Why the cost of insurance is rising
Your home, contents and motor insurance premiums are likely to increase substantially this year as insurers raise premiums in response to cost pressures. We have already seen some insurance companies implement pricing increases this year and we expect this trend to continue for the remainder of 2023.
What’s causing higher insurance costs?
A number of external factors are driving up costs for insurers. These include:
Continuing high inflation
High inflation causes a sustained rise in overall price levels. General inflation as measured by the Consumer Price Index, increased 7.2 percent in the year to December 2022. Although the annual inflation rate has dropped to 6.7 per cent in the year to March 2023, it remains at a high level.
Costly weather-related insurance claims
Globally insurance claims relating to extreme weather have been increasing in frequency and severity and last year was the third consecutive year where a new record was set for climate related weather claims. Cyclone Gabrielle and the Auckland Anniversary flood represent the two single largest weather related events in New Zealand’s history and these have led to an enormous spike in insurance claims, with an associated financial impact on insurers.
Other cost pressures
Building costs are increasing as the escalating costs of materials and labour continue to drive higher construction prices. For example the cost of building a new house increased 11 per cent in the 12 months to March 2023, following a 14 per cent increase in the 12 months to December 2022.
Rising reinsurance costs
Reinsurance premiums are also rising due to increasing extreme weather events and natural disasters, both here and overseas. (Reinsurance is insurance for insurance companies, helping insurers cover the costs of claims relating to large-scale disasters – without reinsurance, insurance companies could not trade). A significant lift in the cost of reinsurance for local insurers is passed onto customers through increased premiums.
What these factors mean for the cost of insurance
All of these factors combine to increase the insurance companies’ costs of doing business. Inflation and other costs pressures mean repairs or replacement of a damaged, destroyed or lost item are more expensive. The increase of frequency and severity of extreme weather means that claims events are happening with greater regularity and the increased cost of reinsurance means that the insurance companies have to pay more away to protect their own risks. All of these higher costs are reflected in higher premiums.
Managing premium payments
The increasing severity of climate-related events illustrates the need to have appropriate insurance cover for valuable assets and possessions. The rising cost of insurance can affect its affordability for many households, especially in the current high-inflation environment. However there are options you can take to help keep your premiums at a manageable level, such as choosing a higher voluntary excess (the amount you contribute to a claim).
To find out more, contact a Crombie Lockwood broker on 0800 276 624 or visit crombielockwood.co.nz
The views expressed in this content are those of the author, who is also responsible for any errors and omissions. Family Business Association provides this article for your information only. The content of the article should not be taken as advice. If you wish to explore this topic, please consult an advisor who you consider to have the expertise to provide specific advice in relation to your family business.