Different insurers take different approaches towards pricing premiums. There is always an element of risk-based pricing and cross-subsidisation.
But as modelling and technology have advanced, it’s become easier for insurers to take more refined approaches towards pricing risk.
Tower said “accurate risk selection and pricing” were key to helping it maintain the support of reinsurers and manage reinsurance costs.
In 2018, Tower announced it was applying risk-based pricing to earthquake risk. Then in 2021, it did the same for flood risk.
Customers can use Tower’s online portal to see whether their properties are low, medium or high risk when it comes to earthquake, flood, sea surge and slip risk.
The tool explains how this risk profile affects customers’ premiums.
Those curious about how risky Tower deems a specific address – perhaps a property they are looking to buy – can also use its online tool to see an assessment of that property.
Tower said its modelling considers community efforts to reduce risk, like flood-proofing, seawalls, and retaining structures.
It also accounts for work done on specific properties to make them more resilient.
Accordingly, Tower encouraged customers to let it know if they had done work on their homes.
Speaking to the Herald, Tower’s chief executive, Paul Johnston, chief underwriting officer, Ron Mudaliar, and head of underwriting, Oliver Bale, explained the sea-surge and slip-risk data it used was so detailed that neighbouring properties could have quite different risk profiles.
They said it was therefore difficult to pinpoint particularly risky suburbs, but believed Tower was unique globally for being particularly transparent with customers about the risks their properties faced.
Tower deemed 6% of New Zealand homes high risk when it came to earthquakes, 6% when it came to floods, 5% when it came to sea surges and 3% when it came to slips.
It buys its earthquake and flood risk data from Moody’s, sea-surge data from Haskoning and slip-risk data from Swiss RE.
New customers will notice its adjusted approach towards sea-surge and slip-risk pricing this month.
Existing customers will notice it as their policies come up for renewal.
Tower said it would work with customers facing large increases to try to smooth these over a period of up to four years, if need be.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
