Understanding how premiums are calculated
An insurance premium is the amount you pay for your policy, and goes towards the cost of repairing or replacing your home, belongings, or vehicle.
IAG New Zealand Limited (IAG) provides and underwrites certain general insurance policies to BNZ customers that we refer to IAG. To ensure customers pay a fair and sustainable price for insurance cover, IAG reviews its pricing regularly to account for any changes to the cost of providing cover.
Factors that may cause changes to your premiums
Even if your individual circumstances haven’t changed, your insurance premiums can still change. Insurance premiums are closely linked to individual factors as well as your sum insured. Only part of your premium goes to IAG.
Factors that might impact the cost of your premium include:
- cost to repair, rebuild, or replace your home, belongings, or vehicles
- risk of natural hazards and climate change
- Government taxes and levies
- significant changes to the frequency, severity, and types of claims
- specific features or items you choose to insure.
This video (from the insurer IAG) explains factors that may affect your insurance premiums.
How your premiums are made up
Claim costs are influenced by repair, rebuild, replacement, and labour costs. IAG look for trends in the number and type of claims made in previous years by those considered a similar risk to you, and use this information to help price your insurance.
Premium amounts are affected by your choice of excess, your sum insured, any optional benefits you choose to add, and specific features or items you choose to insure.
Other factors are more general, for example, newer model vehicles have more advanced technology, and this has resulted in more complex repairs and an increase in the average cost of claims. IAG also takes into consideration higher risk areas like flood prone locations when calculating your premiums.
Base premium
The base premium amount is what you pay to IAG for your cover to help cover the costs of claims. It includes the overall costs before the addition of any levies and GST. You’ll find this in the premium breakdown in your policy schedule.
Reinsurance
Part of your base premium goes towards reinsurance. Reinsurance is insurance for insurance companies. It protects specialist insurers against the financial impact of events like earthquakes and extreme weather.
Levies
Levies are charges that are applied to insurance premiums and paid to the Government. They help cover the cost of services that benefit everyone.
Natural Hazards Insurance (NHI) levy
The Natural Hazards Insurance Act 2023 (NHIA) came in to effect from 1 July 2024. NHIA replaces the Earthquake Commission Act 1993 (EQC), updating the natural hazards cover provided by the Government for residential properties, through private insurance.
The Natural Hazards Commission Toka Tū Ake, is a New Zealand government entity. It provides insurance called Natural Hazards Cover (NHCover) which provides cover for damage caused by earthquakes, landslides, volcanic or hydrothermal activity, or tsunamis. It applies to residential homes and some areas of residential land, if you have a current insurance policy covering your home. The amount you pay depends on the value of what you have insured.
To pay for NHCover, the Government sets the NHI levy. Insurance companies like IAG collect this levy as part of your premium, on behalf of the Natural Hazards Commission Toka Tū Ake.
You may see terms like ‘Earthquake Commission’, ‘EQC’ or ‘EQCover’ used in your insurance documents after 1 July 2024. This does not affect your cover for natural hazards.
Find out more at naturalhazards.govt.nz
Fire and Emergency (FENZ) levy
FENZ is an integrated fire and emergency service organisation which combines urban and rural fire services. It helps fund firefighting, and fire safety and prevention services in New Zealand.
All insurance policies that include cover for fire damage, include this fire levy. The amount you pay depends on the value of what you have insured. Insurance companies like IAG collect these levies as part of your premiums on behalf of FENZ.
Find out more at fireandemergency.nz
Goods and services tax (GST)
GST is a charge that is applied to insurance premiums and paid to the Government. GST is charged at 15% of the total amount owing so any increases to your insurance premium, including any levies charged, means you’ll also be paying more GST.
Get in touch
If you’d like to talk about what makes up your premium, contact the IAG team, available Mon-Fri, 8am-8pm, Sat-Sun, 8.30am-5pm.
Call 0800 808 618 or call direct from overseas on +64 9 985 0103 (international toll charges apply).