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 1. 
 2. Insurance News
 3. "Premiums do not simply increase to make insurers more money"


"PREMIUMS DO NOT SIMPLY INCREASE TO MAKE INSURERS MORE MONEY"


BROKING NETWORK SHEDS LIGHT ON CURRENT GENERAL INSURANCE PRICING TRENDS



INSURANCE NEWS

By Terry Gangcuangco

May 10, 2023 Share
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Kiwi broking network Insurance Advisernet New Zealand (IANZ) wants to make it
clear that there’s a lot more to general insurance pricing than a policyholder’s
own claims history or an insurer’s profitability.

“Premiums do not simply increase to make insurers more money; they increase
because they reflect the cost of providing insurance protection in the current
economic and political environment,” IANZ said in its Insurance Landscape Report
2023.

IANZ believes it can be helpful for clients to gain an understanding of the
factors that affect premiums, which in New Zealand include the steady increase
in the average cost per claim and the Australian influence.


LOCAL AND GLOBAL INSURANCE PRICING DRIVERS

Globally, IANZ pointed to the fourth quarter of last year as being the 21st
consecutive quarter in which general insurance pricing rose. This represents the
longest run of increases since 2012, according to the network.



“Insurers remain concerned about non-modelled secondary perils, such as
wildfire, hail, convective storm, tornado, and flood due to their accumulation
exposure and loss trend uncertainty,” IANZ said in its report.

“Amid persistent inflation, insurers continue to focus on accurate property and
business interruption valuations. They are focussed on managing greater claims
costs as inflation drives increases in the cost of materials, labour and supply
chain challenges, staffing shortages, rebuild delays, and other factors which
continue to impact loss ratios and profitability.”

Global reinsurers, for instance, are said to be “unwilling” to deploy the same
amount of capital as they previously did.

Locally, it’s easy to see why the prospect of a softening insurance market isn’t
in the offing yet.



“Severe weather events hit the North Island hard with the Auckland Anniversary
storms and Cyclone Gabrielle causing significant damage, which are likely to
cost insurers well in excess of $1.5 billion for each event,” IANZ said. “These
weather events have accelerated what was already predicted to be tough market
conditions for insurance buyers in New Zealand in 2023.

“Reinsurance, which is insurance purchased by insurance companies to protect
themselves from claims, is also impacted by these events. The global reinsurance
market is experiencing significant volatility due to factors such as high
inflation, interest rate hikes, and weather-related losses, including Hurricane
Ian and the tragic earthquake in Turkey and Syria.

“This has led to increased costs and higher retention for insurance companies,
which will result in premium increases for insurance buyers in what we are now
deeming a ‘hard market’, as insurers price their increased capital costs. In
addition, insurers will be more proactive in modelling storm and flood risks,
which will influence their underwriting capacity in certain parts of New
Zealand.”


ADDITIONAL ‘HARD MARKET’ FACTORS

According to IANZ, the “extremely” high frequency of catastrophe events in
Australia will also have an impact, in addition to New Zealand’s “too high and
persistent” inflation and the steady increase in the average cost per insurance
claim over the past decade. Three years of supply chain issues also didn’t help.

“Significant delays in the supply of materials, white goods, and vehicles are
impacting both rebuilding efforts and the settlement of claims,” the broking
network said. “Labour shortages and the availability of tradespeople have also
affected the timeframes to rectify insurable losses.

“One consequence of the COVID-19 pandemic has been a sharp lift in global demand
for goods, as consumers substituted away from in-person services. The global
supply chain has struggled to keep up with this additional demand, given the
long lags involved in expanding shipping capacity, causing freight prices to
rise dramatically. High freight costs meant that importers are paying
significantly more to have goods shipped to New Zealand.”

Economic growth, meanwhile, is expected to decelerate through 2023.

“After an evaluation of these factors, we believe the pricing of insurance
premiums will continue to rise,” IANZ said. “Cost cycles can be an excellent
tool in evaluating where insurance rates are and what direction they are likely
to take in the future.

“We believe the industry is currently sitting at 10 o’clock (rates rise
strongly) on the insurance industry clock … How long it remains there largely
depends on the frequency and severity of future catastrophic weather events and
the lowering of inflation that is currently impacting claims repair costs.

“With the continuing hard market, we anticipate a continued period of higher
premiums; getting insurance coverage could become more difficult, and more
difficult to negotiate terms; insurers may reduce capacity for some risks or
industry groups with poor loss histories or those in earthquake and flood areas;
higher excesses being applied; a focus on risk management and mitigation
processes; [and] more time and additional information required to place
insurance.”

Highlighting how valuable insurance is amid the current hard market, IANZ said
it is critical for sums insured to be reviewed annually to ensure they
adequately reflect the risk and are suitable for clients’ circumstances.

What do you think about the current insurance market? Share your thoughts in the
comments below.




RELATED STORIES

 * "The property insurance market will become significantly harder"
 * "We are firmly in a hard claims market"


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