I.A.G.’s insurance earthquake has implications for N.Z


I.A.G., owner of New Zealand Insurance, A.M.I. and State has announced that a more conservative approach will be taken in allowing customers to take out new insurance policies. The announcement from New Zealand’s largest insurance group means that insurance premiums are likely to increase as a result of a decision to turn some Wellingtonians away from new policies due to the high seismic risk in the area.

From I.A.G.’s perspective it might not be so surprising. As the largest player in the Wellington market, they have about 65% of all insurance customers, which leaves them spread rather thinly in terms of coverage and in an attempt to correct that exposure, perhaps we should not be so surprised.

And yet, I am sure many people will be. It was not a physical earthquake as such, but it might just as well have been as far as the wallet and insurance premiums are concerned. Despite two large earthquakes causing billions of dollars in claims, there are still complacent customers who have purchased insurance and probably locked the documents away thinking that they are all covered, as well as non-customers on a wing and a prayer hoping nothing of consequence happens in their life time.

One thing that needs to be pointed out is that the E.Q.C. cap of $100,000 has not been raised in its existence and even though it is going up to $150,000 later this year, that is only really a half hearted increase. An ideal cap would be $300,000+ – or completely removed altogether.

So, where does all of this leave New Zealand and New Zealanders in the long run? Will it encourage other companies to have second thoughts about who they insure; whether they too, are over-exposed in the market; can they meet their obligations in an emergency? Is it possible that perhaps these insurance companies are trying to pay nice, and are really only doing this because big international insurers refuse to take on any more risk in New Zealand? These questions and others will be demanding answers that might not be to the public’s liking.

I do not know the answer to any of this. However I am aware that the Institute of Geological and Nuclear Sciences discovered that the Wellington Fault, widely thought to be the highest risk fault in Wellington, is actually less frequently active than thought and that the last event on it was more recent than previously thought. The quake risk to Wellington, whilst still significant is from other faults such as the Hikurangi Trench, the Alpine Fault and whatever is lurking under Cook Strait.

I would like to see the methodology of how I.A.G. and other insurance companies calibrate their risk assessments. When doing the risk assessment for say a particular fault line, do they look at the entire known palaeoseismic record of the fault line or just a small part? When new research is released do they revise the risk component for that particular fault?

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