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Weather events and navigating a difficult insurance market

Large weather events in quick succession will generate a knock-on effect for insurance costs which Crombie Lockwood Chief Broking Officer, Mark Jones, says will remain in play for some time to come.

Over the last five years, floods, natural disasters and storms have amounted to claims that are in the region of approximately $275 million per year.

However, the Auckland Anniversary weekend floods, followed just a fortnight later by the devastating arrival of Cyclone Gabrielle in the North Island, proved to be very significant, increasing the previous claim amount dramatically.

“Unfortunately, these two events alone look like they’re probably going to cost the insurance market something over $2 billion each. For clients, that means the cost of insurance will increase,” says Crombie Lockwood Chief Broking Officer, Mark Jones.

The impact of weather events on insurance premiums.

New Zealand was already in a market cycle where inflation was driving up insurance prices were going up, along with costs in other industries and sectors.

Two weather events taking place so close together put enormous pressure on claims departments.

Insurance for assets, buildings, home, contents and motor vehicles are the types of insurances expected to be most impacted. A further knock-on effect from the large number of damage claims is the subsequent shortage of tradespeople and materials available to repair damage.

Risk-based pricing now a factor

Another impact from the cyclone and floods is the increased focus insurers have on risk-based pricing and risk-based terms and conditions.

“This means insurers are looking at geographical areas that might be flood prone, that might have costal erosion issues, and they’re beginning to price those areas accordingly and apply terms and conditions that are specific for that risk,” explains Mark.

“The good news is these events have proven the resilience of the New Zealand insurance market. Insurers remain financially stable and there’s no question of any company not being able to meet their insurance policies obligations.”

“It’s really important to have robust business interruption insurance in place, as it might take some considerable time to put your business back together again.”

- Crombie Lockwood Chief Broking Officer, Mark Jones

Difference between hard and soft markets

Mark says that the weather events of early 2023 have only increased what was already a so-called ‘hard’ insurance market.

“A hard market, as we have at the moment, is when there’s a shortage of capacity, or supply from the insurance companies. The result of the shortage of capacity is the increased pricing and more stringent terms and conditions that get applied.”

Mark estimates New Zealand will remain in a hard market cycle for the next 12 to 18 months at least, with other pressures such as the ongoing conflict in Ukraine, and post-pandemic financial market conditions causing instability around the world.

Managing your insurance in a hard market

So, how can clients manage their insurances best in such a situation? Planning is everything. In the current market cycle the important thing to do is to engage with your insurance broker early. Time is your friend in this process: the more time you have, the more time to get the proper details, negotiate terms and consider options.

Overall, Mark says that what the two weather events have highlighted is the value of insurance.

Crombie Lockwood Chief Broking Officer, Mark Jones

“People that had the right insurance in place are finding that their lives are being put back together again far more quickly than those that didn’t. Having robust insurance helps people get through difficult situations in the best way possible.”

Crombie Lockwood Chief Broking Officer, Mark Jones

Published June 2023