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‘Perfect storm’ insurance claim

An insurance industry adviser has warned of an approaching “perfect storm” affecting premiums for local authorities.

Darren Williamson, from insurance broker and risk advisor Marsh, spoke to members of the South Wairarapa District Council [SWDC] finance committee at yesterday’s meeting.

He spoke about the impact on insurance premiums for not only South Wairarapa but the whole region.

Williamson works with Carterton and Masterton District councils, as well as SWDC, and all three are facing cost rises.

“2023 has been the perfect storm when it comes to property insurance renewal for all our clients,” he said, going on to describe the current period as one of the most challenging since the Christchurch earthquakes, with a combination of inflationary-driven uplifts in value and increased numbers of both claims and losses among factors driving premium increases.

“It isn’t just limited to New Zealand, it’s global … 2022 was the worst year on record in terms of losses through natural disasters in the world.”

He said the description of the situation as a “perfect storm” is accurate in terms of challenges the insurance property market sector has experienced, acknowledging asset values have increased along with other risk factors.

“A lot of insurers who are available to the council network, with particular reference to the councils located in Wairarapa, Wellington, and the lower North Island – ultimately it is a case of insurance is going to get increasingly hard to obtain, and more expensive if it can be obtained.”

The warning comes as SWDC Mayor Martin Connelly spoke to the meeting about a more than 50 per cent increase in council premiums.

“A 56 per cent increase in insurance is very difficult to bear,” he said, before asking how such an increase could be mitigated.

A SWDC finance spokesperson had earlier said the council’s insurance premiums are going to increase, and the impact will be compounded by an increase in value in the asset base.

“Our asset base around material damage policy was $50 million; it’s now $86 million. So big increases in valuations, and the trend isn’t changing.

“It looks like our assets are going to continue to increase in value,” the spokesperson said.

“The current policy of council is to fully insure, which we have continued to do.”

Williamson said while the current situation is not completely unexpected, it might now be appropriate to consider alternative future risk mitigation strategies.

“It’s how you plan in terms of your longer-term future for less reliance on insurance, using insurance as a partial means of funding losses.

“Otherwise, it will be incredibly expensive,” he said.

“Looking ahead to perhaps 2027 or 2028, you will find this year would be a very good year in terms of the changes you’ve unfortunately had to endure as an entity that buys insurance as its main means of funding losses.”

Williamson said risk assessment across Wairarapa focuses on natural disasters.

“The cost of insurance for the councils in Wairarapa region is largely for a natural disaster so effectively, you pay a lot for what I would call your earthquake cover.”

A lot of the work Marsh is doing is around alternative risk funding, which in many cases is putting a pool of money aside to fund losses, Williamson said.

“It is really a case of, do you want more of the same or worse, or are you in a position where you can start building a strategy to determine the right balance between buying insurance [particularly for property] and funding losses independently?”

Moving away from insuring the replacement value of assets could include strategies such as self-insurance or natural disaster cover only.

“We have insurers consistently coming off risk in this region,” Williamson said, listing a range of factors affecting the sector.

“The whole insurance environment we currently operate in has never been more challenged.

“Ultimately what it looks like beyond the next couple of years, I would be guessing. It’s as bad as it ever has been to be an insurance buyer.” – NZLDR

Public Interest Journalism funded through NZ On Air

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