A sea change in pricing property insurance
Private Equity investors with portfolio companies that are property intensive should be aware of proposed changes to how property insurance is now being priced in New Zealand. Any Private Equity investors looking to purchase property intensive businesses in New Zealand should also consider this as part of their due diligence investigation.
New Zealand’s largest property insurer group recently announced a move towards more risk-based underwriting for property and contents insurance in areas considered prone to natural disasters, such as Christchurch and Wellington. These changes will result in premium increases – some of which will be very substantial – for customers in affected areas.
While all insurance pricing is risk-based to some extent, insurers have traditionally spread the cost of natural disaster risks evenly across the country. With an increasing focus by reinsurers on the extent to which New Zealand insurers are exposed to risks in specific areas, this is changing. Insurers are now under pressure to ensure they are not disproportionately exposed in high risk areas. Risk-based pricing helps ensure that their insurance books are appropriately weighted to areas and types of risk.
Currently this shift will affect customers of Tower Insurance and the IAG group of companies, which include the State, NZI, AMI and Lumley brands and provide insurance through ASB, BNZ, The Co-Operative Bank and Westpac. Together, these brands provide around half of all property insurance in New Zealand. Vero Insurance has indicated an intention to move to partially risk-based pricing. Other insurers are likely to follow.
For further information please see our most recent “Cover to Cover” publication here.
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