Uninsured homes and cars could become more common as insurance premiums continue to rise in 2023.
Are you paying a loyalty penalty?
In New Zealand, insurance costs can gradually increase over time, particularly if you renew your policies without comparing rates. This phenomenon is often referred to as "price creep" or "loyalty penalty." Insurance companies sometimes offer lower introductory rates to attract new customers but gradually increase premiums over time for existing policyholders.
It is, therefore, crucial to emphasize the importance of comparing insurance premiums annually and comparing alternatives before renewing with your current insurer, especially in light of the rising house and contents premiums over the past decade. Insurers have been implementing risk-based pricing, which, coupled with factors such as reinsurance costs, inflation, and increasing claims expenses, has led to steady premium increases.
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But why are insurance premiums getting more expensive in NZ?
There are 3 big reasons why insurance premiums have been increasing and starting to affect all Kiwis, especially relating to home and contents insurance. Firstly, inflationary pressures continue to impact New Zealand's economy, as indicated by the high annual inflation rate of 6.7% in the March 2023 quarter. Statistics New Zealand reports that the main drivers of this inflation are the food and housing sectors and this is flowing through into the insurance sector.
Secondly, the escalating frequency and severity of extreme weather events due to climate change are undeniably impacting the lives of New Zealanders. In 2022, a record-breaking $357 million in extreme weather general insurance claims were filed, highlighting the substantial challenge climate change poses to the insurance industry. The year 2023 has already witnessed two consecutive events that have caused significant damage: the devastating Auckland Anniversary Weekend Storms and Cyclone Gabrielle, which have affected communities across New Zealand.
As the cost of claims continues to rise, insurance premiums must accurately reflect the expenses incurred by insurers to provide coverage. The recent floods and the impact of Cyclone Gabrielle are anticipated to cost the industry over $2.47 billion, necessitating significant adjustments in the insurance landscape.
These events are likely to prompt difficult decisions regarding future construction locations for homes. In terms of existing properties, insurance providers will explore approaches to cover the growing costs associated with extreme weather events. This could involve implementing risk-based pricing, where homeowners in flood-prone areas would pay higher premiums compared to those in lower-risk flood zones. Additionally, insurance coverage for floods might become limited or restricted in certain areas. The changing face of insurance in New Zealand is an outcome of the challenges posed by these events, and insurers will need to adapt to the increasing costs associated with extreme weather.
The final big change in the home insurance market has been the changes to the Earthquake Commission Cover. As of October 1, 2022, significant changes have been implemented to the Earthquake Commission (EQC) cover for natural disasters in New Zealand. The coverage limit has been doubled from $150,000 to $300,000. Consequently, the levies payable to the EQC by households have increased by $180, regardless of their location within the country.
Previously, regions with high seismic activity, including Wellington, Canterbury, and Hawke's Bay, carried a larger portion of the insurance premium burden. However, the recent changes have resulted in a redistribution of some of these costs to areas with lower earthquake risks. This approach aims to foster a more equitable sharing of the financial load associated with natural disaster coverage across the nation.
The implications of these rising costs are significant. Homeowners are facing larger insurance bills as insurers pass on the increased risk associated with insuring homes, particularly in the face of more severe weather events. The concern is that if insurance becomes unaffordable, more households and communities may be left exposed to the risks of disasters, such as flooding.
In light of these concerns, it is crucial for individuals to take proactive measures by regularly reviewing their insurance premiums, compare insurance online, look at different options, and explore alternatives before renewing policies. By staying informed and considering your insurance choices, homeowners and vehicle owners can make decisions that best protect your financial well-being in the face of potential risks.
Here are some reasons why it is beneficial to compare insurance premiums each year:
Insurance companies regularly adjust their rates based on various factors such as market conditions, claims history, and risk assessment. By comparing rates annually, you can potentially find a better deal that offers the same coverage at a lower price, leading to significant cost savings.
Your insurance needs may change over time. By reviewing your policies and comparing premiums, you can ensure that your coverage aligns with your current requirements. You may find that other insurance providers offer additional benefits or features that better suit your circumstances.
Insurers often provide special discounts or incentives to attract new customers. By comparing premiums, you can take advantage of these offers, which may include lower rates, cashback rewards, or bundled insurance packages.
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Insurance providers continuously update their policies to offer improved coverage options. By comparing premiums, you can identify any new features or add-ons that may enhance your protection or provide better value for money.
Changing market dynamics:
The insurance industry is dynamic, and new entrants frequently emerge, offering competitive rates and innovative coverage options. By comparing premiums, you can stay informed about market trends and take advantage of better deals and improved services.
It's important to note that while comparing insurance premiums is beneficial, it's also crucial to assess the overall value of a policy. Consider factors such as the reputation and financial stability of the insurance company, the quality of customer service, and the terms and conditions of the policy before making a decision.
To get the most accurate and up-to-date information on insurance costs and potential savings, it is currently advisable to reach out to insurance providers directly and get quotes online. Click the appropriate button below to find out more about the different options for each type of insurance.
Here at Money Compare we collate as much information as possible to help you get in touch with insurers quickly and easily. Unfortunately, there is a vested interest from the insurers in New Zealand not to make all of their data available to companies like us, as by offering multiple products from multiple brands under the same umbrella company they will end up reducing their own prices and competing against themselves. Not ideal for the consumer, but that is the position we currently find ourselves in. It is of course also possible to consult with an insurance broker who can help you compare policies based on your specific needs.
Here at Money Compare we are looking to partner with more insurance brokers as we can’t currently recommend broking services relating to “fire and general” type insurance (car insurance, home insurance, contents insurance), but if you are looking to investigate coverage options around Life insurance or health insurance we can certainly help. Click the relevant button below and leave your details for one of our fully qualified insurance partners to get in touch.
Good luck out there! Don’t pay that “loyalty penalty” – be sure to compare insurance online before you renew and get a number of quotes to save money and get the best cover possible.