House & Contents Insurance
There has been a bit of media coverage recently about premium increases for Home & Contents Insurance.
Tower Insurance have recently announced they are moving to a more data driven, risk specific premium model with some clients facing an increase in their premiums based on the specific address of the property.
I personally have 2 thoughts on this:
Thought Number 1) - Risk sharing.
1) Insurance in its most simplistic form is to "pool together to reduce individual risk". Everybody pays into that pool and should you as an individual suffer a catastrophic loss (that otherwise would be financially devastating to you) then you take some money out of that pool . The other people contributing to this pool are happy for this to happen as it could be their turn in the future.
The insurance company facilitates this transaction by charging a fair premium across all policy holders based on claim trends and issues a contract (which are the rules for what is a claim and what is not a claim) and takes a margin (profit) to facilitate this.
The premiums each of us pay is spread evenly amongst all policy holders allowing each of us to protect our most valuable asset even if it is in a higher risk zone like Wellington.
The problem
The problem with Tower Insurance moving to this site specific premium model is that instead of levelling the premium across multiple policy holders it overnight makes some properties very expensive to insure or even unable to get insurance. Places like Wellington especially suburbs like Petone will be very expensive to insure.
This goes against the principle of insurance in spreading or sharing the risk amongst multiple policy holders.
I do think an insurer can rate premiums for higher areas due to higher risk like Earthquake or Flood but it should be spread out amongst all policy holders in that region and not specific to individual addresses.
Effectively Tower Insurance have drawn a line in the sand and with the new data available to them are able to cherry pick the risks that wish to insure and price out any of those customers they no longer wish to insure.
On face value there is nothing wrong with this, as it is a business decision that can be defended by risk modelling but is it fair? I don't think it is and it goes against the principle of insurance. Tower Insurance have accepted the premium from their existing customers for a number of years. In my opinion they should leave their existing customers on the old system and for any new customers quote under the new regime. The market will quickly determine the viability of this method.
If you are affected by Tower Premium increases then call us or email us for an insurance quote. We have an exclusive insurance facility that we can provide you with a competitive quote.
Thought Number 2) - Government Levies and GST
Another issue which I believe makes the underinsurance problem in New Zealand worse is Government Levies and GST.
Firstly over the last few years the EQC Levy and the Fire Service Levy have increased to $260.00 per dwelling. Then just to make it even better you are charged g.s.t. on top which is another $39.00. All up the extra cost of insuring your house is $299.00
Don't get me wrong I think the EQC levy provides a good level of cover for a good premium which otherwise would be charged by the private insurer. So this is good value and with out EQC we may very well have to accept no Natural Disaster insurance or very high excess levels.
It is the Fire Service Levy charged to insurance contracts (again I believe in the principle of the levy and the service they offer) however charging it distorts the insurance premium and does not capture everyone that uses the service so the cost burden of funding the fire service is not fairly spread.
What I mean by this is if you don't buy insurance for your house the Fire Service will still turn up and put out your fire. All the people that buy insurance are subsidising this.
Again please do not get me wrong the Fire Service does a wonderful job and their role has extended beyond just putting out fires and the Fire Service are expected to do more for less. However charging it via insurance contracts is very inefficient. It should be attached to your rates bill therefore all property owners that benefit from the service will be captured and every one pays their fair share.
I accept that for some people the cost of insurance can be a burden but having a levy on the premium forces some people to go without insurance and only exacerbates the under insurance problem.
Thought Number 3 - Why won't they insure my new house?
Anecdotally some insurers will not insure new houses in Wellington due to the 2016 Kaikoura Earthquake. We are getting quite a few phone calls from stressed home owners who have sold their house and purchased a new one. They ring their insurer only to be told "sorry we cannot insure your new house" even though they have been a customer for a number of years.
The reason for this is some of the insurers are over exposed to Wellington. So they do not want to take on any new risks as it is breaching their reinsurance treaties (kind of like Insurance for Insurance Companies)
We recently had a client who had insurance direct with one of the big insurers via their bank. They sold their existing house and thought it would be easy to get cover for their new house from their existing insurer. They discovered that their existing insurer would not insure their new house despite them being a customer for over 10 years.
We got a panicked phone call and was able to quote and put new cover in place within 1 working day.
If you do come across this situation or need help because your current insurer are unable to offer you insurance cover on your new house purchase please do not hesitate to give us a call on 0800 904 600.
Alternatively click here to send us an email for a quote.
