Date posted: 7/09/2020 5 min read

Understanding the post-COVID insurance market

COVID-19’s impact on the domestic insurance market appears mild, but don’t be complacent. Brought to you by Crombie Lockwood.

There’s good and bad news on the horizon in the New Zealand insurance market for the rest of 2020.

The good news is that things are looking OK for New Zealand’s commercial insurance market, although seasonal risks and natural disasters can always have an impact. The bad news is all the insurers in New Zealand are either owned by foreign companies and/or underwritten by foreign reinsurers that are facing all sorts of pandemic-related financial hits, making it more difficult to place insurance.

In certain sectors, long before COVID-19 swung a wrecking ball through the global economy, insurers were looking to raise premiums and reduce cover. Given this, it’s imperative that New Zealand businesses allow adequate time to compare insurance products before taking out new policies or negotiating the renewal of existing ones.

Insurance policies you should review right now

Material damage and business interruption: Insurers are still open for business but difficulties remain in securing well-priced capacity for risks in Wellington or on properties with EPS [expanded polystyrene] construction. There’s a notable variability in terms between insurers, so it’s essential you make a careful assessment when considering market options.

Directors and officers liability (D&O): Rising costs in the global D&O market combined with local developments such as a hibernating economy, the emergence of litigation funders, and the Court of Appeal giving opt-out class actions the green light, has brewed a perfect storm. Insurers are being cautious about writing new risks or offering increased policy limits, especially to companies that can’t demonstrate financial stability. Don’t leave arranging D&O insurance to the last minute.

Professional indemnity: Insurers are starting to take a more cautious approach to underwriting professional indemnity risks. In general, the frequency of professional indemnity claims increases in an economic downturn. That means insurers tend to take a closer look at the risk profile of a business before offering terms. This is particularly the case in the construction, financial services and law sectors, where the market is already experiencing tightening conditions.

Insurance policies you should keep an eye on

Motor vehicle: Although fewer cars on the road during lockdown meant a drop in accidents, motor vehicles are becoming increasingly sophisticated, so more expensive to repair. Premiums are, however, likely to remain stable.

General liability: There are certain sectors where insurers are seeking rate increases and requiring more comprehensive underwriting information, such as exporters to the US. However, the lack of bodily injury claims in New Zealand means this remains a competitive market with significant capacity available.

Cyber: The cyber-insurance market is in its infancy and premiums remain affordable. That’s despite a business, statistically, being far more likely to suffer a cyber-incident than a fire or traditional theft, such as the distributed denial-of-service (DDoS) attacks currently being experienced by NZX and other Kiwi businesses. Cyber-insurance policies provide funds for a business to get back up and running after a cyber event. This is essential cover for any business that relies on a technology network to operate.

“It’s imperative New Zealand businesses allow adequate time to compare insurance products before taking out new policies.”

The unknown unknowns

Local or global events, ranging from natural disasters to further COVID-19 infections, could still affect the insurance market during 2020. That’s why it’s best practice for you and your clients to consider engaging early with an insurance broker to assess your full risk profile.

Find out more:

Talk to Crombie Lockwood’s CA ANZ dedicated insurance brokers to get your insurance sorted. Call 0800 435 568. Email accountants@crombielockwood.co.nz or go to crombielockwood.co.nz/charteredaccountants