Insurers pass on rising reinsurance costs

Thursday 19th January 2012

Consumers are having to pay higher premiums on their contents and dwelling insurance after the Canterbury quakes forced fatter costs on local insurers.

Premiums for dwelling insurance climbed 17.5 percent in the 2011 calendar year and contents insurance rose 10.3 percent, according to Statistics New Zealand’s fourth-quarter Consumer Price Index. Sector lobby group, the Insurance Council, put the rise down to higher reinsurance costs and the surge in demand for cover from Christchurch residents.

“This is a direct result of the cost of reinsurance,” said Brett Solvander, Insurance Council spokesman. “They’ve asked for more money to spread the risk here.”

Local insurers are expected to foot about $15 billion to $18 billion of the estimated $20 billion cost to Canterbury from the quakes, and they’ve faced higher costs themselves after drawing down on their own reinsurance. The Reserve Bank estimates insurers face claims of as much as $30 billion from the quakes.

Reinsurance is the practice of insurers transferring risk portfolios to other companies or in effect insurance for insurers.

Last October, Tower lifted its premiums after saying it would have to pay more for reinsurance if it was forced to draw on it.

The Insurance Council’s Solvander said the cost of materials and demand for building services also forced a rise in premiums.

“When you’ve got a lot of people at the same time, wanting the same services, the price goes up,” he said.

Insurance of all types, including life policies, increased on average by 4.5 percent in the past year. It rose 0.7 percent in the three months ended Dec. 31, following a 2.4 percent spike in the September quarter.

The increase in premiums was a trend Solvander expected to level off, provided seismic activity did the same.

(BusinessDesk)

BusinessDesk.co.nz

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