The term risk-based pricing relates to the way insurance is calculated and is based on how 'risky' a place is to live. New Zealand has many natural hazards, or risks, including floods, earthquakes, and landslips. As a result of these natural hazards and our general claims statistics, some places are considered riskier than others. As these types of events are harder to predict, we use statistical modelling carried out by actuaries and scientists to help estimate the probability and impact of these events.
As New Zealand continues to experience earthquakes and more frequent and severe weather events, the number of claims continue to increase, which also increases the cost of reinsurance.
Previously, the difference in risk across the country wasn't always fully reflected in premiums. That's because it was often balanced using cross-subsidisation, so premium differences were off-set by other customers.
To make sure we can continue to provide cover for our customers long term, we've had to consider the way we calculate premiums to better include natural risks.