Kerre Woodham: Is insurance becoming a nice-to-have?

We've seen floods in Europe, fires in California and in the last couple of years, weather events here at home.

As of the 1st of September 2023, insurers had paid out $2.053 billion on claims relating to the Auckland Anniversary flood and Cyclone Gabrielle.

That's expected to increase to $3.5 billion once all claims are settled. Two weather events, one small country, $3.5 billion. And represents the vast majority of insured losses recorded in the Asia Pacific region for the first half of 2023.

Insurers keep announcing they've broken new records for pay-outs. Data released by the Insurance Council of Australia last year shows that the impact of extreme weather on the Australian economy has more than tripled over the last three decades.

A couple of years ago, the Insurance Council of New Zealand reported that the total amount paid out by insurers for weather related claims in 2022 had reached a record-breaking $335.58 million. A staggering sum, a huge amount.

And then along came the Anniversary floods and Cyclone Gabrielle and made the previous year's payouts look like chump change. $335.58 million - staggering amount of money - hello $3.5 billion.

It can't go on, its unsustainable. Insurers can and have put up their premiums, but there comes a point where people can't or won't pay those premiums. Home insurance premiums rose by an average of 21.2 percent between September 2022 and 2023 quarters.

Should home insurance become unaffordable, and this has happened in other parts of the world, both unaffordable and unavailable - there may be pressure for Government intervention. That's already happened in the UK and in parts of the US, for risks that private insurers have come to regard as unaffordable in certain areas.

 Mind you, I don't know how willing the taxpayer would be to insure homeowners whose homes have been deemed uninsurable by private companies. That's just your home insurance. What about the rising cost of health insurance? Income protection insurance? Life insurance? Car insurance?

A story out today shows more people are considering changing their car insurance policy or switching to third-party coverage as premiums continue to rise. 

The latest data from insurance comparison website Quashed shows the average quote for comprehensive car insurance has increased 41 percent in two years. Average quotes for home and contents insurance have risen 31 percent over the same period. And according to Quashed, more users are looking into other options, including third-party as they face a conundrum between cheaper premiums and greater coverage.

So what do you do when the household budget is tight? Or when there are increasing pressures upon it, what gives? Say you're a young couple, two kids, car and a big mortgage. What do you do? What insurances do you pay - or what has to give?

Do you keep up the life insurance payments so that if heaven forfend one of you dies, the other isn't left with dreadful grief, parentless children and a $500K mortgage?

Do you keep up the income protection, which is incredibly expensive? So that if you get ill and you can't work, you won't lose your home and your business? Do you give up the health insurance because you're a young couple and you've got two young kids and hopefully you'll be fine? Do you go to third party with the car?

When you retire, you don't have to pay income protection anymore - so do you keep up the life insurance? Do you pay the premiums as a gift to the next generation coming up? Or do you spend it in the here and now? What do you do? Insurance is there just in case, it's an investment that you hope you never have to cash in on for most of it.

If you have to cash in on your insurance policies, chances are something's gone badly wrong. Is it a nice to have or a must have? 

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