Cost of Weather Insurance Claims up 70% – New Data

Kiwi SME’s need to do more to prepare for adverse weather events with new industry figures showing the cost of insurance claims has increased by 70% in the past three years alone.

Jo Mason CEO of NZbrokers, one of the country’s largest insurance brokerage groups says new insurance claim data shows the number of storm and flood insurance claims has increased by 56% over the last three years and this was accompanied by a significant spike in the cost of claims.

“There are a number of variables which may impact the size of weather related insurance claims – including rising construction costs and inflation.

“At the same time the cost of electronic components inside machinery mean, what used to be a repairable mechanical device cannot be salvaged once it becomes wet and the manufacturer’s warranty is voided – with the only option remaining to completely replace the equipment,” she says.

Mason says the international Global Facility for Disaster Reduction and Recovery (partly funded by the World Bank) which evaluates the threat of natural disasters in countries around the world, has now ranked New Zealand at a ‘high hazard’ level for most flooding and cyclone events.

“Area specific data is used by reinsurers to calculate the risk profile of parts of New Zealand which determines the cost of insurance premiums.

“While we were already rated as a high risk for seismic activity, now storm and flood losses in our market are on their radar as well.

“At the same time, data from the World Meteorological Organisation (WMO) is projecting the number of weather disasters will continue until the 2060’s.

“Of particular concern for New Zealand, is the fact ocean temperatures are among the warmest on record and global sea levels are continuing to rise, so far by 26cm.

“Despite evidence which says emissions are now levelling out, the concentrations of CO2 will remain in the atmosphere and have increased at a record pace over the last year.

“Due to the inertia of the climate system, scientists expect to see the number of weather related disasters to continue for the next four decades,” she says.

Mason says while there may be some debate over the impact of climate change on our inclement weather patterns, businesses need to ensure they are prepared for these types of adverse events.

“The data showing the rapidly rising costs of claims should be sufficiently persuasive for companies to review not only their current level of insurance cover but also how they will maintain their business continuity,”

Mason says according to industry figures for the last 18 months, insurers have paid more than $265m for 15 serious weather events in New Zealand, the largest being for ex-cyclone Debbie, particularly in Edgecumbe, $91.4m.

Mason says the figures show that there is no particular region affected more than others.

“Weather events may cost less than a serious seismic event but the increasing frequency and geographic spread of events show every business in New Zealand should be prepared,” she says.

Mason says new research has shown that insurance alone may not prevent a business from failing in the event of a disaster.

“A recent study of the longer term impact of the Christchurch earthquakes on local businesses found that they were unable to recover when they ceased trading for months even though there was no physical damage to their business,” she says.

Mason says research shows that businesses which have planned to handle a disaster event will significantly improve their chances of a successful recovery.

“The impact on small businesses can be significant with US data showing nearly a quarter of SME’s close after a heavy storm.

“Unfortunately preparing a business continuity or resilience plan is often not given the priority it deserves and the majority of SME’s have no disaster recovery plan in place,” she says.

Mason says the quieter Christmas holiday period can be a good time for business owners to reflect on their business resilience plans.

“A business continuity plan will enable your business to respond to an emergency and continue to operate as normally as possible, working to minimise the interruption and cause the least possible inconvenience to staff, customers and visitors.

“There are a number of online tools to build your own plan and an insurance broker can help coordinate your insurance programme to your business needs.

“Sharing the extent of your preparedness with the insurer may demonstrate your business in a positive way, increasing the number of insurers that want to compete for your business and help reduce the premium,” she says.

Property Insurance Costs Tipped to Rise

The cost of insuring some buildings could rise by more than 50 percent in just three months according to new figures from insurance brokers.

David Crick managing director of Runacres Insurance says the cost increase is likely to be disproportionately larger for lower value dwellings.

“Immediately following the Christchurch earthquakes in 2010 and 2011, we saw insurance costs jump by up to five times higher than the year prior. However, over the past 12-18 months we have seen a sustained drop in the cost to insure as insurers looked to grow their client base and new competitors entered the market.

“We expect that trend to change in 2017 and 2018 with the impact of increased taxes on insurance and the influence of other market forces coming through such as the Kaikoura earthquakes and limited supply of cover from some insurers,” says Crick.

Jo Mason CEO of NZbrokers, the country’s largest insurance brokerage collective says competitive changes in the market, the rising cost of cover for methamphetamine damage in tenanted buildings, as well as increases in EQC and the Fire Service Levies will see the cost to insure some properties increase by up to 56 percent according to her organisation’s analysis.

“If we take the example of a 1970’s farm house occupied by a farm worker with a replacement value of $230,000 which cost $944 to insure eight months ago, this will rise to $1478 in November – an increase of 56%,”

“While the fire service and EQC are essential factors in managing the risk of home ownership, it’s a real concern to see that this increase is going to hit many of those in lower value housing disproportionately higher,” says Mason.
She says while the sharp increase in the cost to insure a building may be off-putting to some, the cost of not being adequately insured could be far higher.

“All too often we have seen disaster strike, with devastating consequences for those who are under-insured or not insured at all. My advice to commercial property owners and homeowners is to talk to their broker about making sure you have the right level of cover with the right sums insured,” she says.