Changes to Home Insurance Premiums

New Zealand has many natural hazards, or risks, including floods, earthquakes, and landslips. Some places are riskier to live than others, as they experience more natural hazards.  

AA Insurance wants to protect the homes of Kiwis long term, so has had to consider the way we calculate premiums to continue to provide affordable insurance in New Zealand.

Previously, the difference in risk arising from natural hazards across the country was often balanced by pooling the risk and evenly sharing the costs across customers. As New Zealand continues to experience earthquakes and more frequent and severe weather events, our claims and reinsurance costs have also increased. We must now factor in the changing risk environment when we calculate premiums and ensure we are maintaining an appropriate level of reinsurance cover to pay all insurance claims in case of a large-scale event.

Instead of evenly ‘sharing the load’ of insurance costs across customers, our premiums will start to more accurately reflect the future cost of covering an individual property. So, if you live in an area prone to natural hazards such as earthquakes and floods, you could pay more for your premium than those living in lower risk areas.

Frequently asked questions

If you can't find the answer you're looking for, please contact us.

What is reinsurance?

Put simply, reinsurance is insurance for insurance companies. This is additional financial cover that enables us to make sure there are enough funds to pay all insurance claims in the case of a large-scale event.

Claims and costs arising from earthquakes, flood events and changing weather patterns are increasing in certain areas, which then sets the cost of reinsurance. By purchasing reinsurance, we can guarantee we’ll be there for our customers when they need us most, especially during those large-scale events that affect large areas of New Zealand.

How is my home insurance premium calculated?

The cost of your home insurance is made up of three components. The first component is your AA Insurance premium, which considers risk factors such as the size and materials that your home is made of and where it's located in the country.

The second component is reinsurance costs, which makes sure we have enough cover to pay all insurance claims in case of a large-scale event.

The final component is the fees and levies collected by all insurance companies on behalf of the government for GST, Fire and Emergency Levy and EQC Levy.

What's changing in home insurance premiums?

You may have heard the term 'risk-based pricing'. This 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, and some places are 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 have had to consider the way we calculate premiums to better include natural risks.