The financial lines insurance market in New Zealand continues to suffer the impacts of a struggling economy and a cost of living crisis. In response, underwriters are tightening their requirements, increasing the insurance challenges for brokers as they struggle to find covers for their clients.
A range of economic indicators reflect the financial lines situation. For example, other stressed insurance markets. According to a report out this week, home and car insurance premiums have risen by 50% in the last three years. The report said increasing numbers of locals are considering dropping their coverages.
“Financial distress is still very much front and centre as businesses continue to feel the pinch from the economic headwinds and that is translating into heightened scrutiny during the underwriting process,” said Upton.
According to Livingcost, a crowdsourced database, the expense of basic food items is still rising sharply. In Auckland, Upton’s hometown, one litre of milk now costs nearly $5, a loaf of white bread $9.50. The luxury of espresso coffee is pushing $8.
A major challenge for financial lines brokers, said Upton, is new regulations.
“Regulatory compliance has become a massive focal point, especially with governance reforms and climate risk accountability,” he said. “Boards are being held accountable in ways we haven’t seen before, making cutting-edge liability solutions a must.”
A third challenge familiar across the insurance and business world is artificial intelligence (AI).
“Then there’s the wild card – generative AI is creating new risk scenarios as a potential emerging risk,” he said.
Upton said the biggest change in recent months to the local financial lines market is increased competition from both the Australian and London markets. He suggested that pricing is no longer the main issue.
“The real concern is not today’s pricing – but whether those overseas markets have the capability to handle local claims properly when they come through,” he said. “Is this a classic scenario of short-term gain potentially creating long-term pain?
Industry stakeholders in Australia generally agree that the directors and officers (D&O) portion of local financial lines has been soft for months and in a process of softening since at least early 2022.
Upton said the situation is not as straightforward in New Zealand.
“The New Zealand D&O market has probably left its hardest stage, but with some local quirks,” he said. “Compared to global trends, our market is smaller, more interconnected and our directors are dealing with unique reforms, economic headwinds and climate reporting.”
Upton said the pricing pressures are similar but “the risk landscape has its own distinct Kiwi flavour.”
The local financial lines market contrasts with the relatively rosy situation in Australia. Across the Tasman, according to some stakeholders, economic growth in some sectors, coupled with new regulations, are combining to drive insurance growth.
“We have seen growing demand across Australia for financial lines, particularly for financial institutions,” said Kym Beazleigh, Markel’s head of professional and financial risks in Australia. “This has been driven in part by the growth of the digital economy alongside traditional industries, increased scrutiny on director liability, and a spate of high-profile cyber breaches.”
In May, this global insurer launched financial lines offering targeting financial Institutions (FI) through brokers in Australia. The Markel media release said the coverage was pitched a “a broad range of organisations in the sector,” suggesting increasing opportunities.
HDI had held an insurance license to operate in New Zealand since 2021. Last year, Upton became HDI’s first boots on the ground presence. Despite the challenges, the insurer is expanding locally and is currently looking for a senior underwriter.
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