A few days ago I referred to impending changes in our expectations that someone else will pick up our financial risks of earthquake loss. There are steep increases in the costs of getting others to carry our risks. It may become irrational to continue to insure as we have in the past.
Pam McMillan, a solicitor at our law firm, has pointed out that according to the OECD Insurance Statistics Yearbook for 1999-2008 NZ may not, in fact, be “the most insured country in the world”.
According to these statistics, out of all the OECD countries NZ is the lowest in terms of penetration (gross premiums as a percentage of GDP); the lowest in terms of life insurance as a percentage of GDP; and towards the bottom half of all countries in terms of non-life insurance as a percentage of GDP.
These statistics appear inconsistent with the view that we are "the most insured country in the world" for earthquake risk. They do not separate out earthquake cover from other cover. Earthquake cover has been standard here. Elsewhere it is a specific additional risk in many policies. But the statistics still suggest caution in concluding that we have been over-insured. Perhaps another factor could be extraordinary historical cheapness in our insurance that meant we got the extended coverage for much less than other countries.
A Massey University study conducted for the Financial Services Council and reported in 2011 suggests that we are 'under-insured' for personal risks (life, disability income and trauma/dread disease). So perhaps our customary full insurance of earthquake risk is not a reflection of an overall risk aversion.
Does anyone know? No doubt we will find out in due course, but if we are now staring at less insurance off a low base, we better learn more self reliance and resilience rather quickly……
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The analysis based on Gross Premiums to GDP is based on the flawed premise that insurance rates are the same the world over. Whilst the cost of capital will be similar globally, the risk cost is vastly different. New Zealand has benefited from a relatively benign physical and legislative environment. This coupled with a competitive insurance market has worked to consistently provide cheaper premiums with better coverage (eg. house insurance based on floor area) than available elsewhere. In particular the inability to sue for personal injury keeps our insurance premiums lower than other developed countries.
Trying to analyse the level of insurance is particularly dificult as there really is no data to reliably draw on. There is anecdotal evidence to suggest that maybe 20% – 30% of New Zealanders don’t carry insurance for a variety of reasons. But there is no reliable evidence to support this. It also depends on how you define adequate insurance and the difference between ‘indemnity’ and ‘replacement’ insurance.