Insurance is a financial safeguard against unexpected events, such as a fire, burglary and car accidents. It’s about managing the risk, or the chance, of something unpleasant and unexpected happening, and then getting financial help and support when it does.

Each customer pays an insurance premium, which we put into a pool with premiums that other customers pay us. If a customer ever needs to make a claim on their insurance, we use funds from this pool to pay for the losses covered by their policy.

It’s about assessment of risk

To work out the cost of insurance cover we first assess the risk. This is the likelihood of whatever is being insured being lost or damaged and how much it will cost to repair or replace it.

If we’re assessing risk for a motor vehicle, the questions we ask include the age and sex of the driver, the accident or traffic infringement record of the driver, and the make, model and value of the car. If we’re assessing risk for business premises, we need to know the type of industry, the age, location and construction of the building and what additional security measures might be put in place.

All this information goes toward determining the premium – how much our customers pays for the desired amount of cover.

An excess is part of most policies. This is the amount a customer pays when they make a claim. It helps to avoid customers making lots of small claims that would increase premium costs for everyone. In some cases, higher excesses may apply because the risk is higher.

Risks are always changing, so usually we offer the policy for 12 months at a time and then renew it annually. Any change in the risk assessment, up or down, will result in an adjustment to the premium.

Insurance is about trust

The relationship between insurance company and customer must be open and honest and the ground rules must be transparent.

Our promise to pay our customers’ claims assumes everyone will act in good faith. We expect our customers to be accurate about their application for cover and truthful when they make a claim. Our customers should expect us to tell them in simple language exactly what we’re covering and how much it will cost.

It’s about balance

The premiums we collect need to cover a number of costs. These include the claims people make, reinsurance (insurance for insurers), the commission we pay to our brokers and business partners, and the costs of running our business. What is left is our profit.

When setting premiums, we have to strike a balance. Premiums must be affordable for our customers. If we set premiums too high, people will not insure their assets adequately, if at all.

Premiums must also make business sense for us. If we set premiums too low, we would not be in business for long. Efficiently managing claims and the other costs of running our business is critical to getting the balance right.
Part of each premium is made up of levies we collect on behalf of government to cover things like earthquakes and the cost of attending fires – this is additional to the pool we manage on behalf of everyone.

In the event of earthquakes and natural disasters

 

New Zealand’s susceptibility to damage by earthquake and other natural hazards, such as landslides, volcanic eruption, hydrothermal events and tsunamis, led to the formation of the Earthquake Commission. The Earthquake Levy adds $60 to an average home and contents premium per year. This provides basic cover of up to $100,000 for replacement of residential property and $20,000 for home contents. We provide cover to replace our customers’ property above these limits.

In the event of an emergency

The Fire Service Levy funds the New Zealand Fire Service to provide an essential emergency and prevention service. Currently the levy, payable on all insurance policies covering property against loss from fire, adds $91.20 to most home and contents policies. For motor vehicles, there is a flat rate of $6.08 per vehicle and for commercial property, the levy is 7.6c per $100 of the insured value.

The above costs exclude GST.