slip and sea-surge risk<\/a> and gives customers a breakdown of how these risks affect their premiums. <\/p>\nRisked-based pricing should benefit the vast majority of people, whose properties are low-risk, as it means they no longer effectively subsidise insurance cover for high-risk properties.<\/p>\n
Having just moved to New Zealand from Canada, Gibson\u2019s observation was that property in New Zealand was very well insured, both by private insurers like IAG and the state disaster insurer, the Natural Hazards Commission. <\/p>\n
While insurers in other parts of the world try to keep the cost of insurance down by limiting the cover they provide, Gibson didn\u2019t believe this was a solution for New Zealand. <\/p>\n
Indeed, he noted that despite households facing high living costs, homeowners ensured they maintained the insurance cover on what was likely their most valuable asset. <\/p>\n
Gibson recognised the global reinsurance market was in a soft phase, which was helping keep insurance premium inflation at bay. <\/p>\n
The price of dwelling insurance rose by only 0.4% in the year to the March quarter, according to Stats NZ\u2019s Consumers Price Index. This was well down from the same period two years prior, when it jumped 25% after Cyclone Gabrielle. <\/p>\n
Gibson cautioned the reinsurance market would be soft until it wasn\u2019t.<\/p>\n
\u201cTypically, capital continues to come in until there is some global calamity; something big happens, boom, and then it pulls away and the market hardens up and you see prices rise and it\u2019s harder to get cover.\u201d<\/p>\n
Gibson believed this would be a \u201cshock to the system\u201d for New Zealand, but assured IAG NZ benefited from being part of the IAG group when it came to securing reinsurance cover.<\/p>\n
Like his predecessor, Gibson wanted the Government to take a coordinated and forward-looking approach towards reducing risks associated with natural hazards. <\/p>\n
IAG has just released a report that identifies 42 ways for the Government to address gaps in the system, including preventing building in risky areas, coming up with a plan for managed retreat, and ensuring local councils are sufficiently funded to invest in risk reduction. <\/p>\n
Gibson said New Zealand still had options, but the clock was ticking. <\/p>\n
\u201cAt some point in the future, we may all lose the power of choice.<\/p>\n
\u201cAs the storms become more frequent and more intense, we and the banks too may go, \u2018I can\u2019t take it anymore. I\u2019m seeing capital be destroyed, I have to withdraw \u2026 It\u2019s not reasonable to expect shareholders to see us behave this way\u2019\u2026<\/p>\n
\u201cOr my reinsurers might say, \u2018No, we\u2019re not going to let you do this. We\u2019re going to raise your rates to an unacceptable rate\u2019.\u201d<\/p>\n
Gibson recognised banks were aware their balance sheets could be exposed if the properties they lent against became uninsurable. <\/p>\n
He believed they could improve the way they priced risk. He didn\u2019t specifically advocate for this, but a way a bank could do this would be to require someone wanting a mortgage to buy a risky property to have a larger deposit. <\/p>\n
Gibson believed banks could start by focussing on the new loans they issued, much like IAG was applying more aggressive risk-based pricing to its new business than its existing customers.<\/p>\n
Jen\u00e9e Tibshraeny is the Herald\u2019s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.<\/p>\n
Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our Business newsletter<\/a> \u2013 your essential weekly round-up of all the business news you need.<\/p>\n","protected":false},"excerpt":{"rendered":"\u201cWe\u2019re still committed to covering every New Zealander, but we\u2019re saying we have to present the actual price,…\n","protected":false},"author":2,"featured_media":469104,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[806,237296,138,3500,36173,4381,22264,8449,4053,1872,24925,88281,2294,50578,78,50577,296,1426,19136,117,111,139,69,17096,24748,9366,1356,814,52083,7192,237297,1361,165,61,86662,14638,2963],"class_list":["post-469103","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-as","tag-bluntest","tag-business","tag-ceo","tag-continuing","tag-customers","tag-discourage","tag-ease","tag-exposes","tag-face","tag-flood","tag-floodprone","tag-general","tag-iag","tag-in","tag-insurer","tag-into","tag-investment","tag-largest","tag-new","tag-new-zealand","tag-newzealand","tag-nz","tag-paying","tag-premiums","tag-pricing","tag-properties","tag-property","tag-reflect","tag-risk","tag-riskbased","tag-that","tag-their","tag-to","tag-truly","tag-wants","tag-zealands"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/469103","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=469103"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/469103\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/469104"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=469103"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=469103"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=469103"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}