Tower says claims triggered by the Tonga volcanic eruption and tsunami are set to remain below the firm’s reinsurance excess, as it today reaffirmed its full-year guidance and took aim at an Earthquake Commission (EQC) cap increase that it says will penalise homeowners in lower seismic-risk areas.

CEO Blair Turnbull says Tower has received 66 claims to date following the Tonga catastrophe, mainly for damage to commercial or domestic properties caused by the tsunami.

“Right now, the removal of volcanic ash is the main priority for our customers and Tower has been running radio advertising to provide helpful information on how to clean up ash and to encourage customers to make early contact with us,” he told the annual general meeting.

Tower’s reinsurance program provides up to $NZ873 million ($813 million) of cover for catastrophe events. The excess for such events is $NZ11.25 million ($10.48 million) which is within the $NZ20 million ($18.6 million) the insurer has allowed for large events this financial year.

“Based on previous experience from large events in the Pacific, it does take a considerable period of time for us to receive the claims,” Chairman Michael Stiassny said in response to a question.

“Looking at those past events, it is still too early for us to get a real good handle on what that situation will be, but we at this point we are very comfortable that it will be within the 11.25 that we have announced to the market.”

Mr Stiassny says the proportion of people who have insurance in Tonga and across the Pacific is low, and the reliance on governments to provide relief after disasters is likely to rise as climate change effects intensify.

“We believe that by increasing rates of insurance in the Pacific, those nations will be far less reliant on foreign aid and disaster relief and can improve their long-term economic resilience,” he said.

“We are committed to finding a collective solution for this challenge and we are doing our part by digitising in the Pacific to help improve access to insurance.”

Mr Stiassny also warned a Government decision to raise the EQC building cap to $NZ300,000 ($279,426) from $NZ150,000 ($139,713) for natural disaster damage would have adverse impacts.

“Tower believes that the increase in EQC cap has the potential to undermine an already competitive industry that is vital to support New Zealanders in their time of greatest need,” he said.

The changes will see insurance costs rise for homeowners in less earthquake-prone areas, while those in high-risk areas like Wellington, Hawkes Bay and Gisborne will have their premiums subsidised, he told the meeting.

“While Tower has worked hard to remove the inherent unfairness of cross-subsidisation by implementing transparent, risk-based pricing, the EQC building cap will partly undo that work,” he said.

Tower reaffirmed its full-year financial outlook after a “solid” first quarter performance.

Gross written premium rose 12% compared to a year earlier to $NZ112 million ($104 million), while customer numbers grew by 6000 over the December quarter to 310,000, an increase of 24,000 year-on-year.

The quarter also benefitted from lower than expected motor and large house claims, as well as fewer severe natural events.

“Tower continues to actively manage inflationary pressure on claims costs and covid-related supply chain issues which began challenging the insurance industry in 2021 and are expected to continue throughout 2022,” Mr Turnbull said.