New Zealand insurer Tower says it is working on a refund plan of “unprecedented” scale for its motor policyholders to reflect lower car use and claims during the country’s strict social distancing measures.

“Any savings we make will be passed back to our customers,” Tower CEO Richard Harding says.

Finity Consulting estimates around $NZ35 million ($33.10 million) have been sliced from the cost of personal motor claims to insurers during the first four weeks of the strict “Level 4” lockdown, but says it is essential insurers consider any reduction in premiums "within the context of a weaker economic outlook, long-term financial stability and in consultation with the relevant regulatory bodies.”

Insurance Council of New Zealand (ICNZ) CEO Tim Grafton welcomed the analysis.

"It is critical that each insurer responds in a way that is most appropriate for their customers and for them to maintain solvency,” Mr Grafton said. “In this way, our members can balance the needs of those in genuine hardship with their obligation to be there for all policyholders."

Finity says urban traffic volumes and congestion have been down around 75% for light vehicles since New Zealand went into Alert Level 4 on March 26, and this may see reductions in collision claims frequency of up to 80%.

However, this reduction may be offset by an increase in average claims size, supply chain constraints, inflation and exchange rate impacts. Other perils, such as theft, may see a smaller decrease than collision claims.

“Therefore, we would expect the total impact on claims to be less than 80%,” Finity says.

As the economy slows, Finity also expects weaker new business volumes and reductions in coverage across New Zealand. Initial data indicates a 36% fall in new passenger car sales year on year in New Zealand.

Finity says it is “reasonable to expect this trend will continue in coming months”.