Premium increases

Increases in insurance premiums can be an unwelcome surprise. Read this guide to understand when an insurer can increase your premiums and the options available to you. 

What are premiums?

Premiums are an important part of an insurance contract. The insurer agrees to cover a risk for the insured, in exchange for the insured paying a “premium” to the insurer. 

For house, contents and car insurance, premiums are usually for a year of cover. Insurers often allow consumers to make monthly premium payments, rather than pay the full year of premiums in a lump sum. However, if you suffer a total loss, e.g. of your car, the insurer will deduct the full year’s insurance premium from the total sum paid out.

Why is it an issue for consumers?

Insurance cover is important so you are protected when unexpected events occur. However, it can be challenging to maintain cover when premiums increase. 

With an increase in severe weather events and other factors, insurers need to price the risk of insurance appropriately. This means consumers may experience an increase in premiums, particularly house insurance. 

There are options available to reduce premiums and it’s important you engage with your insurer to ensure you have appropriate cover in place when you need it. 

Lender breached responsible lending obligations

Real life examples

Michael’s* life insurance jump in premiums

Michael made a complaint after his life insurance premiums increased significantly when he turned 80 years old. The premium increased from $49 to $190 per month. Michael said he was misled about the policy and asked for a refund of all premiums paid. 

Michael had a policy that had level premiums until age 80 and then a “rate for age” premium applied. As Michael had turned 80, the insurer said it could increase premiums on the policy anniversary date. 

The IFSO Scheme reviewed the information that was provided to Michael at the time he took out the policy. There was insufficient evidence to suggest Michael was misled. The policy he arranged reduced his overall premiums as he wanted, compared to the previous policy he had. The insurer was able to increase the premiums in accordance with the policy wording. 

Ms Vee’s* overcharging allegation

Ms Vee made a complaint, because she believed her house insurer had made an error and overcharged her premiums. The insurer provided documents that showed it had informed Ms Vee of the premium increases each year and that her payments matched the disclosed amounts. The IFSO Scheme confirmed the insurer was able to change the premium at renewal. There was no evidence of overpayment that required the insurer to refund Ms Vee. 

*Names have been changed

Things to know about premium increases

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  1. How premiums are calculated

    Insurers calculate premiums using a wide range of factors and data, to accurately price the risk that is being insured. Claims data and weather events are two factors, but there are many more that insurers consider. 

    Statistical analysis and future forecasting are used to help accurately price the risk being insured. 

    The Insurance Council of New Zealand provides more information about the calculation of house, contents and car insurance here. 

  2. Your insurer can increase your house, contents and car insurance premiums when your policy is renewed

    House, contents and car insurance policies are generally for one year only. Each year, you and the insurer can choose if you want to renew the policy (take out a new contract) for the year ahead. 

    The terms of the policy can change at renewal, including the premium amount. This means the insurer can increase the premiums each year, following its updated pricing of the risk. 

    If you pay the new premium amount, this is generally taken as your acceptance of the terms of cover for the next year. 

  3. Life insurance premiums may increase, depending on your policy type

    Life insurance policies can include provisions for a “level” or “stepped” premium. A “level” premium will mean the premium amount stays the same, sometimes up to a certain age when there might be a large increase. A “stepped” premium means the premiums will increase more gradually over time. 

    Generally, stepped policies start with cheaper premiums initially and become more expensive over time. Level policies start with higher premiums and maintain this amount for an agreed period, with possibly a big increase after a certain age.

    If you’re unsure of the type of policy you hold and how your premiums could increase, ask your insurer for more information. 

  4. Options to reduce your premiums

    It’s important that you have enough cover to replace your house, contents and car if needed. There are options to reduce your premium for these policies, including:

    • Requesting a higher voluntary excess
    • Comparing the cover and premiums with different insurers and picking the best one for you
    • Asking about discounts for having multiple policies with a single insurer.

    The Insurance Council of New Zealand provides more tips to reduce your house and car premiums.   

    For life insurance policies, think carefully before changing a policy that you may have had in place for a long time. There may be important differences in policy cover between your existing policy and a new policy. You may wish to obtain financial advice about your circumstances and the options available for your needs. 

  5. What happens if I don’t pay my premiums?

    If you don’t pay your premiums, then your insurer may cancel your insurance policy, or it might just “lapse”. This means you will not have cover if an unexpected event occurs. 

    If you have a loan for your house or car, it may be a requirement of your loan that you have insurance cover for your house or car. If you do not pay your insurance premiums, this could impact your lending obligations with your bank or finance company. 

    Talk to your bank or finance company to understand the obligations that apply to you. 

  6. I think the increase in premiums is unreasonable – what can I do?

    You can request a review of the premium increase through your insurer’s internal complaints process. 

    The IFSO Scheme has a very limited ability to review complaints about an insurer’s pricing of a risk or premiums. However, you can let us know about your situation and we will review our jurisdiction in your circumstances. 

Tips to avoid problems

Check your policy details each year at renewal

At each policy renewal, review the details and check your premiums for the next year. 

If your premiums have increased, talk with your insurer about the options available to lower your premiums. 

Tell your insurer if you are experiencing financial difficulty

If you are experiencing financial difficulty, let your insurer know. It will review your circumstances and confirm what options may be available. 

You can also seek support through Moneytalks. Moneytalks is a free service that supports people and whānau to manage their money and obtain financial support. 

Read your life insurance policy

If you are unsure about how your premiums may change over time, check your life insurance policy wording. 

If you no longer have a copy of the policy wording, you can request this from your insurer. Your insurer can also answer any questions you may have about your policy and how the premiums may increase. If you have a financial adviser, make sure you have a conversation with them about what to expect.