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Speaker 1: The information provided in this program is of a general

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Speaker 1: nature and is not intended to be personalized financial advice.

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Speaker 1: We encourage you to seek appropriate advice from a qualified

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Speaker 1: professional to suit your individual circumstances. Insurance premiums have doubled

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Speaker 1: domestically over the past decade.

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Speaker 2: Now insurance are repricing risk to.

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Speaker 1: Ensure they can keep covering us and their own earnings.

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Speaker 3: Last year, we had number two and number three of

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Speaker 3: our highest insurable losses for natural catastrophes occurring within ten

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Speaker 3: days of each other. And you definitely need to have

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Speaker 3: a strong insurance system because when things do go wrong,

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Speaker 3: and in particular, as I mentioned earlier, in the event

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Speaker 3: of a catastrophe, you need to know that that company

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Speaker 3: is going to be there to support you through that time.

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Speaker 3: Those tough times.

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Speaker 1: For a small island nation, we have our fair share

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Speaker 1: of major weather events.

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Speaker 2: Cyclones, floods, and.

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Speaker 1: Earthquakes have devastated some of our regions and cities. They've

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Speaker 1: also had an impact on our insurers' balance sheets, with

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Speaker 1: cyclone Gabrielle and the twenty twenty three flooding events costing

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Speaker 1: insurance companies around three and a half billion dollars. The

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Speaker 1: seemingly increase in commonality is forcing insurers to act differently,

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Speaker 1: increasing premiums as they relate to risk. The Reserve Bank

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Speaker 1: regulates insurers because of the role they play in backstopping

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Speaker 1: assets like property. Earlier this year, it released its deep

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Speaker 1: analysis of the sector.

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Speaker 4: What we found in our piece of work on insurancefordability

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Speaker 4: and pricing was significant increase in premium prices, particularly over

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Speaker 4: the last ten years, where premiums have essentially doubled. That

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Speaker 4: sort of one hundred percent increase compares to around a

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Speaker 4: thirty percent increase in inflation overall, so it is quite significant.

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Speaker 1: The increases were due to high construction costs making repairs

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Speaker 1: more expensive, and high reinsurance cost because even insurers need insurance.

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Speaker 4: I'm not saying it's justified, but it's explainable.

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Speaker 2: But their concern.

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Speaker 1: Insurers are rethinking the risk of ensuring New Zealand. With

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Speaker 1: more data available on seismic and flood risk, they're able

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Speaker 1: to make more concise decisions, which could lead to some

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Speaker 1: policies being unavailable.

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Speaker 4: We may see some insurers no longer providing insurance in

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Speaker 4: certain areas, so there could be accessibility issues.

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Speaker 1: At a top line level, insurers are making more money domestically,

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Speaker 1: with the total dollars earned in gross written premiums in

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Speaker 1: twenty twenty three heading nine and a half billion dollars

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Speaker 1: according to the Insurance Council.

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Speaker 2: But they paid out four billion.

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Speaker 1: Dollars and claims that same year, meaning their loss ratio

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Speaker 1: was seventy percent compared with fifty percent in twenty nineteen.

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Speaker 1: The Watchdog wants to raise awareness on the risks this

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Speaker 1: could oppose to our financial system, and just repeating the regulator,

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Speaker 1: I thought it best to ask an insurer how they're

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Speaker 1: thinking about the impact this could have on their operations.

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Speaker 2: Which brings me to Scott Pickering.

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Speaker 1: You may recognize them as the once chief executive of

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Speaker 1: the State Health Insurance Scheme the ACC for eight years.

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Speaker 2: He's now a director on.

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Speaker 1: The board of big insurance companies Fidallity Life and IAG,

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Speaker 1: which has in their thirty percent market share through brands

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Speaker 1: like State and AMI. If anyone can give us an

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Speaker 1: honest insight into insurance, it's him.

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Speaker 2: Well, Scott, good to see you. Thank you so much

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Speaker 2: for doing this. I really appreciate it.

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Speaker 3: No problems, lovely be here.

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Speaker 1: I think this is quite a good conversation to have

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Speaker 1: because I feel like we know a lot about the

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Speaker 1: financial firms and the sense of banks, but when it

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Speaker 1: comes to insurance, we don't know as much as we

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Speaker 1: should about insurance.

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Speaker 2: Would you agree?

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Speaker 3: I think in a way, insurance tends to be sort

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Speaker 3: of like a little bit below the surface at times.

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Speaker 3: I think what we do see and when we really

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Speaker 3: see insurance come to the fore is obviously during times

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Speaker 3: of catastrophe and really challenging periods in our and not

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Speaker 3: a country's history, but globally, and that's when I think

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Speaker 3: the need for insurance really comes to the fore. Let's

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Speaker 3: face it, you pay a premium as a form of consideration,

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Speaker 3: and you get an outcome when you get a claim,

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Speaker 3: but you don't always have to you don't always have

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Speaker 3: a claim. So yeah, it's a little bit below the surface,

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Speaker 3: I suppose.

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Speaker 1: Kind of like that business that would never actually rather

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Speaker 1: deal with, but in times.

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Speaker 3: Of absolutely absolutely, and that's the moment of truth. And

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Speaker 3: I think for all insurance companies, they know that they

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Speaker 3: have to be at their best in those challenging moments.

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Speaker 1: Quick run off of your experience, Scott, you did a

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Speaker 1: long time with the ACC. Now you're evolved with Fidelity Life,

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Speaker 1: the life insurance and also IAG, the big Australian insurance group.

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Speaker 1: So my thinking is then that you cover pretty much

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Speaker 1: every single policy You've got motor, home and contents, business, travel,

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Speaker 1: probably everything other than PET.

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Speaker 2: Is that correct?

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Speaker 3: I'm not even sure. Maybe PET does come up, so

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Speaker 3: we're there. Yeah, I look, Madison, I've been lucky enough,

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Speaker 3: and I say that truly and genuinely lucky enough to

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Speaker 3: be in the insurance industry for over thirty five years now.

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Speaker 3: I was very young when I started. I've had the

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Speaker 3: opportunity to live and work globally in the industry. We've

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Speaker 3: lived in eight different countries around the world. I think

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Speaker 3: I lost count but I think I've actually transactive business

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Speaker 3: in nearly fifty countries around the world, which has been incredible.

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Speaker 3: But the opportunity about ten years ago to come home

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Speaker 3: to run an iconic institution such as ACC was really compelling.

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Speaker 3: So then, in this way continued my insurance journey and

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Speaker 3: since then, yeah, now I've switched into the governance world

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Speaker 3: with both IAG and Fidelity, so I'm still deeply involved

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Speaker 3: in the industry. And you're right, I think my span

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Speaker 3: if you will covers most classes of insurance.

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Speaker 1: Let's start with risk based pricing, because I think for

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Speaker 1: at least anybody in Auckland, the Auckland floods and also

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Speaker 1: Cyclone Gabrielle, which did impact the country, are still certainly

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Speaker 1: front of mind. Apparently there's this shift in the industry

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Speaker 1: to more risk based pricing.

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Speaker 2: Is that actually happening? Is it true?

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Speaker 3: Look, I think in certain classes risk based pricing has

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Speaker 3: been and is there. And you take data points. Motor

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Speaker 3: is a good example of that. Where companies have significant

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Speaker 3: loss history for different types of vehicles, they can take

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Speaker 3: other data points in terms of information age of driver,

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Speaker 3: where's the vehicle garaged or not garaged, and obviously there

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Speaker 3: is a risk based pricing for that particular vehicle. Now

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Speaker 3: what we are seeing definitely and say for example home

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Speaker 3: and Contents or the home insurance market. There are some

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Speaker 3: carriers who have come out and publicly stated around their

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Speaker 3: adoption of risk based pricing, and we understand why. I

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Speaker 3: think it would be an intent for the market to

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Speaker 3: move in that direction. But clearly, in order to be

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Speaker 3: able to put together a risk based pricing you need

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Speaker 3: to ensure that you've got sufficient data and information in

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Speaker 3: order to be able to individually target and price individual risk.

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Speaker 3: And for those organizations who have perhaps a larger market share,

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Speaker 3: for example, and those that are operating in the market,

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Speaker 3: that'll be a transition to risk base pricing rather than

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Speaker 3: from here straight to risk based pricing. So certain classes

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Speaker 3: of insurance absolutely have risk bas pricing today. Others have

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Speaker 3: more what i'd categorize as community based pricing. So it's

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Speaker 3: not so, you know, there will be a specific of

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Speaker 3: the risk, but in terms of some of the perils

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Speaker 3: cover and all of those sorts of things that you

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Speaker 3: talked about, that's not quite at that level to be

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Speaker 3: able to individually price some of those risks today.

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Speaker 1: So fair to say it is happening to some degree,

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Speaker 1: but it's certainly not widespread and certainly not on a

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Speaker 1: market share set.

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Speaker 3: No. I think you'll see the market move towards that

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Speaker 3: over time, absolutely, and I think that that's something that

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Speaker 3: the reinsurance market would also be expecting to see. So

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Speaker 3: I think we'll get there. But of course, importantly, both

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Speaker 3: from a customer point of view and an insurance company

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Speaker 3: in point of view, you've got to have the right

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Speaker 3: data and information in order to apply the correct risk

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Speaker 3: base pricing.

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Speaker 1: Well, I was going to ask you about that, and

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Speaker 1: we are going to talk about reinsurance a little bit

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Speaker 1: later on in more depth. But on the risk based pricing,

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Speaker 1: how do you know that the once you do start

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Speaker 1: shifting to it or where it is being used, that

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Speaker 1: the pricing is right for the risk.

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Speaker 2: Is there a formula?

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Speaker 3: Well, I guess that will be both actuarily and statistically based.

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Speaker 3: And of course you know, models of flood planes and

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Speaker 3: natural disasters are an evolving science. I think we saw

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Speaker 3: significant enhancements, if you will, as a result of the

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Speaker 3: tragedies that occurred from the christ Church earthquakes and more

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Speaker 3: latterly co Coda. There's much more data and information around

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Speaker 3: liquefication and areas such as that from an earthquake perspective,

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Speaker 3: and that's built better modeling for pricing associated with earthquakes,

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Speaker 3: and I think we'll see the same sort of thing

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Speaker 3: occurring with things such as floods, etc.

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Speaker 1: So it's definitely being used in the seismic sense on

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Speaker 1: things like.

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Speaker 3: That, Yeah, definitely, but by zones, not necessarily by individual

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Speaker 3: risks at this point in time. So that's an evolving science.

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Speaker 1: For every business and especially for investors, they will very

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Speaker 1: much understand risk versus rewards. And I wonder what the

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Speaker 1: intent is behind risk based pricing. Is it because every

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Speaker 1: business nowaday needs to make data driven decisions where that

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Speaker 1: data is available. How we're even doing it here in

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Speaker 1: this newsroom. Or is it to protect and limit the

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Speaker 1: risk of the rewards that ensurers made?

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Speaker 3: Yeah, I mean, I think fundamentally it's probably if you

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Speaker 3: think about it, it's applying a premium based on the

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Speaker 3: risk itself in an individual state. So you know, we've

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Speaker 3: got property X located at this location. We kind of

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Speaker 3: understand that it's susceptible to these types of risks, it's

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Speaker 3: taken this level of mitigation, and therefore there is a

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Speaker 3: premium associated with that risk. There is clearly a number

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Speaker 3: of factors that drive towards it. But I think it's

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Speaker 3: just about more specificity by risk rather than in the

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Speaker 3: broad based sense by community. If that's the kind of

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Speaker 3: if you're looking at it through the homeless, and as

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Speaker 3: I said earlier, we can clearly understand that when it

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Speaker 3: comes to things, and we understand pretty clearly, like about

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Speaker 3: a motor vehicle, and this particular motor vehicle, we've got

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Speaker 3: the statistics and data that shows this particular motor vehicle

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Speaker 3: is more susceptible to theft versus this particular motor vehicle,

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Speaker 3: This particular motor vehicle costs this much to repair, this

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Speaker 3: particular motive vehicle costs that much to repair, and accordingly,

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Speaker 3: then you can start to actually specifically put premiums associated

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Speaker 3: with the risks themselves. So it's in evolving science. In

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Speaker 3: certain classes, it's definitely more specific than others.

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Speaker 1: Is there a risk versus rewards scale across different types

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Speaker 1: of insurance policies?

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Speaker 2: For example, is life have a does life have.

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Speaker 1: A larger reward and less risk than say something like malta.

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Speaker 3: I think all classes of insurance essentially the same principle applies.

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Speaker 3: That you have a probability of loss over time. You

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Speaker 3: understand that you need to receive a premium based on

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Speaker 3: that to equate with that over time. You input your

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Speaker 3: costs associated with that, be it reinsurance, be it your

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Speaker 3: opera costs, and essentially you come up with insurance companies

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Speaker 3: at the end of the day, do need to make

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Speaker 3: a profit like all businesses, but that profit needs to

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Speaker 3: be spread over a period of time. It doesn't necessarily

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Speaker 3: have to be all in one year, and so the

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Speaker 3: component parts that you put together in order to put

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Speaker 3: a premium together to ultimately get an outcome. There are

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Speaker 3: many inputs that come to that, and it is spread

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Speaker 3: over a period of time. So I wouldn't exactly say

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Speaker 3: one class of insurance is more profitable than another. I mean,

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Speaker 3: you can definitely look at data and you'll see that

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Speaker 3: certain classes have that. But the reality is that all insurers,

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Speaker 3: when they're involved in different products and services, will be

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Speaker 3: pricing a to make a profit over time, but b

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Speaker 3: to ensure that that profit is within the parameters, which

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Speaker 3: frankly would be of acceptance to shareholders and ultimately to consumers.

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Speaker 1: Because at the end of the day, you do need

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Speaker 1: to be profitable and make earnings to ensure you can

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Speaker 1: continue to cure it.

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Speaker 3: Right, Well, I think it's really important. I think the

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Speaker 3: industry itself has to be sustainable, and that's good for society,

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Speaker 3: it's good for an economy. You need to have just

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Speaker 3: as we have in the banking system. You need to

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Speaker 3: have a strong banking system and you definitely need to

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Speaker 3: have a strong insurance system because when things do go wrong,

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Speaker 3: and in particular, as I mentioned, earlier in the event

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Speaker 3: of a catastrophe, you need to know that that company

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Speaker 3: is going to be there to support you through that

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Speaker 3: time those tough times.

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Speaker 1: Is any part of this slow shift, as you say,

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Speaker 1: to risk based pricing? Is it part of a kind

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Speaker 1: of a customer acquisition strategy by insurance because somebody with

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Speaker 1: less risk could get a lower price policy.

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Speaker 2: Therefore, it's kind of.

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Speaker 1: A way to win those customers, even though some are

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Speaker 1: obviously going to feel it in terms of their policies

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Speaker 1: getting more expensive if they are in a more risky area.

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Speaker 3: Yeah, I guess that is the value proposition of risk

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Speaker 3: based pricing, that we know you, we know your location,

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Speaker 3: and therefore here's a premium. How that sits and fits

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Speaker 3: with the competitive nature of the market. That's really for

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Speaker 3: consumers to be able to weigh up. And I think

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Speaker 3: one of the things that I would also mention is that,

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Speaker 3: you know, I think we still have a market that

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Speaker 3: has a high level of insurance availability, so consumers do

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Speaker 3: have options and optionality. Risk bace pricing specifically could be

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Speaker 3: beneficial for this party, it may not necessarily be so

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Speaker 3: beneficial for another party, depending on the nature of their risk.

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Speaker 1: It's no secret I think Scott, that premiums are increasing.

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Speaker 2: The likes of Tower have even come out.

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Speaker 1: I've seen IAG's reports showing that your gross rit and

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Speaker 1: premiums have increased by I think it even in double digits.

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Speaker 1: In in case that's correct, What is behind those increases?

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Speaker 1: Is it purely just inflation across the economy? And if so,

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Speaker 1: how is that kind of justifiable? Where are you actually

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Speaker 1: seeing that then be passed through to high premiums? Can

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Speaker 1: you just give us some color on yeah, what makes

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Speaker 1: up that increase?

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Speaker 3: Yeah? And again I'm really keeping this at a level

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Speaker 3: because there's obviously a number of factors that are inputs

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Speaker 3: to that. But if we look at it, I mean,

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Speaker 3: if we just take New Zealand And on the probably

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Speaker 3: the first thing I need to say is that we've

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Speaker 3: got to remember that we're actually part of a globe

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Speaker 3: marketplace when it comes to insurance, and that's really important.

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Speaker 3: And in that sense, we need to understand that, for example,

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Speaker 3: reinsurance costs have increased quite significantly over recent times, and

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Speaker 3: we only look at New Zealand in the sense that

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Speaker 3: you know, last year we had number two and number

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Speaker 3: three of our highest insurable losses for natural catastrophes occurring

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Speaker 3: within ten days of each other, that being you know,

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Speaker 3: the floods over anniversary weekend in Auckland and then cycling Gabrielle.

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Speaker 3: Those two events cost the industry about three and a

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Speaker 3: half billion dollars, so you know, those factors need to

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Speaker 3: be factored into operating costs of companies. We are seeing

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Speaker 3: increasing levels of perils. We have seen inflation across you know,

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Speaker 3: building inflation, repair inflation, availability of parts and services, all

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Speaker 3: of those inputs have definitely had an increase on pricing

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Speaker 3: needs a very cognizant of that, and clearly you know

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Speaker 3: you can't not pass on those increases otherwise you'd be

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Speaker 3: operating at a loss. If I can look too potentially

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Speaker 3: a bit of a light. You know, as an industry,

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Speaker 3: what we tend to do is we have to price

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Speaker 3: based on events that have occurred in the past. When

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Speaker 3: we're setting you know, we get our reinsurance costs and

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Speaker 3: then we look at the year ahead, we take into

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Speaker 3: account the costs of our business and we have to

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Speaker 3: price accordingly.

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Speaker 1: And sorry to interrupt this sCOD that's always done on

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Speaker 1: an annual review basis, well.

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Speaker 3: It's a rolling basis, but if you know, when you're

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Speaker 3: renewing your reinsurance treaties, they tend to be either at

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Speaker 3: the half year or at the end of the financial year,

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Speaker 3: and so you need to take those increased costs, and

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Speaker 3: it's like an increased input costs into ultimately the retail

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Speaker 3: services that you are providing. So what we are we've

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Speaker 3: overall and being in the insurance industry always tap wood.

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Speaker 3: I think we've seen in New Zealand in particularly, we've

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Speaker 3: seen a lower level of perils. We've seen that in

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Speaker 3: the public domain companies come out, So we're hoping that

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Speaker 3: that actually should lead to a level of stability in

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Speaker 3: terms of pricing. Now, there's always factors that are certainly

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Speaker 3: beyond my control. If an event occurs somewhere else in

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Speaker 3: the world that could have a significant or catastrophic effect

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Speaker 3: on the reinsurance market, could withdraw some capital from that

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Speaker 3: that then there's a little bit of a supply and

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Speaker 3: demand model that's in play here and that can have

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Speaker 3: an impact on pricing. But from what I'm seeing, I

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Speaker 3: think there is a level of stabilization occurring, and certainly

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Speaker 3: the levels of increases that we've seen in the last

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Speaker 3: couple of years we're sort of hoping that that will

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Speaker 3: smooth out. Insurance in and of itself tends to be

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Speaker 3: quite a cyclical business, and pricing trends do tend to

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Speaker 3: sort of I won't say EBB and flow, but they

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Speaker 3: definitely move over time, sometimes with quite significant changes.

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Speaker 1: If we use the major weather events that we had here,

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Speaker 1: the Alkland flades and Cyclon Gabrielle, have we started already

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Speaker 1: paying the price effectively for those events in premiums or

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Speaker 1: does it longer to flow?

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Speaker 3: Yeah? No, I would say that those impacts have definitely

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Speaker 3: had an impact on reinsurance costs and pricing. Naturally, when

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Speaker 3: you have an events plural that sort of take three

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Speaker 3: and a half billion dollars for payments, I mean, that's

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Speaker 3: again what insurance is there for. But you know that

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Speaker 3: definitely has an impact on the costs that you're going

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Speaker 3: to be paying the next year. It's very much like

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Speaker 3: if you have a claim oftentimes that is impacted in

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Speaker 3: your premiums in subsequent years as well.

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Speaker 1: If I think just quickly take that back to that

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Speaker 1: risk versus reward type of situation, it seems like New

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Speaker 1: Zealand is pretty risky.

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Speaker 2: So we're just going to have to.

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Speaker 1: Continually pay higher premiums to ensure that our insurers stick

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Speaker 1: around and continue to get a reward.

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Speaker 3: Yeah, and it's a really interesting question. I mean, we're blessed,

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Speaker 3: I think, to live in the greatest country in the world,

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Speaker 3: but we.

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Speaker 2: Are an island, naberly, crappy weather.

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Speaker 3: Sometimes that's exactly right. You know, at the end of

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Speaker 3: the day, we're this little small rock right down the

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Speaker 3: bottom of the world, and we are susceptible to quakes.

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Speaker 3: You know, we sit near some pretty big plates. We

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Speaker 3: have volcanic we obviously I think in New Zealand, you know,

356
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Speaker 3: you'll never further than about two hundred k's from the coastline.

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Speaker 3: We have sets of ranges that run down both of

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Speaker 3: our main islands, which of course cause water runoff and

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Speaker 3: all of those sorts of things. So you pull all

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Speaker 3: of those things together, Yeah, there is a bit of

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Speaker 3: risk involved, but you can also have times where we

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Speaker 3: don't have those types of losses and we see much,

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Speaker 3: if you like, more benign activity when it comes to claims.

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Speaker 3: But yeah, there's no doubt that there is an emphasis

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Speaker 3: on some of those higher risk areas that we ultimately

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Speaker 3: have to contribute and pay.

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Speaker 1: For this then brings me from insurance affordability to insurance availability,

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Speaker 1: and are we at all looking towards a future scott

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Speaker 1: where some insurre is just say nap to risky and

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Speaker 1: we can't get some policies at all.

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Speaker 3: Yeah, I mean it's an interesting question, but I think

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Speaker 3: that we are well served as a market, both in

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Speaker 3: general and life insurance. I think we're also very lucky

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Speaker 3: as a country that we have a number of insurers

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Speaker 3: who have been operating here for many, many years, in

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Speaker 3: some cases over one hundred years. So we have I

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Speaker 3: think stability in terms of the insurance companies that we have.

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Speaker 3: Obviously there's some newer players, there's some innovation, there's what

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Speaker 3: I would call opportunistic capacity that tends to come into

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Speaker 3: the market and then get taken away at times. Very

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Speaker 3: commercially driven availability, certainly in the near to medium term,

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Speaker 3: is not something that I think we should be concerned about.

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Speaker 3: But as time goes on and if we start to

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Speaker 3: see increasing levels of climate related losses, we may see

385
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Speaker 3: some changes to the way that insurance is either sold

386
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Speaker 3: and or consumers do buy it. Of course, much of

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Speaker 3: our portfolio, in particular in terms of property insurance is

388
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Speaker 3: secured by some sort of financial instrument, normally something like

389
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Speaker 3: a mortgage, and of course insurance tends to go alongside,

390
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Speaker 3: which obviously demonstrates high level of insurability that we have

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Speaker 3: in New Zealand today.

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Speaker 1: You made an interesting point just in there about consumers

393
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Speaker 1: buying it and insurers may not pull out of the market,

394
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Speaker 1: but rather they might hike premiums to a point where

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Speaker 1: it then becomes effectively unavailable to people because it is

396
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Speaker 1: so unaffordable.

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Speaker 2: Like could that happen.

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Speaker 3: That's at the end or a worst case scenario. I

399
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Speaker 3: think there's I'd like to think with a competition, be

400
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Speaker 3: still a good availability of capacity, that there is the

401
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Speaker 3: ability to provide cost effective pricing. I think all policies

402
00:20:34,000 --> 00:20:38,320
Speaker 3: and pricing and services. But you know, we may change

403
00:20:38,359 --> 00:20:40,399
Speaker 3: the type of insurance that we buy. You know, it

404
00:20:40,400 --> 00:20:43,840
Speaker 3: could be more subscription related, and certain classes of business

405
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Speaker 3: such as motor where people are not always driving as

406
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Speaker 3: much anymore. There's different products that you know, and I

407
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Speaker 3: think this also gives an opportunity potentially for innovation in

408
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Speaker 3: the marketplace. I don't certainly have all the answers, but

409
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Speaker 3: I think the insurance industry is very resilient. It's also

410
00:20:58,960 --> 00:21:01,960
Speaker 3: at times to respond to those customer needs, so I

411
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Speaker 3: think that that's also very very important.

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Speaker 2: Do you think there's enough competition in the market generally?

413
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Speaker 3: Generally speaking, I would say yes. I mean, at the

414
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Speaker 3: end of the day, I've talked about natural hazards and

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Speaker 3: I you know, but I also think we've got to

416
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Speaker 3: be realistic. We're a market of five million people. We're

417
00:21:17,400 --> 00:21:21,280
Speaker 3: a reasonably sophisticated market, and that's great. I think we've

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Speaker 3: got some very good companies who are operating in the

419
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Speaker 3: market today. I think there is still a high level

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Speaker 3: of competition between those carriers, and I think that's always

421
00:21:31,119 --> 00:21:34,719
Speaker 3: important because ultimately, then if you're a carrier, you've got

422
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Speaker 3: to be on your a game. You've got to be

423
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Speaker 3: providing the service. You've got to provide that claim service,

424
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Speaker 3: you've got to have slip customer service, and you know,

425
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Speaker 3: if not, customers can have options and they will vote

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Speaker 3: with their feet.

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Speaker 1: It looks like a lot of brands are available to us,

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Speaker 1: but really there's only just a few companies behind those,

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Speaker 1: and any of a few who are actually underwriting those

430
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Speaker 1: policies that are on offer to customers. Can you explain

431
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Speaker 1: underwriting to me and how populous under the underwriters actually

432
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Speaker 1: are in our New Zealand insurance.

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Speaker 3: Look, we have I think we have. You're right, there

434
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Speaker 3: are a couple of major players that have quite a

435
00:22:09,560 --> 00:22:12,480
Speaker 3: chunk of the market, but they operate under different brands,

436
00:22:12,520 --> 00:22:16,880
Speaker 3: different value propositions. Some of those are direct to consumer models.

437
00:22:16,880 --> 00:22:20,320
Speaker 3: Some of those are intermediated models, so the products and

438
00:22:20,359 --> 00:22:25,000
Speaker 3: services are underwritten and sold through insurance brokers or insurance agents.

439
00:22:25,400 --> 00:22:31,800
Speaker 3: So there's different different distribution models. There's different levels of

440
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Speaker 3: product service from corporate products which are very much individually

441
00:22:35,680 --> 00:22:38,959
Speaker 3: written for a number of our major corporates. You know,

442
00:22:39,320 --> 00:22:42,600
Speaker 3: you can't just sort of necessarily have a here's one

443
00:22:42,600 --> 00:22:46,480
Speaker 3: I prepared earlier type business package model. They do take

444
00:22:46,560 --> 00:22:48,439
Speaker 3: you know, they've got unique needs and they need to

445
00:22:48,440 --> 00:22:52,000
Speaker 3: be underwritten, and that's a that's a skill, and it's

446
00:22:52,000 --> 00:22:54,920
Speaker 3: important that we have underwriters within this market that understand

447
00:22:54,960 --> 00:22:57,639
Speaker 3: those risks and are able to price those risks and

448
00:22:57,680 --> 00:23:01,280
Speaker 3: provide the capacity. But there is also you know a

449
00:23:01,320 --> 00:23:04,240
Speaker 3: lot of our we're a nation of small businesses as well, right,

450
00:23:04,320 --> 00:23:06,680
Speaker 3: so we need to be able to have package policies

451
00:23:07,040 --> 00:23:09,719
Speaker 3: that suit the needs of our trades people and our

452
00:23:09,800 --> 00:23:14,720
Speaker 3: smaller businesses easy to understand, package together, and in many

453
00:23:14,760 --> 00:23:20,680
Speaker 3: cases underwritten based on you know, risk information very quick

454
00:23:20,720 --> 00:23:22,679
Speaker 3: to be able to fulfill and to be able to

455
00:23:22,680 --> 00:23:25,760
Speaker 3: provide that service. So we have a real mixture. I

456
00:23:25,760 --> 00:23:28,520
Speaker 3: think we definitely have good competition within the.

457
00:23:28,520 --> 00:23:32,000
Speaker 2: Market and underwriting specifically.

458
00:23:31,600 --> 00:23:35,080
Speaker 3: Yeah, definitely, which I think is fine. Of course, much

459
00:23:35,119 --> 00:23:38,240
Speaker 3: of our market is also driven on and I mentioned

460
00:23:38,240 --> 00:23:42,160
Speaker 3: earlier about the availability of pricing of reinsurance, because ultimately

461
00:23:42,720 --> 00:23:46,760
Speaker 3: reinsurance is the insurance that insurance companies need to be

462
00:23:46,800 --> 00:23:50,320
Speaker 3: able to support their retail propositions, and so that's a

463
00:23:50,359 --> 00:23:53,800
Speaker 3: factor in definitely in pricing and underwriting as well.

464
00:23:53,920 --> 00:23:56,360
Speaker 1: I think reinsurance is such a critical part of this conversation,

465
00:23:56,480 --> 00:23:57,720
Speaker 1: so let's absolutely go there.

466
00:23:58,000 --> 00:24:01,119
Speaker 2: How do insurance secure their insurance?

467
00:24:01,520 --> 00:24:06,639
Speaker 3: Yeah, so there are a number of reinsurance companies operating globally.

468
00:24:06,760 --> 00:24:09,439
Speaker 3: A number of those names are more well known than.

469
00:24:09,320 --> 00:24:11,520
Speaker 2: Other NONSI anyway.

470
00:24:11,240 --> 00:24:16,240
Speaker 3: Which is an incredibly amazing organization I know a reasonable

471
00:24:16,240 --> 00:24:19,399
Speaker 3: amount about and they do incredible things globally. But we

472
00:24:19,480 --> 00:24:22,639
Speaker 3: have a couple of major you know, German reinsurance Munich

473
00:24:22,640 --> 00:24:26,280
Speaker 3: Re being one of them, and a Swiss reinsurance Swiss Ree.

474
00:24:26,720 --> 00:24:29,240
Speaker 3: But there are a number of reinsurance companies that do

475
00:24:29,400 --> 00:24:36,680
Speaker 3: offer insurance support or reinsurance support to the direct carriers.

476
00:24:36,760 --> 00:24:41,119
Speaker 3: And that's really really important because what those reinsurance and

477
00:24:41,440 --> 00:24:46,520
Speaker 3: reinsurance in and of itself simply is insurance for insurance companies.

478
00:24:46,800 --> 00:24:49,040
Speaker 3: There's a hang of a lot of complexity that sits

479
00:24:49,040 --> 00:24:52,160
Speaker 3: behind that. There's the different types of programs that insurance

480
00:24:52,200 --> 00:24:56,680
Speaker 3: companies buy. Some companies by what's known as proportional reinsurance,

481
00:24:56,760 --> 00:25:01,240
Speaker 3: So essentially the reinsurance company sits along soide the insurance

482
00:25:01,280 --> 00:25:03,919
Speaker 3: company and follows the fortune of that company and shares

483
00:25:04,160 --> 00:25:07,120
Speaker 3: and essentially the premium and it shares in the risk.

484
00:25:07,440 --> 00:25:11,879
Speaker 3: And then there's non proportional insurance, where reinsurance where companies

485
00:25:12,760 --> 00:25:16,160
Speaker 3: purchase or sorry provide layers of protection over and above

486
00:25:16,280 --> 00:25:19,520
Speaker 3: certain limits that the company will take as a self

487
00:25:19,560 --> 00:25:23,840
Speaker 3: insured retention is a patchwork quilt, if you will, that

488
00:25:24,000 --> 00:25:29,480
Speaker 3: supports the ability of companies to offer reasonable levels of capacity. Now,

489
00:25:29,800 --> 00:25:33,480
Speaker 3: the reality is that insurance companies are able to sustain

490
00:25:34,760 --> 00:25:38,040
Speaker 3: what we would call working losses car crash, house fire,

491
00:25:38,520 --> 00:25:42,320
Speaker 3: business business fire, or an accident. But when you have

492
00:25:42,600 --> 00:25:45,320
Speaker 3: multiple losses and a catastrophe type events such as a

493
00:25:45,359 --> 00:25:49,439
Speaker 3: cyclone Gabrielle. Obviously, the quantum of those losses mounts up

494
00:25:49,560 --> 00:25:53,440
Speaker 3: very very quickly, and that's when the reinsurance partners often

495
00:25:53,480 --> 00:25:56,479
Speaker 3: come in and to provide that support. So reinsurance is

496
00:25:56,480 --> 00:26:00,960
Speaker 3: definitely important as a component part of an overall insurance offering,

497
00:26:01,080 --> 00:26:04,679
Speaker 3: and as an insurers we're buying in a global marketplace.

498
00:26:04,920 --> 00:26:07,040
Speaker 1: I feel like we hear and see more of the

499
00:26:07,119 --> 00:26:08,639
Speaker 1: non proportional.

500
00:26:08,080 --> 00:26:09,560
Speaker 2: Type being used in New Zealand.

501
00:26:09,600 --> 00:26:11,680
Speaker 1: What does that mix typically look like if you could

502
00:26:11,680 --> 00:26:13,080
Speaker 1: give us a percent, Yeah, look.

503
00:26:13,119 --> 00:26:15,119
Speaker 3: I think you're right. I think there's a lot of

504
00:26:15,200 --> 00:26:18,800
Speaker 3: non proportional. I mean again, the company I'm involved with

505
00:26:19,200 --> 00:26:21,960
Speaker 3: in terms of IAG has a mixture of proportional. We

506
00:26:22,000 --> 00:26:27,800
Speaker 3: have an incredibly strong relationship with several of the global

507
00:26:27,800 --> 00:26:30,560
Speaker 3: reinsurers I talk about who have what we call a

508
00:26:30,640 --> 00:26:33,359
Speaker 3: quota share, so they share in each and every risk

509
00:26:33,440 --> 00:26:36,120
Speaker 3: on the same proportion for each and every risk, they

510
00:26:36,160 --> 00:26:38,439
Speaker 3: receive premium on that basis and they pay claims on

511
00:26:38,480 --> 00:26:42,040
Speaker 3: that basis. But we also then have non proportional, particularly

512
00:26:42,080 --> 00:26:45,240
Speaker 3: when it comes to things such as catastrophe reinsurance, which

513
00:26:45,280 --> 00:26:49,119
Speaker 3: allows us to buy larger limits of cover to support

514
00:26:49,160 --> 00:26:51,560
Speaker 3: our business when it comes to a major or a

515
00:26:51,560 --> 00:26:55,439
Speaker 3: catastrophic loss. So there's a blend of both proportional and

516
00:26:55,520 --> 00:26:57,920
Speaker 3: non proportional. I tell you, I love when I get

517
00:26:57,960 --> 00:26:59,800
Speaker 3: together with the reinsurance team. We need to get a

518
00:26:59,840 --> 00:27:02,159
Speaker 3: whe brought out at times and work out what everything

519
00:27:02,240 --> 00:27:05,000
Speaker 3: looks like. But it is actually really it's also a

520
00:27:05,040 --> 00:27:09,280
Speaker 3: capital effective tool in the organization being able to provide

521
00:27:09,320 --> 00:27:11,879
Speaker 3: the level of support that it does due to its customers.

522
00:27:11,880 --> 00:27:13,520
Speaker 3: And that's really really important as well.

523
00:27:13,640 --> 00:27:15,400
Speaker 2: You spoke about the cost of that capital.

524
00:27:15,440 --> 00:27:17,359
Speaker 1: We know that the cost of capital for mortgages, you

525
00:27:17,359 --> 00:27:20,040
Speaker 1: know it intstrates a high relatively at the mindments. What

526
00:27:20,119 --> 00:27:22,280
Speaker 1: is happening with the cost of capital and the reinsurance market.

527
00:27:22,520 --> 00:27:26,560
Speaker 3: Yeah, again, if you just take that's really demand driven.

528
00:27:26,800 --> 00:27:30,119
Speaker 3: And what we have seen is obviously the cost of

529
00:27:30,119 --> 00:27:35,320
Speaker 3: that protection for insurance companies has risen significantly over the

530
00:27:35,400 --> 00:27:37,720
Speaker 3: last couple of years, and much of that has been

531
00:27:38,240 --> 00:27:42,200
Speaker 3: as a result of global losses, but it's also been

532
00:27:42,200 --> 00:27:44,040
Speaker 3: a result of losses that we see in this part

533
00:27:44,080 --> 00:27:46,040
Speaker 3: of the world. Now, I'll give you an example. I mean,

534
00:27:46,400 --> 00:27:50,480
Speaker 3: what's really interesting in the global pool of property catastrophe

535
00:27:50,800 --> 00:27:55,520
Speaker 3: reinsurance Australia and New Zealand actually contributes a little over

536
00:27:55,680 --> 00:28:00,280
Speaker 3: eight percent of that total global limit of catastrophe pretty

537
00:28:00,600 --> 00:28:04,080
Speaker 3: catastrophe insurance, which resurance lot it is, I mean, and

538
00:28:04,119 --> 00:28:06,880
Speaker 3: that's where you sort of see that we're actually disproportionate

539
00:28:06,920 --> 00:28:10,080
Speaker 3: if you will, to what we produce. But it actually

540
00:28:10,119 --> 00:28:14,000
Speaker 3: demonstrates the risk nature of our markets. And we've talked

541
00:28:14,040 --> 00:28:16,679
Speaker 3: about the types of risks that we see, so you know,

542
00:28:16,760 --> 00:28:20,320
Speaker 3: that's interesting itself. So it is definitely has cost us

543
00:28:20,760 --> 00:28:23,879
Speaker 3: more to provide the protection well to you know, to

544
00:28:23,920 --> 00:28:26,160
Speaker 3: have that protection on our balance sheets, which is really

545
00:28:26,200 --> 00:28:29,520
Speaker 3: really important. At the same time, we obviously have to

546
00:28:29,560 --> 00:28:32,800
Speaker 3: pass on those increases in those costs. But as I mentioned,

547
00:28:32,840 --> 00:28:36,800
Speaker 3: I think we have seen on a global basis, certainly

548
00:28:36,880 --> 00:28:40,160
Speaker 3: at the moment, and again I caveat this because I

549
00:28:40,200 --> 00:28:43,080
Speaker 3: never know what's ahead, but we've seen a little more stability.

550
00:28:43,080 --> 00:28:48,800
Speaker 3: We've seen some capital returning to that reinsurance marketplace, and therefore,

551
00:28:49,080 --> 00:28:51,640
Speaker 3: you know, hopefully that's a level of stabilization in those

552
00:28:51,680 --> 00:28:53,320
Speaker 3: prices going forward.

553
00:28:53,440 --> 00:28:55,000
Speaker 1: So based on that, given that we have to use

554
00:28:55,080 --> 00:28:57,800
Speaker 1: up as a small country, so much of their property

555
00:28:57,840 --> 00:29:00,640
Speaker 1: capital surely these reinsurers are view and your Zealand as

556
00:29:00,720 --> 00:29:02,200
Speaker 1: almost too risky to operate in.

557
00:29:02,480 --> 00:29:05,520
Speaker 3: Well, I think this is where it comes down to

558
00:29:06,200 --> 00:29:10,200
Speaker 3: the relationships, right The relationships that insurers have with reinsurers

559
00:29:10,240 --> 00:29:14,440
Speaker 3: is absolutely critical, and the long term relationships the part.

560
00:29:14,720 --> 00:29:18,360
Speaker 3: It really is a partnership model that I think a

561
00:29:18,600 --> 00:29:22,160
Speaker 3: gives those reinsurers a real sense of comfort, if you will,

562
00:29:22,480 --> 00:29:25,920
Speaker 3: around how those companies are operating in this market, what

563
00:29:25,960 --> 00:29:29,360
Speaker 3: they're underwriting, what they're accepting, and that's really important. You

564
00:29:29,440 --> 00:29:32,800
Speaker 3: need to have that continuity of relationship in order to

565
00:29:32,880 --> 00:29:35,920
Speaker 3: access some of these markets. But to give you an example,

566
00:29:36,920 --> 00:29:39,000
Speaker 3: I talked about the fact that we have very strong

567
00:29:39,040 --> 00:29:43,640
Speaker 3: relationships with our reinsurers at IAG. We absolutely do, and

568
00:29:44,160 --> 00:29:46,720
Speaker 3: I talked about sort of four core relationships that we

569
00:29:46,760 --> 00:29:49,080
Speaker 3: have in terms of our quota share treaty, and those

570
00:29:49,160 --> 00:29:52,480
Speaker 3: are exceptionally important. But when I look at our overarching

571
00:29:52,480 --> 00:29:56,760
Speaker 3: reinsurance program, we actually have participation of over forty reinsurance

572
00:29:56,840 --> 00:29:59,920
Speaker 3: companies on the totality of our program. So it demons

573
00:30:00,720 --> 00:30:05,760
Speaker 3: that forty reinsurers like what they see we're doing in

574
00:30:05,760 --> 00:30:07,160
Speaker 3: this part of the world, and I think that would

575
00:30:07,160 --> 00:30:10,479
Speaker 3: apply to other carriers as well, so we have to

576
00:30:11,080 --> 00:30:14,720
Speaker 3: be consistent. But I think it's absolutely based on those relationships.

577
00:30:15,440 --> 00:30:18,360
Speaker 3: An increasing understanding of the risk environment is always going

578
00:30:18,400 --> 00:30:21,280
Speaker 3: to be the case. But at this point that's what

579
00:30:21,360 --> 00:30:23,280
Speaker 3: gives me the confidence to say that, you know, on

580
00:30:23,320 --> 00:30:26,280
Speaker 3: a continuity basis, an insurance is absolutely still going to

581
00:30:26,280 --> 00:30:28,560
Speaker 3: be able to be offered within our market.

582
00:30:28,720 --> 00:30:31,680
Speaker 1: But wow, that just speaks to the real complexity of insurance.

583
00:30:31,680 --> 00:30:33,040
Speaker 1: It means, Scott, you know that I cover a lot

584
00:30:33,080 --> 00:30:35,440
Speaker 1: of industries from space through it. I've even done gold

585
00:30:35,520 --> 00:30:39,320
Speaker 1: recently in using acronyms like gold per Ton. But I

586
00:30:39,360 --> 00:30:43,440
Speaker 1: think I can say that insurance is easily the most complex.

587
00:30:43,640 --> 00:30:47,120
Speaker 3: I think it is complex, but we need to as

588
00:30:47,160 --> 00:30:50,600
Speaker 3: an industry. I think we need to simplify as fired

589
00:30:50,640 --> 00:30:53,920
Speaker 3: as much as possible. Those are operational issues, They are

590
00:30:54,000 --> 00:30:58,200
Speaker 3: factors that definitely take into account our pricing. I think

591
00:30:58,240 --> 00:31:01,719
Speaker 3: our teams do incredible work in terms of putting together

592
00:31:02,120 --> 00:31:06,240
Speaker 3: a package of companies that will support us and providing

593
00:31:06,240 --> 00:31:09,240
Speaker 3: that reinsurance capacity that we can ultimately then sell the

594
00:31:09,240 --> 00:31:11,360
Speaker 3: products or services that we do to the markets that

595
00:31:11,400 --> 00:31:14,600
Speaker 3: we operate in. And I speak I'm sure for the

596
00:31:14,640 --> 00:31:17,000
Speaker 3: other carriers that are operating in this market too. It

597
00:31:17,120 --> 00:31:22,080
Speaker 3: is those relationships that underscore I think that the ability

598
00:31:22,120 --> 00:31:25,000
Speaker 3: to offer the capacity and the products within New Zealand.

599
00:31:25,040 --> 00:31:28,680
Speaker 3: So yeah, it's pretty important and at times it is complex,

600
00:31:28,800 --> 00:31:31,760
Speaker 3: but we often make things more complex than they need

601
00:31:31,800 --> 00:31:32,400
Speaker 3: to be as well.

602
00:31:32,480 --> 00:31:35,080
Speaker 1: I think you have done an incredible job of explaining it,

603
00:31:35,120 --> 00:31:36,960
Speaker 1: so thank you so much for that. I did just

604
00:31:37,000 --> 00:31:38,760
Speaker 1: have kind of one cheeky question towards the end that

605
00:31:38,800 --> 00:31:40,840
Speaker 1: I wanted to ask you, are there's some things that

606
00:31:40,880 --> 00:31:44,520
Speaker 1: you hate people doing, Like as an insurer. I remember

607
00:31:44,520 --> 00:31:47,000
Speaker 1: a story that I think was from some ACC claim

608
00:31:47,120 --> 00:31:49,600
Speaker 1: data that showed that the number of people that we're

609
00:31:49,680 --> 00:31:52,880
Speaker 1: using knives to take pips out of avocados and slicing

610
00:31:52,920 --> 00:31:55,520
Speaker 1: their hands on what was a real vein for the ACC.

611
00:31:56,400 --> 00:31:58,520
Speaker 1: There's some things that you see people doing just please

612
00:31:58,600 --> 00:32:00,000
Speaker 1: please don't do that. It's going to end it in

613
00:32:00,000 --> 00:32:05,520
Speaker 1: I'm make sure it's claim.

614
00:32:04,880 --> 00:32:09,280
Speaker 3: Immediately. I go to some of those ACC stories. You know, absolutely,

615
00:32:09,360 --> 00:32:12,280
Speaker 3: the cuts that we sort of see in winter time

616
00:32:12,320 --> 00:32:14,640
Speaker 3: when people decide to make pumpkin soup and at the

617
00:32:14,640 --> 00:32:18,400
Speaker 3: same time, you know, as slicing their fingers or individuals

618
00:32:18,400 --> 00:32:21,120
Speaker 3: that end up burning their backsides because they get home

619
00:32:21,200 --> 00:32:23,000
Speaker 3: late in winter and turn the heater on and then

620
00:32:23,000 --> 00:32:26,520
Speaker 3: fall asleep. You know, those are funny stories, I know,

621
00:32:26,560 --> 00:32:29,000
Speaker 3: and they're not so funny to the individuals that.

622
00:32:29,040 --> 00:32:30,520
Speaker 1: Surely they're okay now, I'm sure you see.

623
00:32:30,520 --> 00:32:31,320
Speaker 2: How come along, mat.

624
00:32:33,640 --> 00:32:36,960
Speaker 3: Look, I don't know. I think, in all seriousness, I

625
00:32:36,960 --> 00:32:39,640
Speaker 3: think we need to look at some of the increasing

626
00:32:39,840 --> 00:32:42,800
Speaker 3: type of claims that we're probably seeing with with things

627
00:32:42,800 --> 00:32:48,120
Speaker 3: such as lithium batteries and you know, those sorts of

628
00:32:48,120 --> 00:32:52,960
Speaker 3: things which definitely are risks that weren't necessarily there ten

629
00:32:53,040 --> 00:32:55,040
Speaker 3: years ago that are now starting to take place. I

630
00:32:55,040 --> 00:32:58,560
Speaker 3: think we need to look at education. We ously obviously

631
00:32:58,600 --> 00:33:02,240
Speaker 3: need to continually always prevention, and I think it's certainly

632
00:33:02,360 --> 00:33:05,000
Speaker 3: I think as ensurers we also owe a duty of

633
00:33:05,040 --> 00:33:08,080
Speaker 3: care to our customers to communicate as much as possible

634
00:33:08,360 --> 00:33:11,280
Speaker 3: around what are some risk prevention techniques.

635
00:33:11,560 --> 00:33:13,040
Speaker 2: Thank you so much for your time, Scott. I really

636
00:33:13,080 --> 00:33:13,640
Speaker 2: enjoyed this chair.

637
00:33:13,640 --> 00:33:14,160
Speaker 1: I appreciate it.

638
00:33:14,520 --> 00:33:15,640
Speaker 3: Thanks Mason, good to see you