CoreLogic reveals how risk-based pricing could affect homeowners

CoreLogic, a global property information and services provider, has discussed how moving from generalised to granular risk-based pricing could affect homeowners – something that brokers should inform their potential clients who are still interested in properties vulnerable to natural disasters.

Richard Deakin, head of insurance at CoreLogic, said that Wellington’s recent regulatory change as well as focus on a more granular approach to risk management prompted reinsurers to re-evaluate the risks they’re dealing with – resulting in a rise in premiums.

Although private insurers want to provide cover to Kiwis, Deakin explained that they have a corporate responsibility to be financially prudent in their risk appetite and with the financial return on that risk.

“As I pointed out to a colleague – would you be happy if your bank was making poor lending decisions that might impact on the amount you pay for your mortgage and the stability of your lender should those loans go bad? Sure, insurers are in the business of covering risk, but like any business they have to ensure they have a sustainable balance between risk and reward,” Deakin said.

Read more: Climate change can result in devastating property issues

Deakin said that even councils are stepping away from commitments to protect homes against issues caused by climate change and coastal erosion while lenders are starting to consider how these changes might affect them and their risk.

“If they have a 25 year relationship with the home owner, but the insurer only has a 12 month commitment. Rising premiums and a possible retreat from cover in some areas could certainly affect lenders,” he explained.

As climate change is expected to get worse and therefore cause more damages to properties, Deakin predicted that premiums will continue to rise across the country. He advised buyers to consider insurance early on in the home buying process, specifically how much insurance cover will be needed.

“Look at the highest premium and assume that all premiums will rise to that level in the next few years, so factor that in to your budget, along with increasing interest rates. If a property is returning a high premium, but you still want to make it your home, maybe factor the future cost of insurance in to your offer? And definitely make that offer conditional on satisfactory insurance and don’t leave it to the last minute,” Deakin concluded.