Earthquake Commission Minister Megan Woods has confirmed the country’s largest general insurance provider is refusing to take on any new property business in the Wellington market.
However, the minister has now revealed it is also declining property insurance applications.
“My understanding is that for … the IAG group of companies it is broader than contents – it is about the ability to insure houses.
“My understanding is they’re doing it on a case-by-case basis – whatever that means. I think that we need to seek some clarifications from IAG on what that means.”
The company has about 50 percent of the Wellington market, she said.
Dr Woods said IAG had decided not to take on risk-based pricing. “They’re just not offering cover in the Wellington region. We’re still in the position of seeking some more information from the insurers.”
Existing policies would not be affected at this stage.
The company makes up almost half of the country’s insurance market.
Dr Woods said there was still insurance available in Wellington.
“We had officials speak to a range of people including IAG today, to seek reassurances from other companies there weren’t plans to change their position.
“We have had those reassurances there is still insurance available and there are no plans to change that situation at this stage.”
Asked what this meant for premiums from other companies, Dr Woods said some companies were going to use risk-based pricing.
“Always with insurance people will need to have to shop around. They need to see what premiums suits them, what level of risk they’re willing to tolerate in terms of the excess.”
Tower Insurance last year confirmed customers in earthquake-prone areas would have to pay moreunder its risk-based pricing. In June last year the company said said about 2000 people – or less than 1 percent of customers – would be getting an increase of more than $2000 while 97 percent would have a small decrease in premiums of $50-$100.
Mortgage advisor Bruce Patten said IAG had a large foothold in the market and its decision could have a significant impact.
“The problem it causes is that pressure will come on the other insurers in the area, and that may result in them holding too high a risk, and they may pull out as well.”
He said IAG owned a lot of insurance brands, and one company shouldn’t be allowed to have such a large part of the market.
If home buyers can’t get insurance the bank won’t give them a mortgage, he said.
But Wellington mayor Justin Lester is confident there is enough competition in the Wellington market to give residents good insurance options.
He said IAG was overexposed to the Wellington market relative to the other parts of the country.
“If there was a large-scale event in Wellington it could damage them financially.”
The company’s situation was similar to that of AMI in Christchurch, which had to be bailed out after the 2011 quakes.
IAG bought AMI in 2012 and a Crown company, Southern Response, was set up to take over $2 billion of outstanding earthquake claims.
Mr Lester said he was an IAG customer and was told if he moved houses he could be reinsured with the company.
He said after talking to the Insurance Council and Dr Woods he did not believe other companies would pull out of the region.
‘Ongoing review’ of EQC Act
Dr Woods said there were a number of backstops through the EQC Act to offer people natural disaster cover.
“Natural disaster cover is linked to your house insurance policy, but there is a provision in the act that if you can supply evidence you are unable to secure private insurance in the market, you can get direct natural disaster cover through EQC.”
Under EQC cover for contents, insurers would pay the first $20,000 before EQC cover would come in.
She said she would be pressing the insurance company on this in coming days.
“We removed contents cover from the EQC Act at the end of last year. We have submissions from the insurance industry saying they supported this move because their belief was the private market would be able to pick up that area of risk.
“I will certainly be asking some questions in that area.”
She said there was an ongoing stage two review of the EQC Act.
“We have to look at the act and give it a lot of scrutiny and say, ‘Is this modern? Is it fit for the future or fit for purpose?’ ”