New Zealand’s annual inflation reached a 30-year high in the March quarter.
Like the rest of the world, Aotearoa has been battered by the fallout of the pandemic, triggering a number of inflationary side effects - increased construction costs, rising shipping costs, supply chain issues, and labour shortages.
“Major weather events have seen many claims occurring in a short period of time. This has been coupled with higher costs for repairs, including labour and material costs.”
The Ukraine conflict is an added ingredient to the high inflation.
Besides the community being impacted by inflation, businesses, particularly small businesses, have suffered bodyblows with pandemic restrictions.
To add to this perfect storm, the cost of insurance has also started to climb.
New Zealand insurers have been hit with a triple whammy.
Major weather events have seen many claims occurring in a short period of time. This has been coupled with higher costs for repairs, including labour and material costs. Also, the higher cost to replace insured contents, particularly those relating to imported replacement plant and equipment. Motor insurance has also been hit and businesses may see increases in the cover for vehicle fleets.
Also, some insurers use the mechanism of index linking on policies to measure the average change in rebuilding costs. Building insurance policies are index linked at renewal to account for increases in rebuilding costs. Inflation on labour, materials and contents has seen the indexing increase to up to 12% in New Zealand.
Just to add to the mix, the monetary cap of EQC residential building cover will increase from $150,000 to $300,000 per home from 1 October 2022. While overall this may be seen as a good thing, it may create some issues. Certainly, it will subsidise high-risk natural disaster areas (e.g. Wellington) from other lower risk areas (e.g. Auckland). However, insurers’ discounts in lower risk areas will be smaller than the amount charged by EQC. And high-risk areas are unlikely to see any reductions in insurance costs due to the high inflation and insurance increases.
You also may be under insured as your cover doesn’t take into account the inflationary costs of replacing damage to your property or helping your business get back on its feet.
Some may be tempted to underinsure, believing they are reducing costs, but they can run the risk of not having enough cover should disaster strike. With global warming and the increase in recent disastrous weather incidents, there’s may be a risk people making a claim will find they have not obtained enough cover for the damage.
How can you reduce some of the impact inflation has on your insurance?
For a start, always use an insurance broker as they use multiple insurance markets to find the right cover for the best price.
BEFORE your renewal, have a conversation with them to look at what needs to be done to ensure you remain adequately covered - and discuss possible ways to reduce the premiums.
One way is to increase your excess, which may lower the cost of the overall annual premium. However, make sure you are aware of the risks if there is a claim.
This is an opportunity to review some of the inclusions in your cover and if they are necessary. Some inclusions may possibly be removed but, again, be aware of the risks and discuss them with your broker.
One way to determine that your business and property are sufficiently covered, while optimising the premium costs, is to make sure your business and property valuations are up to date. If you are renewing your insurance cover annually, it may be a good idea to get an independent valuation at the same time. Then the new premium can be adjusted to reflect this, and you may minimise the risk of underinsurance should you have to make a claim. With inflation and the costs associated with it, reviewing your valuation and cover has become even more vital.
Making sure your property is extra safe and secure could help reduce their premium. It could also potentially reduce the size of a claim should there be an incident.
Insurance is like a fire extinguisher – you need to have it but hope you don’t need to use it. While the cost of insurance is on the rise the need to have adequate cover remains essential - you can never be sure when disaster may strike and you need help getting back on your feet.
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