New Zealanders are doing it tough. Household living costs are up 5.4% in the year to the June 2024 quarter, with higher mortgage repayments (up 26.7%) and insurance costs (up 18%) leading the charge.
Those fortunate enough to own a home will sacrifice pretty much anything to keep the roof over their heads but in the face of rising costs, protecting our greatest assets is taking up a bigger portion of many household budgets.
According to the Insurance Council of New Zealand (ICNZ) – which represents the general insurance industry such as home, contents and vehicle – the current economic climate is filtering through to our insurance decisions.
“Many New Zealanders see the value of insurance to protect themselves and their property, with the uptake of residential insurance among the highest in the world at around 96%,” says ICNZ Communications Manager Patrick O’Meara. “However, we know it’s tough for Kiwis dealing with the cost of living and there are signs of a drop off in contents insurance.”
Skimping on insurance is not something Shaun recommends, unless you absolutely have to.
AA Insurance (AAI) Chief Product and Marketing Officer Shaun Rees has noticed a similar trend.
“Like most businesses, we’re seeing more customers considering their position and making slightly different decisions that reflect the current environment,” says Shaun. “We’ve seen an uptick in people shopping around, and a trend around people considering making cuts to their cover.
“People tend to view home, car and life insurance as really important. Contents is the first to go or be cut back, along with pet insurance. We’ve also noticed people selling their second cars to reduce costs.”
But skimping on insurance is not something Shaun recommends, unless you absolutely have to. Even then he says it’s best to only view the cuts as a temporary measure.
“Insurance can be a key building block of financial wellbeing. We put a lot of hard work into building what we've got; so thinking about how best to protect it if the unthinkable happens is really important. Insurance can be a crucial part of protecting the things that mean the most to you.”
So what’s driving those rising prices? Not surprisingly, Patrick says recent weather events have played a starring role.
“The Reserve Bank reported that premiums tend to trend upwards after large scale natural events such as last year’s Auckland Anniversary Weekend flooding and Cyclone Gabrielle, and we’re still seeing the effects of those.”
With climate change fuelling extreme weather, this looks set to be an ongoing issue, both for insurance providers and their customers.
With climate change fuelling extreme weather, rising premium costs looks set to be an ongoing issue, both for insurance providers and their customers.
“One of the biggest challenges for our industry is how can we continue to keep insurance accessible. Insurers are looking at ways to help their customers manage their cover to protect homes, contents and cars so that their cover meets their needs and budget,” says Patrick.
“The prospect of more frequent and severe weather events also requires clear leadership and a co-ordinated approach across central government, councils, and many sectors to ensure risk is reduced and insurance is accessible in the future.”
That’s all very well, but those of us finding it challenging to pay our premiums right now may want to review how they structure their insurance.
Shaun says there are several options to consider. The first step? “Jump online or get on the phone to discuss your situation with your insurance company.People often think their insurance policy is an annual contract and you can’t change it until it’s renewal time, but that’s not the case. You can look at your insurance and make amendments to your policy any time.”
Both Patrick and Shaun suggest some other tips:
- Shop around, compare quotes from multiple providers
- Consider whether adjusting your excess levels could suit your circumstances – usually, the higher the excess, the lower the premium
- Have a look at any optional extras you pay for under your policies (for example rental car benefit and glass cover) and if these are right for your current insurance needs
- Review your level of cover – could changing cover levels work for you? For instance, you might decide to move from comprehensive motor cover to third party cover for your car.
Shaun says information is key. “It’s important to understand what changing your policy will mean for your level of protection, so it can be really helpful to talk through options first with your insurer.”
If the cost of insurance is hitting home, talking to your insurer to find out more about how you can structure your policies might be the way to best meet your needs.
Story by Vanessa Trethewey for the Spring 2024 issue of AA Directions Magazine. Vanessa Trethewey is a freelance writer who regularly contributes to AA Directions magazine.
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