A coronavirus-induced recession in New Zealand will see a reduction in insurance premium volumes as customers reduce costs, hitting personal lines and commercial SME classes the hardest.

That’s the view of actuaries Taylor Fry in an online commentary on market trends.

Wellington-based Director Ross Simmonds says a recent coronavirus outbreak in Auckland signals strong border controls will need to remain in place for the foreseeable future.

“It’s likely more financial pain lies ahead,” he says. “It’s vital insurers continue to manage their claims and expense costs to maintain capital levels.”

Economic downturns can increase fraudulent claims, which may result in an increase in claims frequency for personal and commercial property. Claims under credit insurance policies will also increase as unemployment starts to rise, although this is a relatively small class of business in the New Zealand market.

Personal lines and commercial lines are at their lowest loss ratio levels in the past five years, but Mr Simmonds warns the premiums New Zealand homeowners pay are strongly influenced by the global reinsurance market, “where losses have been increasing.”

“We expect New Zealand property risks to continue to increase as reinsurance costs increase,” the report says.

Longer term, the natural perils associated with climate change and regulation are the two main issues for insurers, despite being “overshadowed” by COVID-19 over the last six months.

On the regulatory front, insurers have “plenty of activity to keep a close eye on,” including possible higher capital ratios being imposed by the Reserve Bank of New Zealand.

“The [regulator] views the current solvency levels of insurers as too low, despite an increase in solvency capital over the past two years for all insurers that comply,” Mr Simmonds says.