Insurance makes an important contribution to New Zealanders’ financial and economic wellbeing, by spreading the cost of adverse events across time and policyholders, Reserve Bank Director of Financial Stability Assessment & Strategy Kerry Watt says.
Residential dwellings and land account for a majority of New Zealand households’ net worth. At around 96%, uptake of residential insurance is high by international standards.
Premiums for residential insurance have significantly outstripped general inflation over the past decade, reflecting both elevated construction cost inflation, and also higher reinsurance costs, as global reinsurers reassess New Zealand’s risk profile.
“We have also seen the insurance industry move towards greater use of risk-based pricing for residential dwelling insurance, meaning that the value of insurance premiums is more tailored to the specific risks a property faces (e.g. seismic or flood). The use of risk-based pricing has become evident in certain areas, and for specific risks, such as for seismic risk in Wellington.”
A long-term trend towards risk-based pricing will pose challenges for some property owners. We expect that owners of higher-risk properties may find…
