The insurance landscape in New Zealand is rapidly evolving. Over the past decade, insurance premiums have risen steadily in response to higher construction costs and reinsurance expenses. A higher risk of more frequent and severe weather events due to climate change has led some insurers to consider risk-based pricing. Find out what this means for NZ insurance and what proactive measures you can take to mitigate the risk of higher insurance premiums.

What is risk-based pricing?

Risk-based pricing is an insurance model that uses specific risk factors associated with a property to determine insurance premiums. This approach aims to ensure homeowners pay premiums that more accurately reflect the actual risk of insuring their home.

Unlike traditional models that spread risk across a broad pool of policyholders, risk-based pricing assesses each property individually. Factors such as location, construction type, and exposure to natural hazards are considered, and insurance premiums are calculated accordingly.

Why are insurers considering risk-based pricing?

Several factors are driving insurance providers in New Zealand to consider risk-based pricing, including:

• Higher construction costs: The cost of building and repairing homes has been steadily rising over the past decade, increasing the cost of claims. In the last two years, from Q1 2022 to Q1 2024, the average build cost has increased from $2695 per square metre to $3276 per square metre, up by 21.6%.
• Climate change: Extreme weather-related events, such as floods and storms, are likely to increase in frequency and severity due to climate change, impacting the risk and cost of insurance claims. The Insurance Council of NZ reported earlier this year (2024) that claims from the Auckland flood and Cyclone Gabrielle amounted to $2.47 billion!
• Natural disasters: New Zealand's susceptibility to earthquakes and other natural hazards means a more precise risk assessment is necessary to ensure financial stability for insurers.

What is the impact on homeowners?

If insurance providers move to a risk-based pricing model, homeowners in high-risk areas could face significantly higher insurance premiums. That could make insurance less affordable for some homeowners and leave many at risk of underinsurance should disaster strike.

Despite these challenges however, risk-based pricing also has some benefits. If insurance premiums are a more accurate reflection of risk, those in lower-risk areas could see their premiums reduce.

Furthermore, a risk-based model would incentivise homeowners to take measures to reduce their risk, such as buying properties in safer locations and improving building resilience.

Aligning insurance premiums more closely with actual risks helps maintain financial stability and ensures insurance providers continue to provide coverage even as environmental risks evolve.

The future of NZ insurance

As the insurance industry in New Zealand continues to adapt to the realities of climate change and other evolving risks, it’s important for all stakeholders—insurers, central and local governments, buyers, and lenders—to collaborate on improving their understanding of natural hazards. Taking proactive measures now could help maintain future affordability and ensure that insurance remains accessible for all homeowners.

If you’re a homeowner navigating changes to your insurance premiums, reach out to the team of Insurance Advisers at Astute. Together, we can help you make informed decisions about your insurance needs and ensure you have the right insurance cover for your property.

Contact Astute Insurance today to connect with an insurance adviser near you.