Is Wellington's insurance market broken? (2024)

Rising insurance premiums are pushing up the rental costs for businesses in Wellington and adding to pressures which are putting businesses at risk, says the business association.

But the insurance industry body insists the system is not broken and there remains plenty of choice when it comes to commercial insurance.

Around 100 key people attended a mayoral forum on insurance in the Capital today including Finance Minister Grant Robertson, EQC Minister Megan Woods and Commerce Minister Kris Faafoi.

Wellington has been hit by big increases in premiums after insurers have introduced risk-based pricing - where those who own property in areas prone to earthquakes and other natural disasters are being charged more to insure.

John Milford, chief executive of the Wellington Chamber of Commerce, said insurance premiums in Wellington rose after the Canterbury earthquakes, rose again after the Kaikoura earthquake, and were now rising yet again due to insurers adopting "risk-based" pricing.

"There appears to be no end to rising premiums."

Milford said one example is a typical commercial office block in Wellington that has seen its insurance premiums rise 220 per cent in just four years, from $99,000 in 2016 to almost $320,000 this year.

"For commercial property owners these cost increases are staggering and are directly leading to rising rents for businesses in Wellington city.

"For business tenants, rising insurance premiums and rents are just one of the many factors driving up their costs."

Milford said the insurance increase came on top of a 40 per cent rise in the Fire Service Levy as well as forecast rates increases.

"Wellington's thriving central city relies on the liveliness that businesses bring. Ever-escalating costs puts these businesses at risk."

But Tim Grafton, chief executive of the Insurance Council, downplayed the problem of rising premiums in his speech to the forum.

"A tiny number of Wellington apartment dwellers relative to all New Zealand homeowners claim premiums are unaffordable. It is troubling a few have decided not to take out earthquake cover.

"Some real estate agents say they can't sell apartments because the insurance is not in place and people can't get mortgages."

But he said the market was not broken.

"There are at least six providers even for commercial property in Wellington Central. There is plenty of offshore capacity, but at a price not dissimilar to other countries with the same risks.

"That is not a broken market."

Grafton said New Zealand compared well with California and Japan with similarly high seismic risks.

"About 80 per cent of all property, commercial and residential, is insured here compared to about 10 per cent in both those locations."

Grafton said New Zealand's residential insurance cover was for all perils and nearly all (98 per cent) residential houses were covered on a full sum-insured basis.

"In New Zealand commercial property insurance, which includes apartment buildings because of the complexity of the risk relative to stand-alone house insurance, has a 5 per cent excess, the amount that must be paid before the insurance cover applies. Japanese excesses are similar, but in California they are 15-25 per cent of the sum insured."

Grafton said in general New Zealand had enjoyed more, better and cheaper cover than places just as risky as here.

"Now as insurers and reinsurers have a better understanding of Wellington risk premiums have gone up, more so for those that were significantly under-priced for the risk."

Grafton said solutions to the localised problem should be proportionate and sustainable and he said the only way to ensure long-term affordability was to reduce risk.

"That requires changing building standards to increase resilience and reduce risk of total insured loss."

He said Wellington needed to invest in retrofitting properties for resilience, not just life risk and low-cost remediation techniques.

"We need low-cost seismic devices installed that tell us what happened to the building, what needs fixing and how soon it can be re-occupied."

Grafton said care also needed to be taken with issuing consents for building.

"We need to think where to consent and if proposals don't meet high performance standards don't consent them."

Shorter-term solutions could also include giving all body corporates the flexibility to increase their excess, and getting rid of the fire service levy on insurance premiums which was uncapped for commercial property and saw some paying more on the levy than their premium.

He said the Government could make the EQC Act fair for apartment dwellers which currently faced a 5 per cent excess, which meant they had less cover than standalone houses.

"Those living in buildings that have less than 50 per cent residential use can only apply their EQC cover to their unit, not to damage elsewhere in their building. Give them more flexibility," he urged.

But he cautioned against increasing the EQC cap which will rise from $100,000 to $150,000 from July.

"That shifts the costs to every New Zealand homeowner. Instead of getting a relative reduction in earthquake premium from their private insurer, everyone else would pay more to support Wellington.

"Is it really the policy objective that every New Zealander is fully insured no matter how high the risk at an affordable premium? That happens nowhere else in the world, and it only ever happened because we never really understood the risk."