IAG New Zealand announced a hike in home and contents premiums to reflect a higher risk of severe weather and natural disasters just days after the government outlined plans to plug the holes in insurance contract law.
From July, Australian-owned IAG will change its home and contents cover, in part to account for increased house cover by the Earthquake Commission but the withdrawal of contents cover by the state agency.
IAG said the hike will also be linked more closely to the risk of natural disasters and storms. Customers in areas prone to those events will likely face higher costs, while those in less risky areas may get a cheaper bill.
“New Zealand’s environmental risks have evolved over the past few years and we need to take more account of those risks, so we can continue to be there for our customers across New Zealand when misfortune strikes,” IAG executive general manager customer and consumer Kevin Hughes said in a statement.
IAG claims about 45 percent of New Zealand’s insurance market through brands including AMI, State and Lumley. In the six months through December, IAG cited higher premiums as supporting its New Zealand margins.
Reinsurers were blindsided by the cost of the Canterbury earthquakes in that they hadn’t anticipated the impact of New Zealand’s policies providing full replacement coverage rather than the international norm of sum insured.
Since then, policies have shifted to a sum insured basis. Insurers and their reinsurers have also started to recoup the cost of those claims, with consumer prices for dwelling insurance up 212 percent since the September 2010 quake. Contents premiums have increased 33 percent over the same period.
IAG’s latest hike comes in the shadow of Commerce and Consumer Affairs Minister Kris Faafoi’s weekend announcement of a clampdown on insurance contract terms.
Faafoi launched two discussion papers where insurance contracts and bank and insurer conduct are in view.
“Insurance contract law is decades beyond its best-by date. Consumers should be able to have confidence that they’re covered when the unexpected happens so we are going to make changes,” Faafoi said in a statement.
The consultation seeks to ensure all market participants are well informed, all interactions are fair and transparent, barriers to market entry are minimised, and consumers’ interests are recognised and protected.
The market entry objective was a late addition and was an acknowledgement that New Zealand’s level of natural hazards makes it a risky proposition for insurers.
The Ministry of Business, Innovation and Employment noted increased disclosure obligations will probably lift compliance costs for insurers and lead to increased premiums for consumers.
The paper said MBIE’s preliminary view on contract terms was that some examples could be deemed unfair to one party, suggesting the status quo is leaving some consumers genuinely disadvantaged. Insurers disagreed there was an issue with the current law, and said exceptions to policies were needed to reflect the risk they take on.
On policy comparisons, the paper said insurers don’t have to present policy information in any standardised way, although changes to the law governing financial advisers will mean they will have to use plain language.
Those current settings prevent third parties from creating a comparison platform for general insurance policies, MBIE said.
The document also covers some miscellaneous matters. Among those is feedback on a Supreme Court judgment that meant an insurer offering a liability policy must cover defence costs, meaning the firm could be liable for more than the sum insured. That had led to some insurers offering separate cover for liability and defence costs.
Submissions on the insurance terms consultation close on June 28. Faafoi wants to have legislation before Parliament in the current term.