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Honestly, the fact that it’s already February- but it feels like the year is only just starting – bit of a strange one, innit.
I figured that during the month of my birthday, it’d be a great time to start emailing all of you great NZ’ers again, with my general thoughts and ramblings about the insurance scene – what better way to start than a quick yarn on claims!
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I’ve had a couple of people recently say something along the lines of “I don’t know if I should make this claim, will it make my premiums go up?” Honestly, great question – I can see why people think that way, and the answer can be a bit tricky, so let me have a crack at answering it for all of you, right here, right now.
When you make a claim, one of the key metrics an insurer is looking at on whether to shaft you with an increase or not, is what we call a “Loss Ratio”. Let’s say you’ve paid $3,000 per year for the last five years, you’ve paid the insurer $15,000 in total, if you then made a claim that paid out $8,000 then your loss ratio is still healthy, because you’ve paid more than you’ve claimed. On the contrary if you’ve been with an insurer for one year and paid $3,000 then you make a claim for $8,000 then your claims ratio is in the negatives.
One claim putting you into a negative loss ratio isn’t necessarily going to change things though. We consider a lot of factors, like the frequency of claims, the amount paid out, was somebody else at fault and whether or not you like the Lord of the Rings movies (the answer had better be a resounding yes).
Even if you were to have a pretty rough looking loss ratio, having a broker can come in handy. We can try to negotiate imposed excesses, changing your policy wording for specific criteria, i.e. partly excluding something, or applying an excess to only that particular situation.
The current increases everyone’s seeing are actually partly due to loss ratios, just on a much larger scale. I am of course, talking about the weather events in NZ. When a loss ratio is that big, we can’t only increase premiums for those affected, because the amount we’d need to recover would be outrageous. This also means that with the increased premiums that everybody has contributed, we’re in a position to continue to pay out on claims throughout NZ.
People say, “We shouldn’t have to pay more, we weren’t affected.” It’s frustrating and I can empathise with that, but I’d like you to imagine something for a minute. Imagine we suffered a large earthquake in Wellington that leaves the city in shambles. You lost your home but eventually manage to rebuild and get on with life – then you receive an invoice for $20,000 at renewal time, due to the claim you were paid out being so large. I think in that situation you’d agree that the idea of that loss being spread across the whole of NZ, just like all of the people who have been affected thus far in the different regions around the country, is actually pretty good idea.
That’s all from me. As always, get in touch anytime.
‘Till next time.
Cheers,
Joshua
Joshua Rhind | General Manager
Caveo - powered by Velocity Financial
M: 027 384 6444
E: joshua@caveo.co.nz
The information shared in this post is meant to be general guide to support you on your journey. When making important decisions about your finances, we encourage you to seek independent financial advice first, tailored to your unique situation. As well as talking with a financial adviser, make sure you talk to your lawyer and accountant too – together they'll help you find the best solution for your specific situation. Our knowledgeable financial advisers are here to help. Check out our website for the details about our financial advisory services in our disclosures https://www.velocityfinancial.co.nz/disclosure-statement.