Until recently, premiums for house insurance in New Zealand were generally determined solely by the value of the house. It didn't make any difference if a house was located in an earthquake-prone area or not. This approach is often referred to as "community-based pricing" and involves policyholders in lower risk areas cross-subsidising those in higher risk zones such as Wellington or Canterbury.
MAS has now moved to a risk-based pricing model, which means we are taking greater account of the particular risks faced by houses in difference regions around the country when it comes to setting premiums.
It's the same principle we use when we set premiums for other forms of insurance. When you insure your car, for example, you'll pay more if it's an older car, or if it includes performance features.
In the same way, if you own a house in Wellington, you are likely to pay more in future than if you own a house in Auckland, since the earthquake risk is higher. As we get more information about the impact of climate change, premiums for properties built near the sea or on floodplains are also likely to increase, to account for the greater risk of flooding and storm surges.
The change has been prompted in part by the increasing cost of the reinsurance we buy on international markets. Traditionally, we've spread the cost of this reinsurance equally across all the house insurance policies we hold. But natural disasters in the past ten years have pushed up the cost of reinsurance, and we need a fairer way to distribute these costs to our Members.
The impact of risk-based pricing on individual policies will vary depending on the circumstances. In general, premiums for houses in areas in New Zealand more likely to experience an earthquake – particularly in regions like Wellington, Canterbury and Hawke's Bay – are likely to go up, while areas in other parts of the country may go down or stay the same. Premiums may also change in the future for properties in areas more prone to flooding or coastal erosion.
MAS will still collect the same amount of premium in total across all policies as before but there will be a fairer distribution of the cost of this reinsurance amongst our policyholders.
The new pricing method has been introduced now but the changes will be factored in as the policies come up for their annual renewal.
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