What's affecting your insurance?

In its simplest terms, reinsurance is insurance for insurance companies. Unfortunately, the global reinsurance landscape is impacting both personal and business insurance policies in New Zealand following a rise in extreme weather events, causing wide area damage.

In New Zealand alone, insurers have paid out $2.7 billion over 99,798 claims from the devastating Auckland Anniversary floods and Cyclone Gabrielle, as reported by the Insurance Council of New Zealand. *

As the global reinsurance model adjusts in response to this surge in extreme weather events, the cost of reinsurance is rising too. Generally global reinsurance companies are reviewing their pricing strategies and risk appetite, which means that some companies are no longer covering some insurers' environmental risks. Some insurers have taken on the risk themselves instead of paying higher reinsurance costs.

So, what does this mean for your insurance?

The likely effects of the global reinsurance landscape on your insurance are as follows:

• Higher insurance premiums: As global reinsurance costs rise, insurers may increase premiums for their policies to help balance the cost of reinsurance. As a result, many kiwis may face increased insurance premiums. While the cost of insurance is on the rise for many, the need to have adequate insurance cover remains vital. You can never be sure when disaster may strike and you need help getting back on your feet.

• More information required at policy renewal: Insurers will likely ask for more information about a business's risks and plans during renewal and when a claim is lodged. You may be asked more questions and spend more time reviewing the coverage they will offer. These questions and requirements may feel stressful, but it’s vital to ensure you have the right insurance cover that strikes the right balance between coverage, risk and affordability.

• Cover restrictions: Insurers may impose coverage restrictions or larger exclusions. In the wake of the Auckland Anniversary floods and Cyclone Gabrielle, there will likely be some hard decisions about where homes and commercial properties are allowed to be built in New Zealand in the future. This may include limiting the availability of flood cover in some areas and some insurers may even decline to reinsure a business if they feel the risks are too great in this present climate.

Many home and business owners continue to be impacted by inflationary pressures. Annual inflation remained high at 4.7% in the December 2023 quarter, as reported by Stats New Zealand. **

So, what does this mean for your insurance?

High inflation means the cost of repairing or replacing contents, equipment, stock and machinery will increase. These rising replacement costs may lead to higher insurance premiums for you. As the impact of inflation will vary depending on your circumstances, your broker will discuss what these changes may mean for you and provide quality advice to mitigate any potential risks.

In a high inflationary environment, some key insurance areas for review include:

• Business Interruption: It’s worthwhile to ensure your indemnity period is adequate for your business. Business interruption losses are limited to the indemnity period (usually 12, 24 or 36 months), as such choosing the right indemnity period can help ensure your business has sufficient time to make repairs and return to pre-loss trading levels.

• Home: It’s important to review the sum insured of your home at least annually. To help set the right sum insured, there are several options including using this free Cordell Online Calculator and your broker can arrange for your property to be valued and assessed by a registered valuer.