AA Insurance reintroduces full home replacement cover - kinda

AA Insurance, which is owned by Australia's Suncorp Group and the New Zealand Automobile Association, has reintroduced full replacement home cover events such as fires, floods and storms, but shied away from including natural disasters such as earthquakes and tsunamis, which would have been too expensive.

Insurers switched full replacement cover for the international norm of sum insured after the spate of Canterbury earthquakes that devastated the country's second-biggest city. Global reinsurers underestimated the cost of those quakes by about 50 percent due to the impact of liquefaction, New Zealand's high level of insurance penetration, and that local policies provided full replacement value cover rather than the capped sum insured.

Auckland-based AA Insurance today restored replacement cover for events other than natural disasters, for new and renewing home and landlord policies, it said in a statement. Head of products Aaron Dickinson said the change is in response to customer demand, and isn't expected to materially change claims or the premiums people pay.

"It gives people psychological certainty. We can tell them 'til they're blue in the face 'don't worry everything's, going to be alright', but they actually want that, they're asking for it on the phone," Dickinson told BusinessDesk. "We don't see that (claims) materially changing, so we don't see premiums materially changing either."

AA Insurance investigated full replacement cover for natural disasters as well, but Dickinson said there was a lack of historical data to give reinsurers enough certainty on future claims and doing so would've been too expensive.

"The cost of doing the natural disaster part was untenable for consumers," he said. "To do the lot we're talking huge premium increases and that's not what people want."

AA Insurance, which is 68 percent-owned by Suncorp, reported a profit of $37.1 million on gross written premium of $302.4 million in the year ended June 30, compared to a profit of $36.9 million on gross written premium of $283 million in 2015.

The insurer reported claims expenses of $291.4 million in the 2016 year. As at June 30, the insurer had outstanding Canterbury quake claims liabilities of $99 million, down from $145 million a year earlier.

(BusinessDesk)