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IAG rethinks contents cover for quake risk city

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IAG in New Zealand has warned that it may not provide contents cover for some residents of Wellington as it takes a more conservative approach to the city’s earthquake risk.

“Wellington remains a high risk area with regard to natural perils such as earthquakes, and IAG is taking account of that in its pricing and underwriting approach,” a spokeswoman told today.

“The IAG approach incudes a commitment to give first priority to existing customers. However, each approach is considered on a case-by-case basis, and IAG is continuing to write new business in Wellington.”

The changes took effect on March 4 and mean some people living in the city and approaching IAG for contents insurance may find they are unable to obtain cover, she said.

New Zealand lies along the collision zone of the Australian and Pacific plates and the capital city sits on top of one of the zone’s most active geological faults.

GNS Science says a rupture of the Wellington fault could cause landslips in the hilly terrain after rain while some vulnerable flat areas could liquefy.

Tower, New Zealand’s third-largest general insurer, last year moved to risk-based pricing across New Zealand to more accurately price cover at specific property locations.

The change reduces cross-subsidisation by customers in low-risk areas for those in high-risk locations. Over time this is expected to lower its exposure in earthquake-prone areas such as Wellington, Napier and Gisborne.

Chairman Michael Stiassny told the Tower annual meeting last month the insurer has led the way on risk-based pricing and ignited a “much-needed national conversation” around risk management.

“Interestingly, recent research we conducted shows that 70% of people think risk-based pricing is fair,” he said.

A Suncorp spokesman told the group’s approach to providing insurance for customers in Wellington remains unchanged.

“We continue to accept applications for house and contents, subject to normal underwriting conditions,” he said.

Insurers’ exposure to contents claims after earthquakes is set to increase following changes to the Earthquake Commission (EQC) Act that will be phased in from the middle of this year.

Cover by the state-owned insurer for contents claims up to $NZ20,000 ($19,328) is set to be removed from July as part of the amendments, which also include increasing the building cover cap to $NZ150,000 ($144,963).

Commerce and Consumer Affairs Minister Kris Faafoi told New Zealand media he is watching the insurance situation “very carefully”.