Tower Insurance has started pricing premiums according to the risk exposure of a property to earthquakes, a move expected to be a catalyst for an industry-wide change in quake insurance pricing.
Tower, the country's third largest general insurer, announced that the company would stop "subsidising" higher risk properties from this week in order to send a clearer message to homeowners about the risks in their backyards, and to more fairly distribute costs, reports Stuff. Customers who live in earthquake-prone areas would face a premium hike, while those further away from active faults, including Aucklanders, would see premiums drop.
The new pricing came into effect on 1 April.
Tower Chief Executive Richard Harding said that the cost to cover a NZ$1 million (US$729,000) home in Auckland for earthquake-related damages was about NZ$40 but the equivalent property in quake-prone Wellington cost NZ$5,400 to insure.
The majority of the company's 350,000 customers would not see any significant change in their premiums, with less than 2.5% receiving a hike of more thanNZ$250, and 1% would see a hike greater than NZ$2,000, he said.
Mr Harding said that the pricing of flood coverage would soon change according to risk as well.
Other insurers are likely to follow NZX-listed Tower's lead and increase their focus on risk-based pricing for natural hazards, says an insurance expert. This is because low-risk customers would choose insurers which price their products according to risk, while insurers that do not practise such pricing would be left with high-risk customers.