Trends to watch out for in the NZ insurance market in 2022

“New regulatory and reporting requirements could pose the biggest challenges for insurers this year,” said Simmonds, who is the president of the New Zealand Society of Actuaries. “At the top of the list are the implementation of IFRS17 (International Financial Reporting Standards), changes to the RBNZ (Reserve Bank of New Zealand) solvency standards, and the requirement for large insurers to make mandatory climate-related disclosures.

“The potential changes for the RBNZ solvency standards and the climate-related disclosures are yet to be finalised, so insurers will need to respond to these as the details are released during this year.”

Meanwhile, Simmonds also pointed to CoFI, the pending legislation designed to ensure that certain financial institutions and their intermediaries comply with a principle of fair conduct and associated duties and regulations.

He stated: “The challenges of an increasing regulatory focus on the treatment of customers will concentrate industry efforts this year, with the upcoming Financial Markets (Conduct of Institutions) Amendment Bill – a legislated obligation to treat consumers fairly, requiring insurers to establish and comply with effective fair conduct programmes.

“At first glance, treating customers fairly may seem obvious – however, traditional metrics to the board tend to look at financial performance and solvency, and so insurers will need to expand this focus to ensure that, for example, any cross-subsidies in their products are not impacting their more vulnerable customers.”

Read more: How will CoFI be implemented? Regulator discusses options

As for the trends, Simmonds believes the impacts of climate change will be an ongoing concern amid the expected increase in the frequency of large storm events.

“The past two years in New Zealand were the largest for annual weather-related losses, estimated to be $305 million for 2021 and $274 million for 2020, according to the Insurance Council of New Zealand,” highlighted the Aon and IAG alumnus.

“In response to this escalating risk, insurers are likely to continue to move to more risk-based pricing, which we have seen in recent years in New Zealand. This means affordability and availability of insurance could be under greater pressure in some pockets of the country, particularly in the higher-risk earthquake or flood-prone regions.”

Moreover, said Simmonds, rising reinsurance rates outside NZ are set to add to the upwards rate pressure on local premiums.

Back in December, Fitch Ratings noted that reinsurance rates are likely to increase by over 10% in catastrophe-related lines of business when contracts are renewed this month.

“We expect double-digit percentage premium rate rises for property catastrophe cover in 2022 due to the insured losses of around US$100 billion in 2021 and the prospect of natural catastrophe claims increasing in frequency and severity,” declared the credit ratings agency at the time.

Meanwhile, as similarly expressed by others previously, Simmonds also pointed to the ever-growing role of cyber insurance and how it is impacting insurers.

“Being able to quickly adapt in a fast-changing environment will be the top priority for insurance companies,” he told Insurance Business. “COVID-19 has been a catalyst for major change globally, including an increase in cybercrime, which has a two-fold impact for insurers – and a flexible approach is key. First, they need to ensure their IT (information technology) systems are well secured.

“Second, those insurers writing cyber insurance, or looking to enter the market, will need to ensure their pricing and underwriting systems are adequately reflecting the increasing level of risk. Encouragingly, some cyber insurers are already taking action by focussing on New Zealand as a testing ground for underwriting using new IT system scanning tools.”

Simmonds went on to say: “Even so, adding cyber considerations to the extra regulatory and reporting changes facing the New Zealand industry – which create further compliance costs when underlying claims and reinsurance costs are also increasing – and it is clear the most important task ahead is to continually evolve in response to uncertain times and the ongoing changes they generate.”