Home insurance premiums will rise even as EQC rises

Hopes that more homeowners would pay less for insurance when the EQC cap rises from $150,000 to $300,000 may be dashed as insurers warn that the cost of building runaway homes should be bought into premiums.

The increase in the cap on October 1 will result in a large portion of the change in natural disasters from private insurers.

In July last year, a Treasury paper said that homeowners in high-risk areas such as Wellington and Hawke’s Bay would see the total cost of their home insurance fall as private insurers dropped their premiums to reflect changes in natural risk to the EQC. .

Some could see their total home insurance premiums drop by several hundred dollars, the paper said.

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Conversely, people who own houses in low earthquake areas such as Auckland, will see their total insurance costs rise because the increase in EQC tax will be greater than the reduction in premiums charged by private insurers.

But insurers are privately warning insurance brokers that the July paper’s predictions are now over.

Tim Grafton, chief executive of the Insurance Council Te Kāhui Inihua o Aotearoa, said that since the changes were announced, insurers had experienced rising construction costs and higher insurance costs due to floods and wildfires.

BARBARA MACKAY/CONtributor

Water overflowed the road leading to Lake Ōhau on Wednesday morning, a day after floodwaters lost access to the mountain village when access to a bridge was washed away. Video published on July 20, 2022.

Building premiums are up nearly 18% over the past 12 months, and 2022 is poised to be another big year for weather-related insurance, Grafton said.

The high rate of inflation also means that the banks are facing higher wages, and disruptions in the supply chain can lead to delays in complaints, raising costs.

“If you wait six months for Gib, and you wait two months, then fixing a kitchen fire takes six months,” Grafton said.

Home insurance cover is made up of two components, EQC cover, and cover provided by private insurers.

In the event of a simple house fire, private insurers cover the cost of repairs.

But in the case of a natural disaster, the taxpayer-funded EQC, which will be renamed the Natural Hazards Commission Toka Tū Ake, is spending an initial $150,000, rising to $300,000 in October.

In the case of natural disasters, EQC, covers the first $ 150,000 of damage, rising to $ 300,000 in October.  (file image)

Iain McGregor/Stuff

In the case of natural disasters, EQC, covers the first $ 150,000 of damage, rising to $ 300,000 in October. (file image)

The EQC’s base tax is $345, but will rise to $552 in October.

The move is designed to help make insurance more affordable in high-risk areas by enabling more Aucklanders to share in the cost of protecting the country’s natural disaster.

If the EQC fee is calculated according to the risk of each person, it would be about $173 for Auckland homeowners, while people in Hawke’s Bay pay $2105, the Treasury paper said.

Insurance premiums have already risen dramatically.

Justin Lim, CEO of online insurance management company Quashed, said more than 70% of people who use their services to save on their insurance, and buy better products, will see an increase in home insurance premiums this year. .

On average, this increase was 14.5%, or $250.

Based on that, a typical homeowner, including two auto insurance policies, would receive an increase of $473.

Insurers are gearing up their communication campaigns to explain to people in low-risk areas why their bills are about to go up.

Tower boss Blair Turnbull said he would soon write to all his home insurance customers to explain the changes.

People will have to pay for their own risk, Turnbull said.

“The biggest driver of prices is inflation, which is at record levels, and that’s driving the cost of living.”

EQC Minister David Clark said the changes to the cap were in line with the desire to improve insurance access and affordability, and leave the insurance market.

He said the Government is aware of all the problems of insurance, including the rising cost of housing.

“While this may mean that households in areas with a higher risk of earthquakes do not see a decrease in rates, the decrease will still reduce rates, meaning that those households will pay less than they would have if the rate had been at $150,000,” he said.

But the Government will be monitoring the insurance companies have not taken advantage of this change, he said.

“If there is sufficient evidence of concern, the Government has tools at its disposal including market studies, which can provide a better understanding of how competition in the market is working,” said Clark.