Monday, April 22, 2024

Huge insurance cost increases hit farmers

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Council cites reinsurance pressures as some farmers face premium hikes of as much as 30%.
The Insurance Council of New Zealand says the reinsurance market is the toughest it has been in many years, driven by accelerating climate related losses.
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Insurance premiums for farmers are going up by as much as 30% after a number of very high-cost adverse weather events in the past year.

FMG, which has a rural market share of about 55%, said Cyclone Gabrielle was the biggest single event in the company’s 118-year history.

There were three insurance industry-classified “catastrophic events” in FY2023 – Gabrielle, the Auckland Anniversary floods and the Nelson floods last August – and FMG said it made a loss of $15.7 million after tax in the 12 months to March 31.

It was the first loss since 2017 and the Kaikōura earthquake.

Gabrielle claims totalled $329m, spread across Hawke’s Bay, the east coast, Coromandel and Northland.

All claims against FMG insurance were $660m in the financial year, up 140% on the previous year.

Gross written premiums were $514m, compared with $458m the previous year, and appear to be on track for $605m in the current year.

Reinsurance and other recoveries income were $334m, compared with previous year’s $14m, which will put pressure on the cost of reinsurance this year.

Dave Kibblewhite, FMG’s chief financial, investment and risk officer, said for Cyclone Gabrielle, reinsurers will be paying approximately 90% of the total claims cost of FMG clients.

“Not only are these weather events from the last year the most significant in our history, but they also coincided with the hardest reinsurance market in over 40 years following a number of large global natural disaster events. 

“These factors have resulted in large price increases for reinsurance, in excess of 30%, and also global capacity has been reduced.”

Farmers and orchardists can take small comfort in the knowledge that their premium cost increases are similar to those right across the insurance industry, and in towns and cities.

The Quashed online insurance comparison site says house insurance premiums have gone up 20%, contents up 15% and vehicles up 10%.

The largest insurer, IAG, trading under the State, AMI and NZI brands, said car premiums are up 20% and house insurance up 20-30%.

Board member Sarah von Dadelszen, a sheep and beef farmer in Central Hawke’s Bay, said in a radio interview that the past financial year has been very hard for the mutual insurer.

“We took a towelling in Cyclone Gabrielle, which was right in our core area for insurance clients.

“The annual negotiations for reinsurance were underway at the time, however, and we were able to get 100% of what we were looking for.”

The covering letter to customers with the annual statement and invoice that contains the large increased premiums doesn’t explain the reasons.

Large Hawke’s Bay arable farmer Hugh Ritchie said the 25% increase in FMG premiums prompted discussion and investigation on lifting excesses and possibly taking on some self-insurance.

“Our claims history over the past couple of years has probably broken even with the premiums paid, so I can’t complain.

“Look at the wildfires around the world and the climate-related payouts. So, I think we have to be realistic about the costs of reinsurance and the premium increases here.”

The Insurance Council of NZ said the reinsurance market is the toughest it has been in many years driven by accelerating climate related losses.

“Last year was another record year (compared to long-term averages) for such losses.

“And 2023, especially in recent months, has been marked by a rolling series of large climate events, especially fires and floods.

“Premiums are undergoing a step change to reflect a new understanding of climate risks and costs here and globally.”

The council said a 30% increase in the cost of building materials over the past two years was reflected in higher premiums for house replacement insurance.

Insurance companies in NZ are required to keep sufficient capital reserves or reinsurance for a one-in-1000 years catastrophic event.

FMG chief executive Adam Heath said the company is financially secure and extremely well placed to pay claims, with $330m in reserves and strong reinsurance support.

Factors that go into calculating a client’s premium include the insured risks, physical location, previous claims history, reinsurance costs and level of coverage.

This story has been updated with new figures from FMG regarding the cost of Cyclone Gabrielle.

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