Tower profits soar 72 percent despite rising flood and fire claims

Tower reported an after-tax profit of $19.3 million, up 72 percent from the previous year.

Filled with cash, the insurance company plans to return $30.4 million of excess capital to shareholders via a mandatory share buyback.

The profit, which covers the insurer’s full fiscal year through the end of September, comes just weeks after Turnbull announced that the tower would begin charging higher premiums to homeowners exposed to flooding, reflecting its switch two years ago to charging higher premiums for home insurance at the highest risk of earthquake damage.

The Reserve Bank of New Zealand’s TT Bhatia Matwa warned earlier this month that it expects all other insurance companies to follow suit.

Scott Hammond / Stuff.co.nz

Blenheim stores were flooded in a sudden rainstorm.

In an announcement on the NZX stock market, Tower CEO Blair Turnbull said the insurer’s profit increase has been achieved despite an increase in severe weather events and large home fire claims.

He said Tower also had to manage inflating Covid-related claims costs, and cut investment income.

“The Tower has had a difficult year,” he said.

He said the severe weather claims had an impact of $13.9 million, up from $9.7 million the previous year.

These included the Great Fire in Lake Ohu, severe flooding in Napier in late 2020, and Westport flooding in July.

“The frequency of claims for large homes, driven mostly by home fires, continued to increase in the second half by 61 percent over the year to 92, totaling approximately $21.1 million,” he said.

He said inflationary pressures also continued to challenge claims costs, which increased $17.1 million in total to $166.8 million.

Tower reported that the cost of used car replacement claims rose 13 percent during the fiscal year, and the cost of building a home rose 12 percent.

Second, car prices have soared as imports have been restricted as a result of the Covid pandemic, while severe shortages of labor and building materials have led to a sharp increase in construction costs across the country.

After just over a decade of earthquakes in Canterbury, the tower still has unfinished claims.

Joseph Johnson/Staff

Canterbury National Earthquake Monument, Oi Manawa is the official crown memorial to those who lost lives and were seriously injured in the Christchurch earthquake of 22 February 2011, located on the bank of the Avon River downstream from the Montreal Street Bridge.

After 56 Canterbury earthquake claims closed during the financial year, 30 new over-quality claims were registered, and another were reopened, the total projected claim costs for outstanding claims were $22.6 million.

The insurer said it now has 304,000 customers, and gross written premiums on home, car, contents and other insurance policies rose 7.9 during the year.

The insurance company’s net promoter score, which measures the percentage of its customers who would recommend it to a friend, minus those who would warn their friends to join it, rose from 27 percent to 43 percent.

Tower has been investing in digitizing its business, and reported that 3% of claims were filed online in the past fiscal year, as opposed to policyholders who phoned to submit their claims.

That compares with just 23 percent a year earlier.

In August, Tower changed the full fire indemnity feature on home insurance policies to what Turnbull called an “extended insurance amount.”

Valentina Bellomo / Staff

Insurance companies have noticed an increase in home fires during the Covid pandemic as people spend more time at home.

The move will save the insurer several million dollars a year in claims, said Jeff Wright, Tower’s chief financial officer.

“On a profit of $20 million, it’s definitely worth pursuing,” Wright said.

Prior to August, Tower was paying the full cost of repairing or rebuilding the policyholder’s home, even if it cost more than the security deposit they arranged when preparing their policy.

Under the new setup, the amount the tower has to pay is set at 120 percent of the insured amount set by the policyholder.

Turnbull said the move makes policyholders’ premiums more closely tied to the tower’s risk.

He said the move was coupled with an education program for homeowners, as well as improvements to the security deposit calculator it provided to help people calculate the cost of rebuilding their homes.

Sum insurance policies were introduced by insurers after the Canterbury earthquakes, placing the onus on homeowners to determine the cost of rebuilding their homes should they be destroyed by an earthquake or fire.

By 2016, the Treasury Department warned in 2016 that many homeowners were setting their insurance amounts too low, and that insurers under pressure had made concessions, including Tower, which changed its policies to include full replacement cover after home fires.

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