2020 New Zealand Insurance Market Recap Series - Property
New Zealand’s current hard market conditions are characterised by pricing corrections and capacity remediation for the country’s most vulnerable earthquake zones, particularly the Wellington region. While insurers have been taking corrective action around earthquake capacity for the last four years and have potentially reached the market’s corrective threshold, capacity in the Wellington region is finite and insurers have little scope for growth.
New Zealand has largely avoided significant loss-making events in recent years, and the New Zealand operations of some major insurers published healthy financial returns in 2019. Nevertheless, a spate of natural catastrophe events (for example, bushfires and hailstorms) during the 2019/2020 Australian summer have significantly affected insurer profits. This has ultimately sustained upward pricing pressure, but to a lesser degree than that witnessed by many insureds over the past three years.
Insureds in specific industries, such as food and beverage, agriculture, and recycling and waste management, continue to face challenges ─ particularly those sites that make use of expanded polystyrene sandwich (EPS) panels. Companies in these industries have sustained a high frequency of losses in recent years and are now heavily scrutinised by insurers; as such, capacity for these risks has contracted. Many insurers are managing down their exposure, if not withdrawing capital from these segments entirely. Prohibitive premiums and the prospect of self-insurance remain a reality for some insureds, and overseas markets are becoming crucial to obtaining full cover.
COVID-19 will inevitably have a prolonged impact on the insurance market globally and in New Zealand specifically. A lack of investment opportunities for insurers amid the pandemic not only affects their profits, but also solvency ratios. Consequently, ratings agencies have downgraded the security and credit status of a number of carriers, which will ultimately shrink available and acceptable capacity in the market, potentially creating a supply and demand imbalance.
Entering 2021, insurers are highly focused on policy coverage. Infectious contagious disease coverage is top of mind for many buyers; the market has moved to assert that any infectious or contagious disease does not constitute property damage. In this regard, new policy variants — such as LMA 5393 — are being introduced to many renewal negotiations. At the same time, the London property market is seeking to ensure that property insurance contracts explicitly affirm or exclude coverage for cyber losses, which has prompted the introduction of the LMA5400 and LMA5401 cyber exclusions.
While the hard market remains, our renewal experience during the first half of 2020 shows signs that stability is gradually returning to the New Zealand property insurance market. Insurers are demonstrating a commitment to retaining key clients that have shown a proactive approach to risk management, operate in low-risk industries, and have favourable claims experience. The value of building long-term strategic relationships with insurers is critical, especially now. Insureds that engage in open dialogue with their insurers consistently achieve better renewal outcomes than those that employ a transactional approach.
Both insureds and brokers must engage early to anticipate potential challenges and build a strong platform of quality engineering information to differentiate their risk from others being presented to insurers. As each risk is being underwritten on its own merits, this approach will position organisations to realise the best possible outcomes during negotiations with underwriters.
NOTE: This Liabilty report is a part of the 2020 New Zealand Insurance Market Recap Series – a series of local market insights by insurance class, with a specific focus on the state of market in New Zealand. Other insurance classes featured in the series include: