In more recent times (and more specifically following the earthquakes of recent years), insurers have taken to managing “risk” much closer than ever before.
Reinsurers (the groups that back mainstream insurers’ primary risk lines) have seen the impact of unknown, or un-realised exposures following the earthquakes. As a result of this they have demanded that insurers manager their exposures more closely to ensure there are no surprises if another earthquake or natural disaster strikes.
As these events are harder to predict, insurers have started using statistical modelling carried out by actuaries and scientists to provide estimates of probability and impact scenarios.
The term ‘risk-based underwriting and pricing’ is actively positioned now by all insurers. This relates to the way insurance is calculated and is based on how susceptible to risk certain areas are. Obviously, some areas are more susceptible than others.
New Zealand has continued to experience earthquakes and more frequent and severe weather events. Fair to say of more recent times, the weather has been particularly stable, but history suggests this will not always be the case and with wide-area damage, comes the inevitable increase in the cost of reinsurance.
Insurers have often balanced premium impacts, through cross-subsidization. Premium differences were offset by other customers and regions, to provide insurance at an affordable level for everyone.
This has now (or at the very least) is now changing. Risk assessment and acceptance comes first. All areas in New Zealand carry a different reinsurance cost, which insurers absorb in their risk acceptance and pricing, but pass onto the end customer. That variation in both risk acceptance and price was not truly reflected in the market. It is now!
Customers in more hazardous areas with susceptibility to earthquakes, floods or landslips may not be able to get insurance, OR if they can, the question remains, at what price?
Ensuring therefore that you have insurance on your home, it is correct and will put you in a position of strength when the next one hits, is imperative.
Don’t let your customer down by not indicating the avenues open to them for valuing the rebuild estimate on their home.