Insurance 101: Understanding insurance as part of New Zealand’s business ecosystem

Understanding the way insurance works is important as it plays a vital role in the financial security of so many New Zealanders. More than one million Kiwis insure more than $100 billion worth of assets through our Suncorp brands and rely on the security their insurance provides. When the insurance sector is well-structured, well-functioning and financially strong, our business and community ecosystems can function effectively; without it, NZ INC comes to a grinding halt.

How does insurance work?

Vero insurance policies offer financial protection against certain risks in exchange for a premium (the price the customer pays for the protection). These risks can include things like unexpected loss or damage to assets such as your home, contents or motor vehicle, loss of income, or liability for damages to other people or their property. Ultimately, the goal of insurance cover is to improve the financial resiliency of you, our customers.

We as the insurer, take the premiums we collect and put it into the investment market to drive a return. We’re risk conscious and need to ensure the money is available to pay when a customer makes a claim. Because of this, we put most premiums into high quality, fixed interest type securities, which means they are very low risk. We also hold equities, and don’t invest in sensitive sectors such as tobacco companies, or any organisation without a 2050 net zero plan.

We make sure we’re investing premiums in companies that align with our values as a business and companies with the right investment profile to help progress us towards our net zero transition goals. This is also important to our reinsurers, as they are interested in our ability to be there to provide insurance to our customers in the future.

The role of reinsurance, inflation, and climate change

We couldn’t do what we do without the support of our reinsurers, who we transfer risk to at a cost, to protect our own balance sheet. Maintaining the trust of our reinsurers is essential to the sustainability of insurance in New Zealand.

Suncorp New Zealand has paid out an average of $800 million to customers each year. In years with significant events or catastrophe, this figure is larger. The Canterbury events resulted in more than $5.5 billion of claims payouts, Kaikōura around $800 million, and from the 2023 weather events payouts may reach $1 billion.

“Over the past eight years, Suncorp New Zealand has put $15 billion back into the New Zealand economy.”

It’s important to understand that reinsurance operates in a global market. Inflation is driving a lot of the costs, as are an increasing number of climate events occurring worldwide.

The intensity of climate events here in Aotearoa has notably increased, however we’re not alone. Overseas they’re also responding to more frequent and more severe events related to weather, such as hail in Europe and floods in Australia. This is all contributing to increases in reinsurance and claims costs which are reflected in increases in customer premiums.

Vero’s reinsurers are really interested in New Zealand’s efforts to better understand these secondary perils, such as flooding and storms. We’re actively working with central and local government, businesses, and banks to better understand these risks and how they are managed.

We’re encouraging ourselves and local and central government to think differently about how we build, where we build, what mitigants might be available and leaning into the conversations around managed retreat.

“We’re doing this with awareness that the choices we make today about how we manage risk, including climate risk, will ensure the sustainability and longevity of affordable insurance cover for the next generation, and the future sustainability of New Zealand.”