Are New Zealand businesses sleepwalking into the same underinsurance trap as households?

The number that reframes the whole debate

Insurance has recorded the largest price increase of any item in the consumer price index since 2000, up 916%, outstripping even cigarettes and tobacco at 608%. That is not a forecast or a stress-test scenario. It is the measured, cumulative cost of insuring a home or business in New Zealand over a quarter of a century.

The recent trajectory is just as pointed. A January 2026 Treasury Cabinet paper found home insurance premiums have grown at three times the rate of general CPI since 2011, with a 40% rise in just the last two years. That is not drift. It is a structural repricing of risk, and it lands on every balance sheet that carries an asset worth protecting.

The pause is real, but it is not a reversal

There are signs of moderation. The Insurance Council told RNZ that home insurance rose just 0.4% in the year to March 2026, and vehicle cover actually fell 2% after years of double-digit hikes. But the council’s own caveat matters: those are national averages, and individual premiums still swing hard on claims history, rebuild costs and location risk.

For business, the headline average hides the real picture. Commercial-only premiums tracked by Treasury rose from $2,051 in 2019 to $3,250 in 2023, a 59% increase in four years. Wellington firms are especially exposed, with average annual building premiums hitting $7,429 in 2023, up from $5,288 in 2019 on concentrated earthquake and flood risk. Raising an excess does little when the premium is being driven by where the building sits.

Households are already cutting cover

The household response is the warning shot. Vero research of 1,172 insured homeowners found 57% now hold excesses above the standard $300 to $500 range, a shift that began in mid-2022 as cost-of-living pressure bit. Nichola Young, Vero’s executive manager of pricing and underwriting, told RNZ customers are “making trade-offs to balance the cost of premiums with the level of risk they’re willing to carry,” while stressing “the important thing is understanding what that means if you ever need to make a claim.”

Comparison platform Quashed recorded a 19% year-on-year rise in house insurance excesses, 14% for car and 6% for contents. Some are dropping cover outright: Southern Cross lost 3,493 members in the year to 30 June 2025. Every one of those moves is a decision to carry more first-loss risk personally. Businesses that have quietly done the same, lifting excesses or holding sums insured flat while rebuild costs climbed 40%, are now sitting on gaps they will only discover when a claim arrives.

The backstop everyone assumes is weaker than they think

Every property policy sits on top of the Natural Hazards Insurance scheme, which pays up to $300,000 toward rebuilding a home after a natural hazard event. The levy funding it is set at 16 cents per $100 of building cover, well below the actuarially required 24 cents. At the current rate, the scheme has a probability of sufficiency of just 38%, with the fund holding $622.6 million against levy revenue of $853 million in 2023/24.

Treasury has recommended lifting the levy to 24 cents, pushing the maximum annual charge on a typical dwelling from $554 to $828 and raising sufficiency to 66%. This is a government-made problem. The levy has been held below its actuarial rate for years, and the bill is now arriving regardless of what private premiums do.

A transparency gap owners cannot verify

A February 2026 Treasury OIA response flagged that work by Consumer NZ and Link Economics found Australian-based insurers earn higher margins in New Zealand than at home, and that pricing here is not backed by publicly available data on market dynamics or financial performance. Business owners are being asked to absorb increases they cannot independently check.

The scale of what is at stake is enormous. The Reserve Bank has estimated the total sum insured of residential dwellings at around $1.5 trillion, warning that affordability, underinsurance and insurer retreat from flood-prone areas mean financial stability risks may rise.

Insurance is now a balance sheet line, not a cost to trim

The practical shift for business is clear. Insurance can no longer be managed by quietly reducing cover. It is a balance sheet risk that has to be actively managed, by reviewing sums insured against current rebuild costs, understanding excess exposure, and not assuming the natural hazards scheme fully backstops a total loss. The households cutting corners are the canary. The firms that treat premium inflation as a line item to squeeze, rather than a risk to model, are the ones who will find the gap the hard way.

Sources

• How New Zealanders are cutting the cost of their insurances (2026-07-24)
• Cabinet Paper ECO-26-SUB-0003: Insurance Affordability and the review of Natural Hazards Insurance Act financial settings and levy settings (2026-01-28)
• Official Information Act Response 20250830 – Insurance affordability work plan options (2026-02-19)
• Treasury Report T2023/2206: Insurance update (2024-06-27)
• Emerging insurance pressures ‘indicate financial stability risks may increase’