First NZ Capital suggests a 10% to 20% increase in homeowners' insurance premiums next year will spur them to shop around

First NZ Capital is concerned higher Earthquake Commission (EQC) and fire services levies slapped on to insurance premiums will see policyholders jump ship from their existing insurance providers.

With home insurance premiums expected to rise by 10% to 20% in the second half of 2018, analysts from the sharebroker and investment bank say “affordability issues will again arise”.

From July 1, the levy to fund the new fire service – Fire and Emergency New Zealand (FENZ) – will be bumped up from 7.6 cents to 10.6c per $100 of insured residential property, with the cap extended from $76 to $106.

And then from November 1, the EQC levy will increase from 15c to 20c per $100 of home insurance cover, with the cap pushed out from $207 to $276.

So by the end of the year, insured homeowners could pay up to $382 in EQC and FENZ levies – a $99 increase from the previous year. This is not to mention higher FENZ levies on insured cars and contents.

“During a time of such high premium rate increases, regardless that it is all tax and levy driven, this provides a catalyst for policyholders to shop around,” First NZ Capital says.

“While IAG [State, AMI, NZI, etc] and Suncorp [Vero] have pointed to improvements in their retention rates recently, they will likely come under pressure again in home in 2H18/1H19…

“The Australia and New Zealand insurance industry has long been a tax collection vehicle for the government, which often puts pressure on the insurer’s ability to price their insurance exposure adequately.”

While the EQC and FENZ levies are likely to “create ongoing negative headlines for insurers”, First NZ Capital says insurers are “ahead of the curve”, with this year’s premium increases assisting a “recovery in their margins in FY18-20”.

It says premium increases this year are also being spurred by motor claims inflation and unsatisfactory profitability in commercial lines.

First NZ Capital concludes it will be difficult for insurers to achieve “pure” insurance premium rate increases in the 2018 calendar year.