Jenee Tibshraeny: NZ Herald Wellington business editor on the Government's planned review into insurance premiums

The Government has launched a review into soaring home insurance costs - to take place over a six-month period.

This investigation comes as AA Insurance moves to pause new home insurance offers across the South Island.

NZ Herald Wellington business editor Jenee Tibshraeny unpacked what we can expect from this deep dive.

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Episode Transcript

Speaker 1 (00:09):
You're listening to a podcast from News Talks be follow
this and our wide range of podcasts now on iHeartRadio.
Heather Doo for si Ala.

Speaker 2 (00:18):
The government's announced it's looking into why your insurance premiums
are so high.

Speaker 1 (00:22):
Now.

Speaker 2 (00:22):
The Herald, Wellington Business editor Jen aib Trainee says the
exercise is worthy, but probably are not going to change
a lot for you if you have home insurance and
Jine's with us now, Jenay, Hello, Hi Heather, Now why
do you think this?

Speaker 3 (00:36):
Well, firstly, I believe that this government at least is
not interested in interfering with the market. The market is
actually conveniently helping the government by making it too expensive
for you to get insurance and risky paces. I mean
this has been happening, you know, for some time in
Wellington due to earthquake risk, and we're seeing it increasingly

(00:59):
with flood risk. It's actually convenient for the government if
the insurance becomes too expensive and people move to safe places.
I think the government's kind of aware that if it
sort of tries to soften the blow of the risk
based pricing the insurers do, it could create moral hazards.

(01:19):
So it could make you think, well, I may as
well just move somewhere risky because the government will bail
me out anyway, you know, and that's not particularly helpful.
So I think that's one fact. Also, back in twenty
twenty four, I talked to Nikola Willis about why she
had got the Treasury to stop looking at how the
government could respond to risk based pricing. Treasury was doing

(01:40):
some policy work at the time she wanted it stopped,
and she said, look, she wasn't going to intervene in
the market, That's what she said back in twenty twenty four,
and that, you know, the government was better placed looking
at climate adaptation, you know, issues around consenting that type
of thing. So basically, I genuinely don't think the government

(02:01):
is interested in intervening in the market.

Speaker 2 (02:05):
Okay, that is fair enough, and they not assist, I mean,
regardless of whether they want to intervene or not. And
I think they are doing the right thing. It is
becoming unaffordable for some people, and you could argue people
who are actually not at that much risk because of
the way the thing is priced. Could they not change
things about the capital requirements for insurance companies to make
it a bit cheaper.

Speaker 3 (02:27):
Yeah, you know, so, I mean, this is the thing
with this whole topic. I agree entirely that it is,
you know, rough, and it's unfair. And if you know,
you've bought a piece of land and you plan to
build on it and that's your retirement plan and you've
never seen it flood, and then suddenly the government comes
in and says you can't build on it now because
of climate change, you know, you're not going to be

(02:47):
particularly happy. So of course, you know, it's a tough issue.
That the issue, Yeah, the area that I think the
government might move on is the amount of capital that
it requires, all that the Reserve Bank requires insurers to hold.
So people will recall that recently the Reserve Bank said
it would allow banks to hold less capital or less

(03:08):
costly capital, because the bank said that the cost of
holding all this capital to make them strong was too
high and if they could hold a bit less, they
might lend more freely and interest rates on borrowing might
be a bit lower. Now, the insurance industry makes kind
of a similar argument. You know, it's been saying that
the Reserve Bank's been too tough, being too mean, you know,

(03:28):
made them be way stronger than they need to be
and maybe if they could hold less capital, then the
insurance premiums could come down. So that's something the industry
has been pushing for the government is cognizant of that,
but again I'm sort of skeptical. For me and you know,
normal people with insurance, I'm not sure if that will

(03:50):
translate to much lower premiums.

Speaker 1 (03:55):
You know.

Speaker 3 (03:55):
One other area here is that the government could do
more by expanding what the National Hazards Commission covers. That's
like the EQUC, it's knuckled the Natural Hazards Commission. You know,
if that covered blood, you know, that could do a
bit more having a state insurer pick up more of
the low But the moral has but again som has

(04:16):
it thinking exactly, I don't think that's something the government
wants to do. So, you know, the insurance industry says
that the problem is not the insurance, but the problem
is the risk and you have to manage the risk.
And to me that that makes sense, but it's just
it's just really hard.

Speaker 2 (04:30):
Okay, I mean, do you so having said that, because
I mean I think we all understand sure if you
if you've built a house in a place that's going
to get flooded every year, you probably shouldn't have insurance
or you should pay a lot for it. But when
you look at it, it is not that nuanced by
these these insurance companies. It's a second tire postcode. So
is it possible that this review may actually sure not

(04:53):
lead to lower insurance premiums for us, but it may
at least answer some questions for us as to how
these guys are doing it, because I feel like the
charity is what we want here.

Speaker 3 (05:03):
Yeah, look, I mean I really I hope it does.
It's six months long, and the government's got representatives from
the coss you know, reserve, if you may be a
whole bunch of them to do it. The challenge will be, gosh,
I sound so negative on this issue, but the challenge
will be a lot of this information is commercially sensitive.
So I'm an insurance company. I pay a lot of
money for a modeling company that looks at specific you know,

(05:27):
address level, slip risk, flood risk, all the rest of it.
And that's how I do my fancy maths, and that's
how I decide that my premium is this and my
neighbour's premium is something completely different. So I strongly doubt
that the insurers will release the sort of granular information
that would give us a really good insight because of
commercial sensitivity, and I'm not sure if the government will

(05:49):
be able to compel them to do that. But I
think broader stuff like information around what the reinsurance market
is doing. You know, that's the market that backs up
the insurers. They are the ones that really influence pricing heavily.
I think getting a bit more insight into that market
would be useful, maybe that the building costs that it's
another thing again, complex market and I just don't see

(06:13):
a quick, easy fix. And it's also a global issue.
You know, New Zealand's is not the only country country battling.

Speaker 2 (06:19):
Context that I think is important. Jane, thank you very much,
as always, appreciate your explanation. Janee to b Traani, the
Heralds Wellington Business.

Speaker 1 (06:25):
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