Reinsurers might re-negotiate
31 Jan 2017
In the wake of the magnitude 7.8 Kaikoura quake in November Insurance Council chief executive Tim Grafton said international reinsurers he has spoken to were "mildly interested but not deeply disturbed" by the Kaikoura damage.
"There was no balking at providing our insurance cover, but that's not to say we haven't had signals that reinsurers might want to renegotiate price."
Insurance premiums rose dramatically in the wake of the Canterbury earthquakes
In the wake of the Canterbury earthquake, as the insurance industry scrambled to reinstate more far-reaching and expensive reinsurance programmes.
Increases in reinsurance costs would trickle down to home insurance premiums, Grafton said.
Grafton said one insurer had found reinsurers planned to renegotiate their rates post-Kairkoura.
He said the revelation comes as not surprise given the increase in seismic activity, and billions in earthquake damage over the past six years.
"That's not something you would prudently look at and ignore," Grafton said.
A report from GNS found 2016 had an abnormally high number of earthquakes.
GNS principal scientist Kelvin Berryman said the cascading fault ruptures, like those in the Kaikoura quake was included in earthquake models used by reinsurers and insurers, but "not quite as complicated as what we've seen".
Berryman said Risk Management Solutions, which does risk modelling for IAG and released a new New Zealand risk model in July 2016, did not think any significant changes were needed to their risk model.
At the time of the quake, New Zealand insurer, Vero, did not know if customer premiums, which were already rising due to higher motor vehicle claims and the higher house building costs, would be pushed up further.
A Vero spokesman said the increased risk following the Kaikoura earthquake may lead to higher premiums for some customers.
Insurance companies will not say what they are paying for reinsurance for "commercial sensitivity" reasons.
A preliminary estimate by catastrophe modelling company AIR Worldwide predicted the cost of the Kaikoura quake at between $1.2 billion and $5.3b.
Grafton said the cost was a drop in the ocean compared to the global reinsurance capacity estimated at about $580b and the $33b insured loss of the Canterbury earthquake sequence.
IAG chief risk officer Karl Armstrong said home premiums were unlikely to see the "knee-jerk reaction" after the Canterbury earthquake that came with the cost of reinstating reinsurance programmes, and higher reinsurance rates.
Armstrong said a limited amount of reinsurers expressed they were not sure they still wanted to be involved in New Zealand coverage.
The substantial damage to individual properties in Wellington like Centreport, "are getting the whole market rethinking just what exposure they want in the likes of Wellington", he said.
While early indication were that premiums would not rise dramatically in the immediate future, insurance would become more expensive, but that was not due to the Kaikoura earthquake alone, Armstrong said.