The New Zealand insurance market is going through a “fundamental and significant shift” to permanently higher premiums, according to Lumley NZ CEO John Lyon.

Speaking at the Insurance Brokers Association of New Zealand conference in Auckland on Friday, Mr Lyon warned that “the market as we know it and the way earthquake risk is managed has changed forever”.

“Anyone who thinks the rates have gone up temporarily after a couple of earthquakes has missed the point,” he said.

Mr Lyon believes the second major Christchurch earthquake on February 22 changed reinsurers’ perspective of the New Zealand market.

“The models used to assess risk in New Zealand were fundamentally flawed, and confidence in those models was severely undermined.”

He also believes reinsurers are now taking note of the country’s unmodelled risks, like the potential for tsunamis and even volcanoes.

“For example, Rangitoto [an island close to Auckland that is formed around a volcanic cone] only came up 700 years ago.”

Pointing out that many New Zealand insurers are owned by foreign insurers, Mr Lyon says local companies’ reinsurance programs were therefore usually calculated as part of the parent companies’ regional or global risk.

“Reinsurers now have a view that they didn’t pay enough attention to New Zealand risks because they were under the radar.”

He says New Zealand insurers are now competing for the reinsurers’ future support. “We have to show them we’re managing risks properly, getting our prices right and selecting risks appropriately.

“Our world has changed, and we have to be smart as an industry in adapting to that change.”