And in the last two years alone, it has increased by over 40%, the Treasury document says.

“A recent S&P global insurance update stated that New Zealand’s property/casualty insurance sector’s gross written premium has predicted continued annual premium growth of about 9% per annum until 2027.”

Gross written premium is the total amount customers pay for insurance coverage on policies issued by the insurer.

The document says a range of factors have contributed to insurance price growth - this includes insurer reassessments of seismic and climate-related risks, rising construction costs, significant catastrophic event losses, developments in global reinsurance markets and insurance availability in some regions have been reduced.

While Treasury says limited data makes it unclear how premium increases are affecting uptake rates, a report from Consumer NZ from August showed there was a growing number of New Zealanders ditching insurance because of the cost.

Simpson's comment comes with a lobby group for the country’s general insurers, Insurance Council of New Zealand (ICNZ), calling for the Government to act now so; “we can avoid the higher costs of future disasters” and support the long-term accessibility of insurance.

ICNZ chief executive Kris Faafoi says while the Government's National Adaptation Framework is an important start, "New Zealand's land-use decisions must change."

"Kiwis value the protection insurance provides from unexpected and unwanted events," Faafoi says.

"But keeping insurance accessible requires of us, led by government, to step up and reduce the underlying risk."

Access issues emerging

The Treasury document says while insurance remains largely available, “access is becoming more difficult in areas facing both high earthquake and flood risk.”

General insurer, AA Insurance, recently wrote to customers and partners in the Westport region about temporarily pausing new home and landlord insurance policies in the 7825 postcode.

AA Insurance head of underwriting Dee Naidu says the decision reflects the elevated natural hazard risk of flooding in the area.

Naidu says it also reflects that AA Insurance’s; “exposure has reached a level where a pause on new policies is the most responsible step to ensure we can be there for our existing customers when they need us most.”

“Our letter to our customers in Westport late last year outlined that current AA Insurance home and landlord policyholders in the area were not affected by this change, that their cover remains in place, and policies will be renewed as usual if they choose to stay insured with us - provided standard underwriting criteria are met.”

“We also outlined the transfer process we have in place, so if someone purchases a home we already insure in the area, they will be able to obtain cover with us, ensuring continuity of protection,” Naidu says.

Naidu says the decision to put a temporary pause on new home and landlord insurance policies in this area was “made with careful consideration and reflects our responsibility to manage risk carefully”.

“We regularly review our underwriting position and, should our exposure in the area drop below our maximum exposure limit in future, we intend to reopen our books to new customers.”

The 7825 postcode isn’t the only area where AA Insurance has put a temporary pause on new home and landlord policies.

In April, the general insurer placed a temporary restriction on issuing new home insurance policies in some postcodes where there is very high seismic risk - the postcodes impacted were in Canterbury, specifically Lincoln and Rolleston.

Climate change adaption and solvency

A section in the Treasury document discusses "existing workstreams" that may support insurance affordability.

“Insurers consistently emphasise that reducing underlying natural hazard risk (including climate-related risk) is the best way to support affordable insurance pricing and availability, Treasury says.

“Reducing underlying natural hazard risk is good for prospective development, but how this plays out for existing developments from an insurance availability and affordability perspective is less certain.”

“We anticipate any benefits would emerge gradually as improved future risk management slowly improves the risk profile of the existing and future housing stock.”

The Treasury document points to the Ministry for the Environment’s work on climate change adaptation. The framework for this includes creating a national flood map and introducing legislation clarifying the responsibility of local government by requiring adaptation plans in the highest priority areas. 

But it continues to be a tough conversation around who pays for climate change adaptation, with the Government indicating in proactively released documents it will; “move towards an end state where the Crown no longer distorts risk signals and blunts incentive to manage risk by providing financial assistance where homeowners suffer significant losses after major events (especially in the form of residential property buyouts).”

Treasury also says insurers have raised concerns high solvency standard requirements may be contributing to high premiums.

Insurers point finger at RBNZ solvency requirements

The Reserve Bank (RBNZ) is prudential regulator of the insurance sector via the Insurance (Prudential Supervision) Act (IPSA). Changes have been proposed to IPSA and the RBNZ is proposing to publish an exposure draft of the IPSA amendment bill for public consultation in the first quarter of 2026.

In terms of prudential regulation, ICNZ says on its website: “One unique aspect of New Zealand’s prudential regulatory regime is that the Reserve Bank applies an extremely high catastrophe risk charge to New Zealand licensed insurers.”

“Most insurers globally have to hold sufficient capital reserves or reinsurance to cover their liabilities for a 1-in-200 or -250 year catastrophe event. New Zealand insurers have to hold sufficient capital reserves or reinsurance to cover their liabilities for a 1-in-1000 year catastrophe event.”

This means insurers can’t use their capital “as freely” in New Zealand compared to insurers overseas, the organisation says.

“This prevents domestic insurers from investing as much capital in the market, which can yield higher returns on investment and lower the cost of premiums charged.”

The Treasury document says it’s uncertain what impact a change in solvency requirements may have on premiums.

“New Zealand also has a high-risk profile so the current solvency standard may be important to mitigate financial stability risks (such as the risk of insurer failure)," Treasury says.

“There is also no guarantee that if requirements in the standard were reduced that insurers would lower their premiums, as some insurers currently hold more capital than required, indicating it is not just the standards driving insurers’ capital decisions.”

The RBNZ was previously looking at solvency standards and the document says it has indicated restarting the review of solvency standards would be preferable after the Bill is passed, around late 2027.

‘New Zealand’s land-use decisions must change’

A survey commissioned by ICNZ found 87% of respondents thought it was better to take action beforehand to hep protect communities from natural disasters rather than afterwards.

"The recent severe weather across the top of the North Island and 2023’s Auckland Anniversary weekend flooding and Cyclone Gabrielle are a stark reminder of the devastating impact natural disasters can have, and we know more frequent and severe events are likely in the future," Faafoi says.

He also referred to modelling by Earth Sciences New Zealand, which showed major cyclones could bring up to 35% more rainfall to New Zealand by the end of the century.

"This significantly increases the flooding risk to vulnerable communities," Faafoi says.

"New Zealand’s land-use decisions must change."

“The Government’s National Adaptation Framework is an important start, but there is urgency in turning intent into action to deliver enduring solutions that reduce risk and keep communities out of harm’s way. We strongly agree that adaptation must be embedded in long-term planning," Faafoi says.

"Kiwis value the protection insurance provides from unexpected and unwanted events. But keeping insurance accessible requires of us, led by government, to step up and reduce the underlying risk."

“That includes investing in resilient infrastructure like flood protection and avoiding building in high-risk areas. Despite that, there’s concern that current efforts are falling short," Faafoi says.

The survey found 65% of respondents accept premiums may need to rise to reflect growing climate risks and 61% believe the government should lead the response to protect communities from climate change.

As well as this, 44% of respondents believed New Zealand was not investing enough to protect communities from natural hazards, while 35% of those surveyed disagreed. 

Separately, 43% believe there are strong land-use controls, but nearly as many - 39% - actively disagree, showing public concern about development in high-risk areas," Faafoi says.

"These results underline the need for greater certainty around the rules and tools to help communities reduce their exposure to natural hazard risks," he says.

"Every dollar invested in adaptation brings significant long-term economic and social benefits. Acting now means we can avoid the far higher costs of future disasters and supports the long-term accessibility of insurance."