New Zealand’s third-largest general insurer Tower will refund $NZ7.2 million ($6.72 million) to customers who paid car insurance premiums during level three and four lockdown rules during March, April and May.

Tower CEO Richard Harding says it is important all insurers are transparent about plans for their “windfall gain” from lower claims during the COVID-19 distancing measures, which dramatically reduced the number of cars on roads and car accidents.

“After seeing a significant reduction in claims we knew the right thing to do was pass these lower costs on,” Mr Harding said.

“While the lockdown could cause supply chain constraints and a slight uplift in claims expenses over the short term, the significant reduction in claims costs should be passed on.”

Every Tower customer will be refunded part of their car insurance premiums, with most receiving 40-to-45% of premiums paid between March 24 and May 13. The total cost of the refund initiative is offset by the reduced claims cost and will be neutral to Tower’s earnings, the company says.

The refunds will be paid from late June.