When it comes to insurance New Zealand is at a fork in the road, an economist says, and we\u2019re at a crunch point where we need to do something about it.<\/p>\n
Simplicity chief economist Shamubeel Eaqub says when he looks towards the next 10 years, the question for him is: \u201cAre we still going to use insurance as the mechanism of transferring risk or is this going to be the mechanism for us to actually manage risk?\u201d<\/p>\n
\u201cThe reality is that we\u2019ve run out of runway to simply use insurance as \u2018it\u2019s somebody else\u2019s problem. I\u2019m going to keep making stupid decisions and somebody else should take the risk away\u2019.\u201d<\/p>\n
\u201cWell that risk is becoming very expensively priced and I think it\u2019s going to be very hard for us to do that,\u201d Eaqub told the audience at the Insurance Council of New Zealand (ICNZ) conference in Auckland on Thursday.<\/p>\n
Eaqub, alongside FMG chief executive and ICNZ chair Adam Heath, The Post\u2019s Political, Business and Economics Editor Luke Malpass and Insurance Council of Australia\u2019s general manager of regulatory and consumer policy Alexandra Hordern, were part of a panel discussion on keeping insurance in reach.<\/p>\n
Eaqub says he sees very little political appetite to do something when it comes to risk and insurance that\u2019s strong or courageous.<\/p>\n
\u201cOr we keep on as we are, and we find ourselves stuck in a cul-de-sac where we only have rich people who can afford insurance.\u201d<\/p>\n
He says a good scenario would require a coordinated approach<\/a> to insurance.<\/p>\n \u201cBut there are some really, really big things in front of us which is really around making sure that we are in fact managing our risks in the right places, keeping our assets in the right places and sharing the burden as broadly as possible. Right now, I\u2019m really concerned that we\u2019re not doing those things.\u201d<\/p>\n Heath says insurance is an excellent risk transfer mechanism and risk management mechanism but by definition, it is not a risk reduction mechanism.<\/p>\n He says global reinsurers are \u201cwell and truly alive to the fact that we\u2019re getting wetter, we\u2019re getting more cyclonic weather patterns and so they are looking to us as a country to say \u2018what are you doing about mitigating the risk\u2019.\u201d<\/p>\n \u201cAnd at the moment, we have a really good reputation on the global stage around how we do respond, what we do do but it is principally oriented to the recovery aspects of that – not so much the prevention and the reduction – that is I think the nexus and the crossroads that we\u2019re at.\u201d<\/p>\n \u201cWe need to do that collectively,” Heath says.<\/p>\n \u2018Storing up this cost for future generations\u2019<\/p>\n The question of who pays for the cost of things like climate adaptation and risk mitigation has long been asked – but there\u2019s never been a solid answer.<\/p>\n Since 2010, $64 billion has been spent on natural disasters<\/a>\u00a0– adjusted for inflation this is about an average of $5.5 billion per year.<\/p>\n And while Heath understands what Finance Minister Nicola Willis has been saying around debt, “that will continue to expand if that $5.5 billion starts to turn into $10 billion, $15, billion”.\u00a0<\/p>\n Eaqub says:\u00a0\u201cMy view is that when people say that we don\u2019t have money now to invest in things that will cost us less in the future, it\u2019s wood for the trees \u2026 You are storing up this cost for future generations \u2026 We all know that money that\u2019s not spent on fixing insurance today is going to be more [costly for] our children and grandchildren.\u201d<\/p>\n Everyone pays<\/p>\n Hordern says the reality is that everyone – insurers, governments, taxpayers – pays one way or another.<\/p>\n \u201cThe question has to be, do we take the hit now and pay the big ticket stuff that may make a difference down the track now or do we wait and wait and wait and hope that somehow it’s just going to disappear and the climate is going to get better.\u201d<\/p>\n \u201cI mean, that’s a great dream, but I’m not sure that it’s really effective,\u201d Hordern says.<\/p>\n Eaqub says if New Zealanders want to have basic access to insurance, we have to have a way where everybody shares in the cost.<\/p>\n If we don\u2019t do that, we could lose access to the insurance services we currently have, he says, which are still affordable by global standards and very high quality by global standards.<\/p>\n \u201cWe are very lucky to be in this tiny population at the arse end of nowhere to have access to this high-quality stuff, and I would really, really be disappointed if, through our lack of action, we lost access.\u201d<\/p>\n Asked by MC Miriama Kamo if insurance becomes unaffordable for more New Zealanders, who ultimately carries the risk, Heath says we all do.<\/p>\n Speaking as FMG chief executive, Heath says \u201coff the back of that dislocation that we had in reinsurance markets back in 2023, which was the most significant change in 40 years, we were forced to put through our largest rate increases in our history\u201d.<\/p>\n \u201cWhen you\u2019re a mutual [organisation] that was founded by farmers and growers because they couldn\u2019t get access to affordable or adequate insurance, that\u2019s not a decision you take lightly.\u201d<\/p>\n Heath says what they saw off the back of that was about a 50% increase in cancellations because of affordability and FMG saw \u201ctremendous amounts\u201d of what they assessed as self-insurance.<\/p>\n Heath says that sector generates 80% of the country\u2019s export earnings and if they could not take risk or were taking on too much risk, and starts to have fundamental challenges – that impact ripples across New Zealand.<\/p>\n \u201cI think it\u2019s an issue for all of New Zealand society \u2026 We have a highly functioning insurance market that is the envy of most other jurisdictions on the planet, and we are the second riskiest jurisdiction on the planet<\/a>, so we have something that should be treasured and preserved for as long as possible, so we should be doing everything to look after it.\u201d<\/p>\n \u2018The people of New Zealand will pay one way or the other\u2019<\/p>\n