Insurance premiums across New Zealand are rising at the fastest pace ever. A combination of inflationary pressures, increasing operational and claims costs, alongside a series of natural catastrophe events has resulted in many of us seeing premium increases of between 20% and 30% for 2023/24.
Given the ongoing pressures from climate change, the unfortunate reality is that rising insurance premiums are likely to persist, raising concerns about accessibility and affordability across many regions of the country. However, the silver lining is that the significant pricing pressures faced by households and businesses in New Zealand have prompted the industry to explore alternative insurance mechanisms. These innovative solutions aim to close coverage gaps and offer better value for money, enhancing the overall insurance options available.
One option that is gaining a lot of interest in New Zealand is the use of parametric insurance solutions to close the gap left by the hardening in the traditional insurance market.
Parametric insurance (also referred to as event or index-based) insurance is a policy that settles claims within days after the policy has been triggered by an event using a pre-defined index or parameter. The pre-agreed nature of the claims process, whereby the policy is triggered by an independent and third-party index (i.e. GeoNet strong motion sensors), provides much greater certainty and speed to claim settlement. There is no need for assessors, engineers, and claims forms prior to payment – just a text confirmation of impact.
This type of response is important when supporting customers during a complex crisis event like an earthquake where there may be thousands of impacted policy holders
Parametric insurance plays a very special role in a crisis by deliberately seeking to support customers in the early recovery phase by providing claim settlement (i.e. cash) within days of a crisis event. The diagram below highlights that:
The rapid policy response of parametric insurance solutions ensures that customers have the financial resources to respond to the crisis in real-time. This type of insurance response shifts the trajectory of recovery for businesses, households, and the broader community by providing essential funds for emergency response and initial recovery activities.
From a business perspective, having quick access to funding in a crisis is not only critical for survival, but is also beneficial by creating a strategic advantage for those businesses to not only survive out of a crisis, but to grow.
Let's put this in context with our experience here in NZ. Looking at Canterbury and Kaikoura earthquakes and more recently the Auckland floods and Cyclone Gabrielle. All these events demonstrate the importance of having traditional indemnity insurance which plays an important role of indemnifying the insured for loss and seeking to make them “Whole” again. But it also highlights the gaps in our traditional response, and the failure of these traditional policies to support the short-term and immediate financial needs of customers.
Parametric insurance closes the funding gap by providing cash within days to support the immediate response and recovery phases after a catastrophe event. This is a good customer outcome.
Bounce Insurance is a leading provider of parametric earthquake insurance solutions based here in New Zealand and has been providing policies and supporting a wide range of customers since 2021. Bounce is here to support the immediate financial needs of customers in the early recovery phases of an earthquake crisis once the policy has been triggered by the nearest GeoNet strong motion sensor.
A Bounce policy is triggered by an earthquake with a Peak Ground Velocity of at least 20cm per second (shake intensity measure) as measured by the nearest GeoNet sensor, with a full payment made when the ground moves by 30cm per second. This is approximately equivalent to a Magnitude 6.0 quake.
Bounce is a Coverholder of Lloyd’s of London with insurance capacity provided by Munich Re and where 100% of the risks are underwritten by underwriters at Lloyd’s. Lloyd’s is a member of the Insurance Council of New Zealand and its New Zealand Coverholders adhere to the Fair Insurance Code.
For more information, please contact paul.barton@bounceinsurance.co.nz(Founder and Managing Director, Bounce Insurance).
