The Auckland storm and Cyclone Gabrielle in 2023 have significantly impacted New Zealand's home and contents insurance market.

These catastrophic events rank as the second and third-largest insurance events in the nation's history, leading to substantial financial implications and shifts in the insurance landscape.

Key Statistics from the Insurance Council of New Zealand

As of 1 March 2024, the Insurance Council reported the following claims:

• Auckland Storm: 59,067 claims, totaling $1.958 billion (up from $1.84 billion in September 2023)
• Cyclone Gabrielle: 58,347 claims, totaling $1.790 billion (up from $1.66 billion in September 2023)

How Insurers Are Responding to Increased Risk

Insurers are not only adjusting their reinsurance arrangements and premiums; they’re also using detailed land data to assess risks at individual properties.

This allows them to identify high-risk properties for natural disasters, which can result in significantly higher premiums or even make it difficult to obtain insurance.

Natural disaster events in New Zealand have become more frequent and costly.

To put the scale of the Auckland storm and Cyclone Gabrielle in perspective, each of these February 2023 events cost insurers more than ten times the average large storm or flood event.

The magnitude of these back-to-back events has also drawn global reinsurers' attention.

As a result, premiums across the country have risen to offset the surge in claims and increased reinsurance costs.

For example, as previously mentioned, one insurer’s reinsurance premium for 2024 now exceeds $2 billion annually.

Global Trends in Property Insurance Premiums

New Zealand is not alone in facing escalating insurance costs.

Many other countries are also seeing catastrophic weather and fire events resulting substantial increases in premiums:

• Australia: House and contents premiums have risen by 28% to 50% in flood-prone areas, with some locations now uninsurable. About 12% of Australian households pay the equivalent of one month’s gross income for house insurance.  
• United Kingdom: A 2024 Financial Times report shows a 36% median increase in home insurance costs, driven by higher building costs and extreme weather.
• United States: In parts of the USA, the home insurance market is "crumbling" as insurers pull out of states with extreme weather events and wildfire risks. As a result, premiums are rising sharply. For instance, one report highlights a year-on-year premium increase of 208% for a modest home in New Orleans, with the new annual premium reaching around NZD 8,000.

What is unique to New Zealand is that our premium pool is small on a global scale but, as a country, we have posted three catastrophic events that are noticeable on a global scale.

Poor modelling of potential losses from the Auckland storm and Cyclone Gabrielle suggests that premium increases may extend over a longer period than seen in other countries.

Insurers’ Cautious Approach to High-Risk Properties

Beyond premium increases, insurers are taking a more cautious approach to properties in high-risk areas, such as coastal regions, flood-risk zones, and landslide-susceptible areas.

Local authority land classifications add another layer of complexity, particularly when determinations are delayed.

This can create uncertainty about the insurability of certain properties, as some Category 2 and Category 3 land may be deemed uninhabitable due to landslip or flood risks.

Addressing Insurance Affordability Concerns

Insurance brokers are well-prepared to navigate these challenges.

They provide guidance by regularly reviewing the sum insured to ensure it keeps pace with inflation, highlighting mitigation measures to insurers, and closely monitoring claims to ensure fair and timely settlements.

Insurance brokers are increasingly concerned about the affordability of insurance.

To help manage costs, they may negotiate premiums on behalf of clients. When needed, they can also suggest adjustments to coverage, such as reducing the number of insured perils, increasing excess amounts, or switching to instalment-based premium payments.

These options are seen as more practical and secure alternatives to reducing the sum insured or cancelling coverage altogether.

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