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.