Home and auto insurance set to increase by up to 10%
The cost of replacing depreciated cars has risen sharply with supply chain issues related to Covid-19. Photo / File
Auto and home insurance premiums will rise 7-10% overall over the next year, a senior insurance executive predicts.
Insurers are under increasing pressure on costs
as a side effect of Covid-19, as supply chain issues and a tight labor market have driven up the cost of construction while the cost of replacing depreciated cars has increased along with the used car market.
Jeff Wright, chief financial officer of Insurer Tower, told investors this week that supply chain issues for new vehicles had pushed the value of used vehicles up 13% year-on-year, dramatically increasing the cost. automobile claims.
“While the inflationary impact on engine parts and repairs has not been so dramatic, the full impact may not yet be felt, with significant delays in completing repairs due to supply chain issues with engine parts. “
On top of that, Wright said the cost of building materials has become a global issue with double-digit inflation running rampant. In New Zealand, the most recent CPI data showed construction costs rose 12% in the year to September 30.
Asked how these inflationary pressures would impact home and auto insurance premiums, Wright said it was inevitable that insurers would pass these costs on to their customers.
“We have seen increases of 7% to 10% in the costs of engines and houses. You can expect rate increases in that order and this is evident across the industry.
“At the end of the day, we do everything we can to try to minimize that. We try to optimize our supply chains and the like so that we don’t have to go through the full amount – and that’s definitely what we’re spending. a large part of our time, particularly in the claims area, is making sure that whatever we pay for is as efficient as possible in minimizing these increases.
“But you’re going to see that kind of level – the 7 to 10 percent in the industry over the next 12 months.”
Maree Hammersley-Myers, general insurance financial advisor at Thorner General Insurances, said insurers have a policy of constantly reviewing their premium structure for national insurance policies.
“Like any business, they must remain profitable and just as important, an insurer must remain solvent and retain the ability to pay claims. With this in mind, insurance premiums have come under constant pressure in recent years.”
But Hammersley-Myers said sadly, Covid has resulted in unintended consequences and pressure on claims costs.
“Delays caused by the ongoing Covid-19 pandemic have disrupted the global supply chain, with delays particularly affecting the automotive and hardware industries. This disruption is expected to continue for the foreseeable future; this means that construction costs are steadily increasing with demand exceeding available resources, resulting in significant increases in labor and material costs. “
She said there had been significant delays in sourcing materials as they became scarce and often labor resources were stretched as many traders booked months in advance.
“A consequence of this is that many customers have to extend their contract work policies because construction takes much longer to complete. “
Hammersley-Myers said that in addition to these problems, insurers have told advisers that the costs of repairing and replacing appliances, computers and cellphones are increasing due to the expensive technology of the latest models, as well as costs of items for personal use, such as eyeglasses. and audiology.
“Newer vehicles on the road with advanced technological features (ie sensors, cameras, etc.) mean that the average cost of repairing these vehicles is much higher. Repair costs for daily claims such as windshields, mirrors with this technology have increased significantly. “
Asked about their views on the expected 7-10% hike, other insurers also said they would increase prices but did not say how much.
IAG New Zealand CFO Alistair Smith said he regularly reviews its rates to ensure customers are paying a fair and appropriate amount for their insurance.
“A number of factors determine the pricing of our premiums, including location, historical claims, costs and risks. We expect rising supply chain costs to drive up our premiums.
“We are closely monitoring the evolution of the external environment. Our priority is to continue to be there for our customers in the event of trouble.
Chris Curtin, chief executive of AA Insurance, said his customers could see premium increases for their insurance products when they receive their next renewal notice.
“The increases are based on AA Insurance’s understanding of the total impact of trends, including the effect of Covid-19 on supply chains, over the past 18 months and into the future.
“These impacts include an increase in the volume of claims, particularly large claims and those related to natural disasters, as well as longer repair times and rising costs associated with supply chain issues and labor shortages. ‘artwork. “
He said the temporary reduction in the number of car insurance claims during the lockdown, mainly in Auckland, was seen as short-term.
“These should be offset by the long-term effect of supply chain problems and inflation, which are expected to continue for some time.
“Because of these influences, it is important that premiums change appropriately to continue to protect what matters most to our clients and to provide the peace of mind that AA Insurance is financially strong and sustainable for the future.”
He said the increases would differ from product to product and could be different for customers, depending on their particular circumstances.
“While these increases have been on the schedule for some time, we understand that premium increases can never come at a good time.”
Fight against rising costs
Hammersley-Myers said it might be difficult to fight the premium increases given the lower level of competition.
“When premiums go up, people may have a tendency to underinsure or not to insure at all, which we strongly recommend against doing.
“We would say it’s better to be fully insured and people have to consider that an insurance policy works best when there’s a major disaster, fire, storm, or earthquake, those little ones. things that go wrong – the broken windows, the broken glasses – yes they’re covered but they’re not going to cause financial disaster. “
She said ways to cut costs included choosing the highest possible deductible to lower the premium, keeping your policies with one insurer to take advantage of package discounts, regularly reviewing coverage. and shopping.