By Gary Dransfield
10 November, 2013
A wise politician once said everyone is entitled to his own opinion, but not to his own facts.
The Labour Party’s policy to create another Government-owned insurer reminded me of this. The opinion of the Party is that New Zealand is disadvantaged because insurance company profits flow overseas and there is not enough local customer choice.
Their solution is to create a new insurer. They believe that would lower prices, increase service quality and reverse the flow of profits and capital out of New Zealand.
It is understandable a major political Party and its leaders have strong opinions on key industries such as insurance.
Industry leaders such as Vero need to assist the current Government – and all future Governments – improve insurance. That includes offering constructive comment on the KiwiAssure proposal.
In Australia there is one general insurer for about 200,000 people. In New Zealand there is one general insurer for about 125,000 people.
The industry here is concentrated – but there is no lack of choice. It is hard to see how another general insurer will have much impact.
Insurers can lower their costs by improving their risk assessment and claims management. They can try and gain more business by cutting prices.
If they lower their prices or try to boost their sales without first improving their risk assessment, claims management capabilities or capital reserves they will run into trouble. That has already happened in New Zealand. It is the same for a Government or private insurer.
The difference is that the Government insurer wastes taxpayer money when it gets into trouble; the private insurer wastes shareholder money.
Politicians and business leaders agree New Zealand needs to boost productivity to increase growth and living standards. The New Zealand Productivity Commission is investigating how to boost productivity in the services sector.
The Commission says the finance and insurance industry had well above average growth in labour productivity over 1990 to 2011.
Capital investment by insurance companies and others in the industry grew – even during the global financial crisis.
Insurance companies are amongst the most productive in New Zealand. They are also investing more capital here than most in technology and efficiency improvement.
Vero is the second largest insurer in New Zealand and one of the most efficient. Yet we still plan to spend over $80 million in projects to improve our risk assessment, claims management and information technology.
Insurers are responsible for the largest inflow of capital in New Zealand’s history to meet unexpected, natural disaster costs. There will be a capital inflow of over $30 billion to settle Christchurch insurance claims.
Insurance companies are also amongst the highest contributors of inputs to New Zealand’s exports. The Productivity Commission has estimated finance and insurance industries contribute an estimated $2.5 billion as inputs to New Zealand exports.
The facts are that insurance companies are amongst the most productive in New Zealand and invest more capital than most. They are responsible for the largest import of capital in New Zealand’s history.
They are one of the highest contributors of service inputs into New Zealand’s exports. The Productivity Commission says they employ people with higher skills, pay higher wages and invest more in new technology.
It is just my opinion – but I believe these are the companies New Zealand should be encouraging!