Public wrongly lead to believe that 97% of Tower's customers will receive home insurance premium decreases due to new quake risk-based pricing changes, Jenée Tibshraeny says

By Jenée Tibshraeny

Misleading information is circulating about how Tower’s new approach towards pricing earthquake risk will affect household insurance premiums. 

Tower, when it announced its pricing changes in March, said in a media release: “For Tower customers, the vast majority will not see any significant change in their insurance premiums, with less than 2.5% receiving an increase of over $250.”

Then, speaking to Radio New Zealand’s Susie Ferguson on Wednesday morning, Tower’s CEO Richard Harding said the changes would mean 97% of Tower customers would receive premium decreases.

When interest.co.nz queried this figure with Tower, it confirmed that neither the 97% nor the 2.5% figures referred to annual home insurance premiums.

Rather, they related to what Tower describes as earthquake premiums, or the portion of a home insurance premium that is derived from earthquake risk.

So what Harding was really saying was that 97% of customers would see the part of their premium assigned to earthquake risk fall.

What portion of the total premium is this exactly? It depends on the customer and the sorts of risks they pose.

Insurance companies consider a number of factors when calculating how risky customers are, and therefore what their premiums should be. Earthquake Commission and Fire Service levies are also included in home insurance premiums.

There’s a huge difference between talking about changes to one component of a premium, versus changes to the premium as a whole.

While 97% of Tower customers might see the earthquake risk part of their premiums fall, increases in other areas (IE EQC levies) might see their premiums rise overall.  

The incongruence might go some way to explaining why with 97% of customers supposedly enjoying premium decreases, the number of Tower customers that have come out complaining about huge home insurance premium increases has appeared disproportionately high.  

Who’s to blame? Has Tower been disingenuous or is the media ignorant?

Let’s look at the information Tower has given the media

In its initial release sent out in March, Tower explained its new pricing model: “Previously, while regions at greater risk did pay more for house insurance, insurance premiums still did not reflect the full cost of providing cover for these properties and this meant other customers were paying too much.

“Tower’s new approach to pricing will see locations facing higher risk from natural disasters meeting the actual cost and paying more than locations where the risk is lower.”

Nowhere in the media release did it mention or explain the fact it was only referring to earthquake premiums.

And this is how Ferguson’s interview with Harding went on RNZ:

Ferguson: “Tower’s bringing in a new pricing model. It says they’re now charging more for properties in high risk zones such as earthquake-prone Wellington.

“We can speak now with Richard Harding, Tower Insurance’s chief executive. Good morning.

Harding: “Good morning Susie, how are you?”

Ferguson: “I’m well thank you, but this situation where people are looking at 200%, 300%, 400% percent increases - how many of your customers may be facing that?”

Harding: “Susie, it’s a very small percentage of customers that would be affected by the change. Less than 1% of customers - from our customers - will be getting an increase of over $2,000…

Ferguson: “What does that equate to in numbers of people, because we’ve had multiple reports of this coming in?”

Harding: “I’m sure that would be around a couple of thousand people. The positive side is that 97% of our customers will be getting a decrease. 97% of our customers that live in low risk areas have previously been subsidising those customers that live in high risk areas…

Ferguson: “So if there is a 400% increase for some people in Wellington does that mean there’s going to be a similar bounce the other direction for people in low risk areas?”

Harding: “Well no, obviously, it’s a very small number of people getting large increases, but it’s a very large number of people getting small decreases. 97% of our customer base will be getting a decrease between $50 and $100.”

Harding talked about how this earthquake risk-based pricing model would be transferred to other risks like flood in the future, but once again made no mention of the fact the figures only refer to one part of a customer’s annual home insurance premium.

Interest.co.nz pointed this out to a Tower spokesperson on Wednesday, asking them to contact RNZ to request a correction be made to the written story accompanying the interview, but no change has been made.

What’s more, Tower never asked interest.co.nz to correct its story earlier in the year, written on the premise the price changes referred to home insurance premiums, not just one part of them.

Interest.co.nz is in frequent contact with a Tower media adviser, so it wouldn’t have been uncalled for, for him to point out an error.  

So, are interest.co.nz and other media showing a lack of understanding around how insurance works, or is Tower at fault?

I am of course biased, but feel mislead by the information Tower released both in March and again this week.

I also question whether it's turning a blind eye to errors that conveniently make it look good.

You be the judge.

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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7 Comments

Good on you Jenée, keep your bright light shining into the "dark corners" of the insurance industry!

Jenée bravo once again. I hasten to stress that this is only my opinion, but through networking with a very good number of Canterbury EQ claimants on Tower; disingenuous would scarcely scratch the surface as far as a description of their operation throughout this long and sorry episode. If Tower wishes to dispute that? Well then, they can do so quite easily, by lifting all the gagging measures they enforced when reaching all those out of court settlements!

Insurers, what a pack of ba***rds they all are.

I wonder who grows up to work in an insurance company? In the higher level positions I mean. They would know they are basically cheating as many people as they can. "Aggressively managing claims" and so on.

The longer they hold out paying on claims, the more they earn as a return on the capital they hold. Eventually when forced they pay out the original settlement figure.

Harding says '97% of our customers' will get reductions. His statement identifies WHERE you live as the key determinant.
Wellington and CHCH are in the moderate to high risk EQ areas so based on Hardings statement every Tower customer there will receive increases. Which is saying Tower has only 3% of its portfolio in those two cities. Clearly bollocks.
If 97% really are going to get no increase or receive reductions in the EQ component of their premiums, that would have to mean a large number living in EQ prone regions are also going to have little or no increase.
A likely translation of his spin - if you are in an old house, on liquefiable soil, have a solid masonry home, live in an apartment block that has a low NBS performance factor AND live in a high EQ zone, piss off now, Tower doesn't want you. The rest of you in similar houses will receive your floggings in increments over time.

The detail required in communications these days is astounding. Even a big insurance company and well respected news media can't seem to be able to get it right. Oh dear. Can we trust either of them?

'97% of customers WILL receive reductions'. Harding stated this clearly and repeatedly. Should he have qualified that by adding ' to the disaster component of their premiums ?' ..........in my view, absolutely.
He would have been well aware of what 99% of the population would have taken from his statements - that their overall premium would be reducing or not increasing.
I don't buy that he was just sloppy as there would have been extensive discussion within Tower about the corporate affairs strategy to pitch the message. Communication on issues such as this is carefully thought out and crafted.