Wellington, New Zealand – New Zealand homeowners are facing a growing financial strain as insurance costs continue to climb, even as concerns about climate change itself have slightly cooled. The situation is prompting scrutiny of a market dominated by a handful of large players and a cautious response from the government.
Insurance has risen to become the fourth most significant financial pressure for New Zealand households, behind housing, food, and household debt, according to recent insights. This marks a notable increase from its position as the sixth most pressing financial concern in October 2024. The upward trend in premiums is being observed across house, contents, car, and health insurance policies.
The rising costs are coinciding with a decline in trust in the insurance industry. A recent Consumer NZ Sentiment Tracker survey of over 1,000 New Zealanders revealed waning confidence, as policy complexity and a perceived lack of transparency contribute to homeowner anxieties. Rebecca Styles, Consumer investigations team leader, noted that “Insurance is meant to provide a safety net, but for many people, it’s becoming increasingly difficult to access.”
The current government, led by the National-led Coalition, has initiated a review of the insurance sector, announced by Finance Minister Nicola Willis on . The Council of Financial Regulators will undertake a six-month fact-finding mission to investigate the drivers of home insurance costs. However, critics suggest the review is a moderate exercise unlikely to deliver substantial reform, and the insurance companies themselves have responded positively to the announcement.
Data reveals a significant increase in home insurance costs over the long term. Premiums have risen by 916% since 2000, the largest increase of any item tracked by Statistics NZ. In the two years prior to 2024, premiums jumped 40%, growing at three times the rate of general inflation since 2011. This growth has been particularly profitable for the dominant insurers: IAG and Suncorp, collectively controlling roughly 70-76% of the market, reported combined profits exceeding $730 million in 2024. IAG’s insurance profit surged by an extraordinary 938% year-on-year.
While climate change remains a concern, it has slipped slightly down the list of top priorities for New Zealanders, now ranking as a pressing issue for 12% of respondents – down from 15% in January and 17% a year ago. This shift reflects the immediate pressures of the cost of living, which remains the number one concern for 65% of New Zealanders, a new high.
The government appears hesitant to directly intervene in the market, whether by influencing pricing or expanding the role of the state insurer, the Natural Hazards Commission (NHC). Finance Minister Willis explicitly stated in September 2024 that she did not want to intervene in the insurance market, and directed Treasury to halt policy work exploring potential government responses to risk-based pricing.
Instead, Willis has emphasized climate adaptation, focusing on how the Crown can better collaborate with local governments to mitigate climate change risks and improve land-use planning. She has also expressed caution about overloading the NHC, and recently delayed a planned hike in the levy homeowners pay to fund the scheme, citing concerns about the financial burden on households.
Treasury had previously warned that there was only a 37% chance the NHC’s levy income would meet its costs over the next five years, but Willis intends to reassess the levy after the outcome of the current Council of Regulators review. Expanding the NHC’s remit, a possibility considered by a previous Labour government which doubled the cap on its buildings damage cover to $300,000 in 2022, is unlikely under the current administration.
One potential area for movement could involve the Reserve Bank potentially loosening capital requirements for insurers, which could reduce their costs. However, this would also increase their vulnerability in the event of a major disaster. Whether insurers would pass any resulting savings on to customers remains an open question, as seen in the banking sector. The Reserve Bank prefers to delay any review of insurance solvency standards until next year.
The insurance industry itself argues that the focus should be on reducing the underlying risk of damage from severe weather events. Kris Faafoi, chief executive of the Insurance Council of New Zealand, stated that “The problem is the actual risk, and then the insurance is a risk indicator, which is why we’ve been saying for some time, ‘reduce the risk.’” While acknowledging the need for risk reduction, experts note that such measures may require difficult choices, including potentially lowering property values and requiring investment from homeowners and communities.
Insurers are reporting significant profits in 2024, with the costs of natural disasters lower than expected. Tower has already upgraded its profit expectations for the year. However, the long-term trend of rising premiums and declining trust suggests a fundamental imbalance in the New Zealand insurance market, one that requires careful consideration and potentially significant reform.
