Factors That Influence Your Insurance Premiums
Insurance is an essential part of financial planning for Kiwis, providing protection against unforeseen events and peace of mind. However, many New Zealanders are often surprised by the variations in their insurance premiums. Understanding the factors that influence these costs can help you make informed decisions about your coverage and potentially save money. Let’s explore the key elements that affect insurance premiums in Aotearoa.
1. Type of Insurance
Different types of insurance come with varying risk profiles, which directly impact premiums.
Home and Contents Insurance
Factors specific to home insurance include:
- Location (risk of natural disasters)
- Building materials and age
- Security features
The Insurance Council of New Zealand (ICNZ) reports that premiums for home insurance have increased significantly in recent years, largely due to the rising costs of rebuilding and the reassessment of natural disaster risks following events like the Christchurch earthquakes.
Car Insurance
For vehicle insurance, key factors include:
- Make and model of the car
- Driver’s age and driving history
- Where the car is kept overnight
According to the Automobile Association (AA), young drivers and those with performance vehicles typically face higher premiums due to increased risk.
Health Insurance
Health insurance premiums are influenced by:
- Age
- Pre-existing conditions
- Lifestyle factors (e.g., smoking)
The Health Funds Association of New Zealand (HFANZ) notes that an ageing population and advancements in medical technology are putting upward pressure on health insurance premiums across the board.
2. Location
In New Zealand, your location can significantly impact your insurance premiums, particularly for home insurance.
Natural Disaster Risk
Areas prone to earthquakes, floods, or coastal erosion face higher premiums. For example:
- Wellington residents often pay more for home insurance due to the city’s high earthquake risk.
- Properties in flood-prone areas like parts of the Hutt Valley may face increased premiums or even difficulty obtaining cover.
The Earthquake Commission (EQC) provides the first $150,000 of natural disaster cover for residential properties, but insurers price additional risk above this threshold.
Crime Rates
Areas with higher crime rates may see increased premiums for contents and car insurance. The New Zealand Police’s crime statistics can give insurers insights into regional risk levels.
3. Personal Factors
Your individual circumstances and history play a crucial role in determining insurance premiums.
Claims History
A history of frequent claims can lead to higher premiums across all types of insurance. Many insurers offer no-claims bonuses to reward customers who don’t make claims.
Age and Gender
For life and health insurance, age is a significant factor, with premiums typically increasing as you get older. Some insurers also consider gender when pricing certain types of cover.
Occupation
Your job can influence premiums, particularly for income protection and life insurance. High-risk occupations may face higher premiums.
4. Level of Coverage
The extent of your coverage directly affects your premiums.
Sum Insured
For home insurance, the sum insured (the amount your house is insured for) is a key determinant of your premium. It’s crucial to ensure this accurately reflects rebuild costs, which have been rising steadily in New Zealand.
Excess
Choosing a higher excess (the amount you pay out of pocket when making a claim) can lower your premiums. However, it’s important to ensure you can afford this excess if you need to make a claim.
Additional Coverage Options
Adding extra coverage, such as accidental damage for contents insurance or roadside assistance for car insurance, will increase your premiums.
5. Market Factors
Broader economic and industry factors also influence insurance premiums.
Reinsurance Costs
New Zealand insurers rely heavily on global reinsurance markets. When global catastrophes occur, even if they’re not in New Zealand, they can drive up reinsurance costs, which are then passed on to consumers.
Inflation
General inflation affects the cost of claims, particularly for home and contents insurance where repair and replacement costs are rising.
Regulatory Changes
Changes in government regulations can impact insurance costs. For example, the introduction of stricter building codes following the Christchurch earthquakes led to increased rebuild costs and, consequently, higher premiums.
6. Risk Mitigation Measures
Taking steps to reduce risk can potentially lower your premiums.
Home Security
Installing security systems, smoke alarms, and deadbolts can reduce home and contents insurance premiums.
Vehicle Safety Features
Cars with advanced safety features may qualify for lower premiums. The AA recommends checking with your insurer about potential discounts for safety technology.
Health and Lifestyle Choices
For health and life insurance, maintaining a healthy lifestyle (e.g., not smoking, regular exercise) can lead to lower premiums.
Understanding these factors can help New Zealanders make informed decisions about their insurance coverage and potentially find ways to reduce their premiums. Here are some key takeaways:
- Regularly review your coverage to ensure it still meets your needs and accurately reflects your circumstances.
- Consider bundling different types of insurance with one provider, as this often comes with discounts.
- Invest in risk mitigation measures where possible, such as home security systems or vehicle safety features.
- Shop around and compare quotes from different insurers, as pricing can vary significantly.
- Consider seeking advice from an insurance broker who can provide tailored recommendations based on your specific situation.
Remember, while it’s important to manage costs, ensuring you have adequate coverage should be the primary concern. The cheapest policy isn’t always the best if it leaves you underinsured in the event of a claim.
By staying informed about these factors and working closely with your insurer or broker, you can strike the right balance between comprehensive coverage and affordable premiums. This approach ensures you’re well-protected against the unique risks faced by Kiwis, from natural disasters to everyday accidents, while also managing your insurance costs effectively.