Transcript
Intro
In 2023, New Zealand experienced a significant increase in property insurance premium rates, generally in the range of 12% to 25% compared to the previous year. In the first quarter of 2024, premiums continued to rise, although at a slower pace.
Natural catastrophes
Two extreme weather events contributed to the increases: Auckland's January floods and Cyclone Gabrielle, which caused insured losses estimated at $3.5 billion.
Globally, the rising cost of insured natural catastrophe events had a significant impact on reinsurance capacity.
Many insurers responded by increasing their reinsurance retentions, effectively retaining more risk within the local insurance market.
Reinsurance market
After a challenging 2023, the January 2024 property reinsurance renewals saw increased capacity and generally more stable conditions than the previous year.
Marsh's Fast Track facility
Marsh's Fast Track facility has provided clients with exclusive access to additional capacity, helping to drive market competition.
In addition, new insurance market participants entered the New Zealand market, further enhancing competition.
Coverage and underwriting trends
Following the significant weather events in early 2023, insurers placed a heightened focus on flood risk, contributing to rate changes, coverage restrictions, and increased deductibles for clients perceived to have a significant risk exposure.
Assets which experienced significant claims and with a vulnerability to repeat flood events have become a key concern for underwriters.
Insurers continue to further develop their flood modelling capabilities, with flood now being viewed as a key natural hazard alongside New Zealand’s seismic risk.
Insurance buying patterns
In response to the challenging insurance market conditions, many clients have adopted insurance buying strategies based on budgetary restraints. This includes setting a 'no greater than' premium target to manage costs.
Alternative risk transfer
Larger organisations or those with a mature risk management framework have shown a growing interest in alternative risk transfer options. These include captive insurance and parametric solutions.
Outlook
Despite the macro trends around weather related natural catastrophes, there are signs of stability returning to the reinsurance market. Premium rate increases seen at the beginning of 2024 are expected to moderate further, barring unforeseen changes in conditions.
New Zealand landscape
Although local inflation appears to have peaked, inflationary pressures continue to impact premium rates, including through the effect of ongoing claims cost escalation.
Despite the heightened focus on flood, seismic risk continues to be a dominant factor impacting the New Zealand insurance market.
Insurer capacity constraints remain challenging, particularly in high natural catastrophe zones like Wellington. Outside of some high-hazard regions and occupancies, competition and stability are expected to gradually return to the New Zealand property insurance market.
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