Why insurers arent giving rebates for car cover this time despite longer Auckland lockdown

Two insurers who collectively refunded nearly $27 million to customers last year after the nationwide lockdown led to fewer car accidents say this time it’s different.

In June last year Tower gave back $7.2m with AA Insurance following suit in August, refunding $19.5m to motor policy customers who paid premiums between March 24 and May 13.

This reflected the period in which New Zealand was in an alert level 4 and 3 lockdown.

But despite Auckland being in lockdown for a much longer period this year neither are offering rebates this time around.

Blair Turnbull, Tower chief executive, said the current situation was very different.

“The 2021 lockdown has impacted different parts of New Zealand differently as the various alert level restrictions are more localised.

“People are driving more than they were in 2020 and as a result, we have not seen the same reduction in the number of motor claims as we did last year.”

Turnbull said while it had seen some reductions in claims this had been offset by significantly rising costs.

“Industry-wide inflation is a continuing source of pressure on both motor and house claims. For motor, this is predominantly being driven by a 14 per cent rise in the value of second-hand vehicles and replacement parts, making the cost to fulfil a motor claim higher.

“The costs of house materials rose 4.6 per cent in the June quarter alone due to supply chain constraints.”

Chris Curtin, chief executive at AA Insurance, said last year’s rebate was based on a six-week nationwide lockdown.

“We remain uncertain what the ultimate impact of this lockdown will be. Our learnings from the last lockdown mean we need to consider the impact of not only the lockdown, but also post-lockdown, the number and cost of claims we receive, and supply chain issues delaying parts, materials and products, which occur throughout the financial year.”

Curtin said its executive team was constantly monitoring the situation including what it had learned about changes to driving behaviour and repair costs post-lockdowns.

“We are committed to letting our customers know directly of any updates.”

Curtin said the insurer remained committed to helping vulnerable customers during the current Covid-19 restrictions and in August set up a $1m hardship fund to look after those in genuine need.

“Customers experiencing financial hardship have been able to contact AA Insurance to work out an appropriate plan and retain their insurance cover from level 4 restrictions and beyond. We understand some customers may have been unsure if they qualify, or reluctant to ask about the fund, so our staff are trained to identify vulnerable customers and offer help where needed.

“By setting up a $1m hardship fund, we have formalised what we are already doing to look after customers, but each situation is different and it’s important for us to work through this with customers individually.”

Consumer New Zealand chief executive Jon Duffy said in the first lockdown it was really pleased to see insurance companies do the right thing, recognise that the full scope of cover consumers were paying for, particularly with motor vehicle insurance, was not able to be provided and providing refunds to those policyholders.

“There was no legal obligation to do that. The insurance industry just stepped up. It wasn’t all companies but lots of companies stepped up and did the right thing.”

Duffy said he did recognise there were differences with the most recent lockdown in that it was not nationwide.

“But a significant part of the population live in Auckland and we know that Auckland is a car-centric city and there has been – I’m sure there is evidence that there has been less use of motor vehicles on the road.

“We would encourage insurance companies to assess the situation and think carefully about whether it is warranted to offer Auckland policyholders refunds for this most recent lockdown which has been even longer than the previous one.”

Duffy said in fairness he accepted there could be characteristics of this lockdown that were different to the first lockdown.

If there had been no significant drop in claims then a refund may not be justified, he said.

“However if there has been a significant drop in claims it seems only fair insurance companies would refund the cover they weren’t providing rather than making windfall profits.”

According to the Insurance Council of New Zealand the cost of motor insurance claims increased by over $118m in the year to September 30,up from $1.129 billion in the prior year.

Tim Grafton, chief executive of the Insurance Council of New Zealand, said there was also an increased loss ratio compared to the previous year when it was 66.53 per cent.

“The lockdowns were quite different as the first was national rather than localised to Auckland and also was a reduced timeframe. While Auckland was still in level 4 lockdown for those four weeks, there were visibly more cars on the road there than in the previous level 4 lockdown.

“The other big difference between lockdowns is that this year there is a real squeeze happening with the costs of parts and the availability which is driving costs up.”

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