2 Oct 2012

Tower blames reinsurers for premium jump

10:52 am on 2 October 2012

Insurer Tower says that now overseas reinsurers are aware of the potential risk in New Zealand they are pricing the market accordingly, and from next year will put caps on the cover on homes.

The company says premium rates for its house, contents and motor policies will rise by up to 30% after the it increased its reinsurance coverage.

Tower has bought re-insurance cover for two catastrophe events, and the excess for an event occurring this financial year has increased to $11.7 million, compared with $6.7 million in the previous year.

It's also increased Tower's re-insurance programme, with a limit increasing to $525 million for each event.

Tower Group managing director Rob Flannagan says there will be caps put on insurance cover from next year, and it hasn't been difficult to get reinsurance because his company has good relationships with reinsurance firms.

"They see New Zealand as a risk, but the risk is now being priced ... on the same basis as the rest of the world," he says.

"It (re-insurance) is now being priced according to the risk, so re-insurers are comfortable because they are getting the return on capital that they require," says Mr Flannagan.

Mr Flannagan says New Zealand had been unusual in having an unlimited cap on houses destroyed in earthquakes.

"From next year, all house insurances will have to have a cap on the cost per square metre," he says.

"People will need to be careful when they are insuring their houses to make sure that they are adequately covered".

As an example, a homeowner might be limited to a payout of $2000 a square metre on their house, and if they wanted to insure above that, some additional insurance product might have to be bought.