Govt Orders Six-Month Deep Dive Into Soaring Home Insurance Costs as Cover Shrinks in High-Risk Areas
The Government has launched a six-month investigation into New Zealand’s rapidly rising home insurance costs, amid growing signs that insurance is becoming harder to access in some parts of the country.
The move comes after AA Insurance temporarily stopped offering new home policies in Westport due to flood risk — a decision that has raised alarm bells about what insurance availability might look like in the future for Kiwis living in vulnerable areas.
According to Treasury analysis, home insurance premiums have jumped 40% in just two years and, since 2011, have increased at three times the rate of general inflation.
Finance Minister Nicola Willis says the Government is worried not only about affordability, but about people being forced to drop insurance altogether.
“We are not only worried about affordability, but we don’t want to see people dropping their insurance policies,” Willis said.
Regulators, watchdogs and industry brought together
Willis, alongside Commerce and Consumer Affairs Minister Scott Simpson, has asked the Council of Financial Regulators — which includes the Reserve Bank, Commerce Commission, Financial Markets Authority and other agencies — to work directly with the insurance sector to understand what’s driving the surge in costs.
Over the next six months, the group will examine:
- Why premiums are rising so fast
- Whether competition in the market is working properly
- How climate and earthquake risks are affecting pricing
- The impact of reinsurance and construction costs
- Whether Government regulation and levies are adding pressure
- How consumers are responding — including whether they’re reducing cover or opting out entirely
“We know the insurance industry holds very detailed data. We want to understand what they’re seeing in real time — are people cutting back cover, and what does that mean for the future?” Willis said.
Insurance still available — but getting harder in risk zones
While insurance is still widely available across New Zealand, access is tightening in regions exposed to both earthquake and flood risk, including Wellington, Marlborough, Canterbury, and now Westport.
This is where insurers are increasingly moving toward risk-based pricing — charging significantly more, or stepping back altogether, in high-risk zones.
Are insurers making bigger profits than in Australia?
A Cabinet paper behind the review raised eyebrows by suggesting there is some evidence insurers in New Zealand may have higher profit margins than their Australian counterparts.
However, the reasons are unclear.
It may be because New Zealand is a higher-risk country for natural disasters, meaning investors demand better returns. But it could also signal weaker competition in a market dominated by just a handful of large insurers.
Treasury’s early work suggests competition issues cannot be ruled out.
“This is not a quick fix”
Willis cautioned that this is a complex issue with no simple solution.
“Most New Zealanders will understand this isn’t a quick fix. This isn’t a Band-Aid solution,” she said.
But she added that if there are “small changes at the margins” that could ease pressure on household premiums, the Government wants to find them.
Consumer NZ: Inquiry must be fully independent
Consumer NZ chief executive Jon Duffy welcomed the review but warned it must be truly independent and not influenced by the insurance industry.
Consumer NZ chief executive Jon Duffy (Source: 1News)
“Insurance is critically important to our economy, which is heavily underpinned by home ownership. If insurance becomes a luxury only available to a privileged few, the impacts will be severe,” Duffy said.
Industry says taxes, levies and inflation are major factors
Insurance Council chief executive Kris Faafoi said the industry welcomed the review and wanted to be part of finding solutions.
He pointed out that around 40% of a typical home insurance premium goes toward taxes and levies, which are outside insurers’ control.
“People at home might not realise how much of their premium is made up of taxes and levies,” Faafoi said.
He added that:
- Inflation has pushed up building and repair costs
- Regulatory compliance costs have increased
- Climate-driven flood risks are rising
Faafoi said the Westport decision was one insurer’s business choice, not an industry-wide withdrawal, but warned that without action to reduce climate risk, insurance challenges will intensify.
He also said the Minister had assured him the review was not intended as a ‘big stick’ exercise against insurers.
Levy hike on hold — for now
As part of the review, Willis has paused a separate proposal to increase the Natural Hazards Commission levy.
Treasury had recommended lifting the levy from 16 cents to 24 cents per $100 of building cover, which would raise the maximum annual charge per home from $554 to $828.
The bigger question: What happens if people can’t insure their homes?
At the heart of this review is a bigger concern: what happens to communities, property values, and the wider economy if large numbers of people either can’t afford insurance or can’t get it at all?
For a country heavily invested in home ownership, the answer could have serious long-term consequences.
The Government hopes this six-month “deep dive” will provide the data — and possibly the policy tools — needed to stop insurance from becoming a privilege instead of a necessity.
(Source 1NEWS)