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Michael Luke: Milford Asset Management expert on Tower Insurance increasing their profit expectations · Best of Business

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  Speaker 2: First of all, though, from Milford Acid Management, Michael Lukemichael
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  Speaker 2: hey Heaver, what's bind the increase in Tower Insurance's profit
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  Speaker 2: expectations yesterday?
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  Speaker 3: Well, it will sermainly a positive update from Tower and
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  Speaker 3: was actually a third profit upgrade this year, which is
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  Speaker 3: a big turnaround after losing money last year with the
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  Speaker 3: weaber events. Now Tower has actually undergone a big strategic
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  Speaker 3: turnaround in recent years which has helped them compete with
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  Speaker 3: the much larger Australian owned insurance and has also helped
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  Speaker 3: them improve their own profitability. I think it's also fair
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  Speaker 3: to say that Tower has benefited from much higher prices
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  Speaker 3: on the back of last year's events and also a
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  Speaker 3: general reduction and insurance claims this year with much better weather.
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  Speaker 2: And so why have insurance costs gone up so much lately?
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  Speaker 3: Well, they have gone up quite a lot, and I'm
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  Speaker 3: sure anyone looking at their insurance policy renewal has had
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  Speaker 3: a bit of a shock and it was actually a
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  Speaker 3: standout recent inflation data where motor and home insurance has
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  Speaker 3: gone up by about twenty to thirty percent. Now that's
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  Speaker 3: really been driven by three things. I guess. Firstly, New
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  Speaker 3: Zealand reinsurance costs went up significantly last year after the
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  Speaker 3: Auckland floods and cyclone, which costs the industry about four
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  Speaker 3: billion dollars. And reinsurances where insurance insurance companies like Tower
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  Speaker 3: go and get their own insurance for large events like floods,
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  Speaker 3: So those costs have gone up a lot with these
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  Speaker 3: events happening more frequently than the one to one hundred
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  Speaker 3: years that a model would suggest. And then secondly, claim
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  Speaker 3: costs have also gone up a lot, where modern cars
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  Speaker 3: are getting more expensive to repair with all their sensors
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  Speaker 3: and technology, and home repairs. Home repair costs have also
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  Speaker 3: gone up with building inflation. And then I think finally
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  Speaker 3: we've also seen insurers sung to adopt more risk based
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  Speaker 3: pricing or increasing prices for houses and flood zones or
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  Speaker 3: vehicles that get stolen frequently, such as the Toyota Aqua
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  Speaker 3: or mesdademia.
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  Speaker 2: Did do you reckon that we're passed the peak in
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  Speaker 2: the these insurance costs or is there more to come?
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  Speaker 3: Well? I think the good news is that the worst
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  Speaker 3: has passed and these price increases really relate to events
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  Speaker 3: last year, but take time to roll through as policies
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  Speaker 3: for you. So I think looking ahead cost inflation is easy.
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  Speaker 3: Reinsurance costs should stabilize without any more large events, and
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  Speaker 3: that should all flow through it to much lower but
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  Speaker 3: still potentially high single digit low double digit price increases
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  Speaker 3: next year. I also think it's worth mentioning that with
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  Speaker 3: risk based pricing, it could also result in a wider
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  Speaker 3: range and insurance costs between cars, houses and also between
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  Speaker 3: insurance companies, so it is worth shopping around it and
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  Speaker 3: looking at insurance costs when you are looking to purchase
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  Speaker 3: a new car or home, and maybe just avoiding the
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  Speaker 3: Toyota Aqua, which was New Zealand's most stolen car last year.
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  Speaker 2: That's a good piece of advice, Michael. Thank you very
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  Speaker 2: much appreciated, Michael Luke of Milfed Asset Management.
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