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7 August 2023

Client Advisory     

Insurance rates trend upward

The insurance market remains in a ‘hard’ phase, during which insurers increase premiums, reduce insurance capacity and offer more restrictive terms and conditions.  These conditions are caused by mounting concerns about climate change as evidenced by the rise in volume and severity of extreme weather events and natural disasters, both here and overseas, as well as by unstable global financial conditions.

To better understand what the recent rise in the cost of insurance mean for our clients, we analysed data for the insurance renewals of a large section of our commercial client base. These clients have material damage and business interruption policies and represent a good spread of occupation type and location.

Examining rate increases

The data illustrates a rising trend in average rate increases broken down by earthquake and perils and non-earthquake perils. (Insurers use a rate to calculate the premium based on the sum insured.)

Commercial portfolio - Average rate increase

Time period Non-earthquake perils Earthquake perils
12 months to 31 Dec 2022 4.93% 6.96%
1 Jan - 31 March 2023 7.62% 15.0%
1 Jan - 31 May 2023 20.66% 13.46%

The figures show that if a sum insured was unchanged at renewal during 2022, the premium increased by a relatively modest amount. By the end of the first quarter of 2023 (before the financial impacts of the two flooding events were fully understood), rates had risen substantially, particularly for earthquake perils. By the end of May 2023, the rate rises were even more dramatic, predominantly for non-earthquake perils.

When analysing this data for the three main metropolitan areas, the recent rate increase for non-earthquake perils for Auckland and Christchurch averages around 25% as follows.

Rate increase for policies renewing between 1 January 2023 to 31 May 2023

  Auckland Wellington Christchurch
Non-earthquake perils 25.4% 20.39% 24.48%
Earthquake perils 9.4% 14.93% 13.5%

For many clients, these rate increases are compounded by increased sums insured to reflect the impact of strong inflation, which means actual premiums increases may well be higher.

Weather events trouble insurers 

It is not only past events that are driving rate increases; the growing risks of climate change, with a forecasted rise in the number of extreme weather events, are also troubling insurers.

In a recent interview, Swiss Re’s lead underwriter for Australia and New Zealand, David Sinai, commented, “More frequent and larger claims will require higher insurance premiums to service those claims. Insurers need to stay ahead of loss trends to ensure the premiums collected are adequate to cover their obligations to policy holders and protects their shareholders’ interests.

“The 2023 events not only remind us of the large-loss potential of weather-related events – $4 billion in claims and counting – but should also reframe our perspective of overall risk drivers in New Zealand. The increase in frequency and severity of weather claims would suggest that weather losses are closing the gap to earthquake risk.”

What this means for our clients

Hard market conditions and rising reinsurance costs continue to push up insurance rates on material damage and business interruption policies. We expect that this trend will persist through the next annual renewal cycle at the very least, as individual policies are reviewed and renewed.

We continue to advise our clients that the most effective way to navigate the hard market conditions is to engage early with your broker and prepare a detailed submission for insurers. This will provide your broker with the maximum amount of time available in which to negotiate terms. 


Jan broker with client

Further information

If you have any questions or want to understand the impact of these changes on your specific situation, please contact your Crombie Lockwood broker.

For more information on issues impacting the insurance market read our August 2023 Insurance Market Update. 

Download report (PDF, 3MB)