Insurers say losses from back to back quakes will push up premiums by a minumum of 20%. Your view?

Insurers say losses from back to back quakes will push up premiums by a minumum of 20%. Your view?

By Amanda Morrall

Insurance premiums are poised to skyrocket in coming months with insurers recovering earthquake losses and reinsurance hikes by lifting prices as policies are renewed.

AA Insurance head of corporate Suzanne Wolton said this week premiums would likely increase by a minimum of 20%.

"Without a doubt premiums are going to go up,'' said Wolton.

"We've seen two major events in New Zealand and this huge tragedy in Japan and all these things are going to have an impact on global reinsurance rates, and as a result insurers are going to need to absorb those things and pass them onto policy holders.''

The EQC reports that as of Friday April 15, the commission had received 184,329 claims from the September 4 earthquake and another 111,318 from February 22. Residents have until May 23 to file their claims. Unofficially, the numbers have been tagged at 470,000.

Catastrophe modelling firm Air Worldwide earlier projected insurance losses of between A$3.5 to A$8 billion from the  February 22 quake.

 

While the insurance sector in New Zealand has been bracing for such an event, the scale and location clearly took the industry by surprise.

AMI, with a reported 35% exposure in the Christchurch region, had to be propped up with a NZ$500 million Government guarantee. The claims toll is expected  to blow its reinsurance cover of NZ$600 million as well as its own reserves of NZ$554 million. See more in our earlier article.

Having coasted so long incident free, one might expected the reserves held by New Zealand and other leading insurers including Australian-owned State, AA Insurance and Vero, to be sufficiently stocked to handle the load.

According to the Insurance Council of New Zealand, the industry (in the years 2004 and 2009) collected NZ$665 million on earthquake premiums and paid out only NZ$31 million, averaging a loss ratio of 4.61%. Including losses from September 4, in the seven years from 2004, the industry would be in a net surplus of more than half a billion on its earthquake premiums revenue alone. (For details see ICNZ statistics).

While the data on the council's website does not extend any further than 2004, the cummulative reserves would be comfortably higher.

'Shop around'

Consumers would do well to shop around. (For an indication of rates and policy differences see our insurance section here).

Rate increases could prove another double whammy for householders.

Waimakariri District Council, which suffered significant earthquake damage from Sept.4, has been forced to raise its rates by 6-8% to cover the rebuild. In some cases individuals would be hit with a 14% rate increase to cover the cost of a new water treatment plant.

Can Christchurch rate payers, already among highest in the country, expect the same over the long-term?

Council rates are influenced to a high degree by capital values. 

But with property values have been whalloped by the earthquake, it would stand to reason that rates would plummet.  Yet with rates also being determined by land value (including "developmental work" for example drainage, excavation, filling, retaining walls) the opposite could happen.

Up-market eastern suburbs Red Cliffs and Sumner suffered extensive damage to roads, sewers, and power lines.

Following the September 4 earthquake, Christchurch City Council agreed to rate relief of 40% for those whose land was affected. (For rate relief application click here).

It's not clear whether the same offer will be extended to the wider ratepayer base affected by Feb.22. Council is reviewing the matter. (See Christchurch City Council statement here).

Residential

The residential package is to remit:

  • 40% of rates for residential properties on land requiring remediation by the EQC, from 1 September 2010 until rebuilding has been completed or six months after land remediation has been completed if building has not commenced – whichever is earlier;
  • 40% of rates for residential properties requiring demolition and rebuild by insurance companies, for the period which the house is unable to be occupied;
  • 40% of rates for three months to those properties that remained unable to connect to the reticulated wastewater network at 31 October 2010.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Running out of money !

Have you noticed, all over the world we are increasingly on a cleaning up exercise, caused by nature and humans – costing billions and mounting fast. We are simply not able to pay.

 E.g. The event of Fukushima and consequences like delays, bond to secrecy what’s really happening will cause costs for other countries in the billions.

One point quickly overlooked....who made the rule up that rates would be determined by property value?....it's wrong...no bloody way is it fair or just ....on some properties up to 10 people reside with four collecting incomes, yet the rates are the lowest because of the value of the property, while across town some old granny is given a kicking every year by councils because her land value is high and she had some income from savings to go with her pension, so no rebate for her.....this system is a bloody farce.

Thatcher tried a poll tax system and she didn't have the bottle to carry it through. There is no bloody reason why NZ could not have a uniform poll tax system....

The Chch event ought to be seen as a chance to apply a poll tax to collect rates and the thieving govt should not be stealing gst on top of rates...

A poll tax lol. I would be happy with just a 20% increase in insurance premiums, I have yet to see a commercial policy anywhere in canterbury have such a low increase.

I find it hard to believe that persons living in non earthquake risk areas would be subject to increases to subsidise areas where there are risks. This is a fundamental global problem with the current economy. In finance and in insurance the bottem line requires cross subsidy as uncompetent people do the business. When i was banking the personal factor was a major compnent second only to ability to pay. Now it is a computor modelling idiot system where the personal factor and other mitigating factors like where you live dont come into the equation. It is possibly time to start a clever bank and insurance operation

I'd be interested to know about "non earthquake risk areas" in New Zealand. Seems to me the whole country sits on the Ring of Fire, nowhere I'd rule out an earthquake with certainty.

Funny you should ask Elley, there are locations where all of the following are zero risk:

flood, slip, land liquifaction, fire, subsidence and volcanic everything plus Tsunami........these should have lower premiums because of that ...homeowners in these locations should not subsidise those who have built or bought in risky locations.

By the same token, a Hebel block house newly built should have a lower premium than a 100 year old box of matches with DIY wiring and crappy chimney.

Whereabouts Wolly, or were you kidding? Zero fire risk?! Doesn't seem likely to me but if so, please tell me where and I might go buy myself a nice Kiwi bach/investment property there one day. Just kidding ;)

I'm not sure what my premium is getting me right now. We're with AMI so maybe I would do better to put the $1440/yr for all policies we have with them on a saving accounts!

I mean of course bush fire Elley. Just bought some land and it fits all those criteria so when it comes to insurance I will demand a lower premium......Just spotted this on stuff.. 

"Cantabrians forced to demolish their quake-damaged houses will not be covered for land damage in a future earthquake, potentially leaving thousands of people at risk.".....sort of makes it pretty bloody obvious Gerry will have to relocate about 10ooo into new suburbs west of the city....new suburbs with all the facilties...probably cheaper in the long run...pull finger gerry...get it done.

Hmmm, the question is, will they give it to you (the lower premium)... Whereabouts in NZ is this? I'd have thought earthquakes were a risk about everywhere here.

That Elley is my only risk, apart from thieving bastards breaking in.... Sorry...keeping location secret...too many nasty buggers out there....If my insurance company go all wide eyed at being told to do something...I go elsewhere. This is what marine policy brokers do. It is now time to see the Mike Pero effort go into driving down premiums for those with low risk.

Sounds like a 30 metre house boat on lake wanaka

You'd freeze the balls off a brass monkey living on that lake icon.

Good luck then! (Will be studying the map tonight to try and find that mysterious risk-free location :)).

When I'm done Elley, it will a garden Monet would be happy to splash the paint in. Such a lovely 'French' setting. The only fly in the soup is...I gotta start paying bloody rates!

Akaroa?

Nowhere in the South Island would be safe from and Earthquake.

Wolly the risk you take if going to the tropical north is the Declaration of Independence of 1835.

That's the one and only risk scarfie..."tropical north" yeah sure it is....

This insurance matter...it is raising an interesting question....wish Bernard would run with it...should all insurance companies be mutual in the AMI mold....one sidestep away from full state ownership of the entire insurance sector...jeez I almost used "industry" instead! it sure aint that.

Add to the inevitable rates burden in Chch Bob Parker's assertion today that the city's sewerage system is "megamunted"; one-third of the system is kaput. That seems a generously low estimate.  And the water mains. And the roads.  the list goes on. Given all that, I would be surprised if insurance premiums only rise 20 per cent.

 http://nz.news.yahoo.com/a/-/top-stories/9204771/wastewater-system-megamunted/ 

It would be of interest ruru were we to know which residences are rated wrecks and which suburbs rated land failures...because then it would be possible to determine the value of bulldozing areas into parks and relocating the owners on equal size and value plots in new suburbs to the west of the city....I suspect the pressure not to do this is comming from those living to the west of the city and from those who's wrecked land was once prime Avonside!....am I right?

Therein lies the problem Wolly. Some areas are stuffed eg Bexley/Pacific Park,  a lot of Avonside, and more. No one in their right mind would want to rebuild on them and it looks like the insurance companies are forcing EQC decisions along here.  But there a lot of houses that will need to be demo'd and their neighbours are more or less all right, fixable anyway; is that land now deemed uninsurable? Now or in the future? And the less-munted neighbours?

All the talk of getting on with the rebuild is crap. First a thorough state-of-the-art, not half-assed and underfunded, geotech survey of every square inch of Christchurch  and environs must be done. That way the faults can be mapped as well as technically possible. Why not ask the US Geological Service for help with that? USGS, if you look at their website, has major resources in the seismic area. (A couple of dudes in a chopper over the hills for a three or four days and a month or so mapping the ground would not cut it as a major seismic investigation in their eyes.)

A third fault under the central city is being talked about. And the rest! Geologists know the plains are likely criss-crossed with smallish faults. A visiting US professor, Kevin Furlong, occasionally gets loose-lipped and reveals a bit more. (Google him to find out)  

Parallel to that the  building standards must be reviewed. Then with the geotech data new building standards devised . It's possible to build for seismic zones (look at Japan), we until now have chosen not to.

Then how about some honesty about how long the bigger aftershocks are likely to continue. For us, the 3.7 at 7.30am shunted the house like a freight train; what is the point of repiling and foundation rebuild on the same specs when the noisy neighbour (6.3 epicentre 3km from here) is going to keep farting for at least a year or two.

This is all going to take time,  years not months. But there are no quick fixes.

Of course premiums will go up or else Insurance firms would go down, How will this hurt the households disposable income ?....  provided the general mode of an elections year  I am  sure it will be spined as a positive for NZ.

Home and content insurance premiums should take account of how old the house is, the location and potential for flood, fire,Tsunami, slips, liquifaction and what the house is built of.

It seems as though the one size fits all concept is just so much crap. Vehicle insurance premiums are not universally the same are they...nor for boats....so why the hell do we have to put up with this current farce.

A brand new Hebel block on a slab has a fraction of the fire risk as a clapped out old wooden dunga that every sod and his dog has done some wiring on and the timber is as dry as the Simpson desert in a February.

House insurance is generally a very well known sector, and competitive. Im sure if there was a margin worthwhile pursuing in differing ages of houses or locations an insurance company would take it up it would win them business. 

NB contents certianly varies due to location.

regards

Seems to be a market opportunity going begging steven.!

Well write to them and tell them in your expert opinion they should charge less for nwere houses....

regards

Kunst is right.

Insurance is only one component of a global economic perfect storm. We are faced with:

Climate change ( the next El nino could be very interesting)

Peak Oil (when was the last significant cheap oil found?)

Peak Food (with consequent revolution in some countries)

Peak Tectonic Plate Motion (who needs examples?)

Peak Debt (and the virtual collapse of the credit market)

Peak Sunspot Activity (still to come, but not far away)

but don't worry, economic growth starts tomorrow, interest rates will soon be rising, property prices will continue rising, and in a few years we will wonder what all the fuss was about.

Good luck to Mother Earth, and all who sail in her.

Yep, Kunst is on the money. I was therefore heartened by the following developments abroad, naturally buried by the mainstream media. Bolivia enshrining rights to Mother Earth, and Norway paying Guyana to keep its rainforest (the size of England and Scotland combined) from being felled.

Won't stop the runaway growth train but maybe it'll buy the planet more time?

A

 

Last truely significant oil was Canterell I think.....in the 70s....North sea late 60s....Deep water Brazil will probably prove the last "big one".

regards

Yes you are right I believe about Mexico and North Sea. Do you think Brazil, very deep, requiring unproven tech, has any chance of being cheap? My guess is $150US+ per barrel cost.

Im not aware the tech is much worse than BP's?....I have not seen Brazil's costs but I think BP's costs for the mexico fiasco were circa $90~100.  Our entire global economy but especially the US's can only function on cheap oil, ie under $80USD....If Brazil's is that ie $150, well the world collapsed in 2008 at $147USD....so if it truely that cost I dont think it will ever be economically viable....its more likely to be <$100 but even then its hard to justify when oil can go to $40 in a recession and there will be more of them (oil induced recessions)....

regards

I think BP's Deepwater Horizon was about 1500 m and Brazil's Tupi/Sugar Loaf  is about 5000m.

But maybe Brazil can get away with it and produce oil at <$100 with some risk.