IAG pulls back from providing contents insurance to new customers in Wellington in further move to more risk-based pricing

IAG pulls back from providing contents insurance to new customers in Wellington in further move to more risk-based pricing

New Zealand's largest general insurer has made another move to reduce its exposure to Wellington.

IAG on March 4 implemented a policy to pull back from providing Wellingtonians with contents insurance.

The company won’t elaborate on the extent to which it will make it more difficult for Wellingtonians to get cover.

But it says its move will affect all its brands, including AMI, State, NZI, Lumley and Lantern Insurance, as well as the products it underwrites for the likes of ASB, Westpac, BNZ and The Co-operative Bank.

An IAG spokesperson says the company is taking a “conservative approach to writing new business in Wellington due to the area’s high-risk status with regard to natural perils”.

“IAG continually reviews its approach to risk in Wellington and as part of that a decision has been made to give priority to existing customers with regard to contents insurance.

“However, we are continuing to write new contents business.”

IAG won’t say how much new contents business it’s writing in Wellington. IE whether it is accepting one in 10 applications or nine in 10 applications.

Regardless, a change of approach from IAG is significant as it accounts for about 46% of the country’s general insurance market.

Its new policy is restricted to Wellington and doesn’t affect car insurance.

IAG signalled to interest.co.nz its move to more risk-based pricing in December 2016.

Then in July 2018 it announced price changes that would see AMI and State home insurance policyholders who live in earthquake or flood-prone parts of the country pay an average of $91 more in annual premiums. Meanwhile policyholders in less risky places would pay less.

It said those in Whakatāne, Hawke’s Bay, Wairarapa, Wellington, Marlborough, the West Coast, Kaikōura, Waimakariri and Dunedin would be stung, while those in the upper North Island, Taranaki, Selwyn District, North and Central Otago and Southland could make savings.

"In the past, the price people pay for home insurance hasn’t fully reflected these differences in risk. This is now changing,” IAG’s consumer general manager Kevin Hughes said.

“Over the past few years, we’ve seen how New Zealand’s environmental risks have evolved, and we’re taking these risks more into account. While we can’t ignore these changes, we can continue to be there for our customers when misfortune strikes. This means our prices must change.”

Tower formally announced in April 2018 it was moving to a more risk-based pricing model.

IAG has declined interest.co.nz’s request for an interview. Insurance companies are generally hesitant to get into specifics around their risk appetites due to commercial sensitivity.

The Reserve Bank, in its latest Financial Stability Report released in November, said it wasn’t sure whether the insurance pricing it saw was reflective of where the market cycle was at, or a more permanent change of approach from the industry.

“In the case of earthquake risk, the prevalence of risk-based pricing partly reflects some insurers having limited capacity to take on additional earthquake risk,” it said.

“Their capacity is influenced by a combination of their (i) level of catastrophe reinsurance, (ii) appetite for earthquake risk, and (iii) earthquake risk exposures from existing policies (particularly in Wellington).

“More generally, higher insurance premiums and more stringent underwriting criteria are typical of a tighter phase of the insurance cycle, and tend to coincide with reduced risk capacity and less competition, particularly for higher-risk insurance business.

“At this stage it is not clear whether recent changes in the earthquake insurance market reflect these cyclical factors, or whether they represent a structural shift towards higher premiums and more restricted cover.”

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44 Comments

Christchurch - Kaikoura - (Wellington)

Some evidence that readjusted pressures move in direction of plate movement following significant event. So your assumption could be sound.
Clearly IAG have possibly read the evidence.
Sleep soundly Wellingtonians.

They must know something we don't. Big one about to hit the capital?

Taupo - Auckland...poof

Those are odds I can live with

It was probably said in a past time that Auckland was full of poofs.

Wellington is a much larger risk than Chch. it was only for about a year after the Sept 2010 quake that the Chch risk was higher. Based on risk, Wellington should have the highest earthquake-related premiums in the country.

Wellington risk of Mag 7 or higher in the next year = 6% (note: excludes Kaikoura sequence)
Kaikoura risk = 4.6%
Chch risk = <1%

https://www.geonet.org.nz/earthquake/forecast/central_nz

low rates are killing the insurance industry

http://professorfekete.com/articles/AEFHowFedBankruptedInsInd.pdf

That was my first thought when I saw the headline. Insurance one of those frauds like money really, it isn't what people think it is.

As a taxpayer, I can relate. Wellington is an absolutely massive liability.

It will be ugly when the big one hits that's for sure.

Yeah, but there is a very slim chance that a massive sinkhole will open up under the beehive while they are in session. :)

I wonder what sort of govt we would get at the next election if the bulk of existing MPs were no longer on the scene (or behind the curtains pulling the strings). A politcal reboot if you like.

The Beehive was strengthened in the 1990's not for Earthquake purposes, but in preparation for Gerry Brownlee's election into Parliament.

Well yes, a bumble bee in a free fall, would not be good for all the worker bees in the hive, a lot of damage.

Household contents are a tiny ppm of insurers total exposures in dollar terms so meaningful reductions could never be achieved by pulling out from this segment. IAG’s spin doesn’t stand up to even elementary analysis. I’m not surprised they won’t talk to interest.co given it’s track record of holding insurers to account for their statements.

Absolutely. This is undoubtedly a sighter and marker to introduce more restrictions and exclusions up and down the country, as and when it is opportune. Still NZ is a small economy with a lot of high risk. EQ’s & fire of late. Guess it goes with the territory.

Don't write the contents insurance, people move off to another company that will do both to collect the discount. They get where they need to be, and not create the waves they're trying to avoid. De-risk for a few years and then cherry-pick the customers they want. Clever monkeys...

Given its multi billion $ commercial & corporate exposure to WGN they could achieve their aims by making relatively modest cuts to their participation on this segment but given brokers would punish them elesewhere in the country, this would be risky. Next biggest chunk of exposure is houses where both the property owning public and bank connections would get bent out of shape over a semaphored retreat so let’s try a PR led workaround; first kick out the cluster of customers with no leverage - stand alone contents policyholders - and see if there is much pushback. If not then ratchet up terms for bank introduced customers with contents policies who also have ‘undesirable’ houses with IAG; ie old, on unstable hillsides, liqueafiable ground or in tsunami or flood zones in the hope they will take their poxy house insurance elsewhere. I suspect this is a carefully managed probe to test reaction and that the real strategy is far wider reaching.

No one let IAG in on the secret that Auckland is built on a volcanic field...

AKL volcanic eruption has a 500 year return period vs the alpine fault that is now beyond its historic mean return date. There is a 60 year +/- variation around that return date but the clock is ticking loudly.

With any luck it will expand the isthmus.

There is no expected return date. Physics indicate need a slip on section of plate that propagates into other unstable sections and have a chain reaction that results in a large earthquake. This is why we have after shocks after a large event as the plate is unstable. Multiple minor quakes, reduce the probability of a future large quake as the plate is stabilising without a major event/ chain reaction. Humans like to given random events a timeline as to when one should occur, but physics indicate could occur at anytime, but the more minor quakes you have the less likely you are to have propagation through a series of unstable sections with a large event.

Conversation was about the alpine fault which moves with remarkable predictability ( in seismic terms anyway). Its last rupture was 1717. While the Wellington fault is not as predictable, reinsurers who dictate risk appetite don’t necessarily make this distinction due to uncertainty about how a mega alpine fault event would affect the lower north island.

The Alpine fault is capable of a magnitude 8 quake due to its length. Each magnitude 8 releases as much energy as 1000 magnitude 6 quakes. We had on average 1.6 mag 6 quakes per year so don't expect these to mitigate the big one. The science is quite well known regarding the frequency of major quakes. There is variation due to the nature of how the plates are locked together which is why they are quoted with an average and distribution.

https://www.geonet.org.nz/about/earthquake/statistics
https://www.gns.cri.nz/Home/News-and-Events/Media-Releases/improved-unde...

Funny, we have a house in Wellington and a house in Kerikeri. We have had the increased insurance cost inWellington but not the reduction in our Kerikeri house. They speak with forked tongue.

With no reduction in Keri Keri risk - why would you expect a reduction in premium ?

IAG July 2018 - ‘those in lower risk areas will pay less’ (under our new risk based pricing model)

Anybody out there got a real example of premium reduction they can share with us? (and where they live)

Lucky that we haven't concentrated the majority of government departments to just one small area and high risk geographical area...oh, hang on...

Great way to boost your profit margins...take on no more risk and pump up your prices. Its at times like this I like to remind all the whinging neolibs among you that it was precisely for this reason in addition to a dozen others that NZ once possessed its own Nationalised insurance and banking services. Of course Nationalized is nowadays a byword for being sold off by National...and don't we pay a price for the privelage.

Nostalgia morning on interest.co. BNZ effectively went bust and State insurance would have been unlikely to have survived the CHCH earthquakes. AMI tipped over and Tower struggled to keep afloat. NZ is very exposed to large scale events which make viability of domestic insurers tenuous.

One of the better alternatives to Gubmint ownership of everything and yer dog, is Mutuals. I seem to recall FMG being the only Mutual insurer left - but I stand to be corrected.

Mutuals have the same problem - lack of reinsurance buying muscle (NZ is a high risk, low recovery market ie not big enough to claw back previous disaster losses within a reasonable period). Without a deep pocketed parent or effective ownership by an offshore entity or international reinsurer a true mutual will also struggle.

Check GeoNet quakes for the past 12 months and you will find 1 moderate quake in the Wellington area. All sizeable quakes are either on the north island east coast or down on the South Island . Where is the risk situated?

Most of us in Canterbury learnt soon enough, and the hard way, that everybody and every expert, knew all about the respective earthquakes, after they had happened.

Foxglove. True that but Ian Machaons prescient liquefaction Investigation many years before predicted with stunning reliability, the effect that shaking would have on ChCh soils. All insurers had copies of his report and maps and overlaying them with actual post event data revealed a very close match.

Thanks. Yes I remember that. He was pointedly ignored. Wasn’t here to say I told you so, but his good family did come forth,although an unhappy experience in itself, one can only imagine. As an aside, the same sort of scenario, from the old Drainage Board staffer, who predicted the clogging and overflow of our waterways if the old maintenance program was abandoned. There it is.

Yea Kaikoura & Grassmere didn't affect Wellington at all, right?

Different fault but yep, Wellington felt the edge of those movements for sure. Think many times worse though when fault wellie let’s rip again.

It makes you wonder why those of us that don’t live in quake prone zones are on the hook for more building in those areas e.g. maybe all building work in Wellington going forward should be excluded from tax payer bailouts. That would give a better risk balanced outcome.

Eh, Auckland is a matter of when, not if, either for a quake or volcano. Northland is far more active at the moment than historical averages would suggest it should be. Taupo is kiss-your-arse-goodbye stuff; even without a substantial eruption, the damage from magmatic inflation and deformation would be massive in an urban setting. Taranaki could have massive aviation consequences and there's documented inflation happening on the East Coast. We're unfortunately all in this together, whether we like it or not.

B2B Much of the Wellington business district is located on land uplifted in the 1855 strike slip shake. So in terms of ‘risk’ you’d cite WGN if your metric was value exposed. If the metric was imminence you’d punt on the alpine fault which will with certainty move within the next 50 years but value exposed is far lower given its remote epicentre. The 1855 Wellington fault movement caused widespread shaking to the upper SI and Wairarapa but worth noting this same fault also gave a fairly serious heave in 1840. Shaky isles.

Just about all insurers in NZ are Aust owned. This is similar move they made after 2011 Brisbane major flood until QLD and Fed govt forced them to offer insurance for properties with flood risks. As results, building insurance premiums jumped many folds from the usual $1-2000 to $8-9000+
Good luck Wellington.

Following the amendments to the EQC Act, private insurers will be responsible for all contents insurance. If the government is relieving itself of liability for contents insurance claims, it should really restrict premium hikes like this by insurers, who are earning tidy amounts from everyone's compulsory EQC levies. And IAG almost doubled its New Zealand profit (to $240m) in the fiscal year to 30 June 2018. Just another reason for regulation of the industry after the Canterbury response.