Home insurance premiums have surged 40% in just two years, putting significant financial pressure on New Zealand households already grappling with cost-of-living challenges.
New data reveals insurance costs have dramatically outpaced general inflation over the past decade. Home insurance premiums have increased 128% in the last 10 years, compared to a 33% rise in general living costs over the same period.
Looking at a longer timeframe, the figures are even more stark. Since 2000, home insurance costs have jumped 916%, while general inflation rose approximately 90% over the same period.
Garth Bray of BusinessDesk discussed premium increases on NZ Herald’s Business with 2degrees. “Look, it’s been hurting for a long time,” he said, sharing findings in his investigation into the insurance industry, Risky Business.
Much of the historical increase stems from the Christchurch earthquakes, which significantly impacted the insurance industry’s risk calculations and costs.
However, there are signs the dramatic increases may be moderating. Current year-on-year increases are hovering around 10%, still well above inflation but down from the peaks of recent years.
“There’s always a period, and that’s probably the good news that we’re hearing is that it’s drifting back towards around about a 10% year-on-year increase at the moment, which is still way ahead of inflation, but it’s dropping back,” Bray said.
Insurance companies are increasingly moving toward risk-based pricing models, meaning some homeowners face steeper increases than others depending on their property’s risk profile.
This shift moves away from the traditional model where costs were spread more evenly across all policyholders, regardless of individual risk factors such as location or property characteristics.
Insurance companies cite rising reinsurance costs as a key factor in premium increases. Like individual policyholders who face higher premiums after making claims, insurance companies must pay more for their own coverage from reinsurers after major events.
The investigation found regional variations in cost increases, with some areas experiencing more significant impacts than others based on local risk factors and claim histories.
The insurance increases come as the government considers capping council rates, which rose 12% year-on-year in June. Energy minister Simon Watts sought advice on rates caps after finance minister Nicola Willis identified council rates as a significant contributor to rising inflation and cost-of-living pressures.
However, Treasury advice warns that limiting councils’ primary revenue source could damage their credit ratings. Credit rating agency S&P had already downgraded 18 councils’ credit ratings in June.
“If you were to scale back the ability to pay the big revenue item, that’s going to hit your books, and we’re going to downgrade your credit rating, so it’s going to cost them more to borrow,” analysts told Business with 2degrees.
The concern is that rate caps could make councils riskier borrowers, increasing their borrowing costs without alternative funding mechanisms like those used in Australia, where the federal government provides a $2.3 billion support fund for councils in financial difficulty.
Are there ways to ease the financial pressure on affected Kiwis? Share your insights in the comments below.
