Christchurch earthquake could drive up reinsurance pricing
The devastating earthquake in Christchurch may have an impact on reinsurance pricing across the Tasman with premiums potentially rising for Australian businesses.
Christchurch, which is responsible for about 15% of New Zealand’s national GDP, was hit by a 6.3 magnitude earthquake on Tuesday, killing at least 65 people.
Reinsurers are expected to bear the brunt of the earthquake, with a danger that reinsurance will become so expensive in the region that insurance companies won’t use it.
Early this week Suncorp chief executive Patrick Snowball said he doubts that the recent spate of natural disasters will make reinsurers unwilling to cover Australia but prices for insurers and customers is likely to increase.
Insurance companies say because Australia is a very small part of the global risk pool events elsewhere in the world are more influential in driving reinsurance pricing.
Reinsurers Munich Re and Swiss Re said it is too early to comment on the Christchurch earthquake.
But Munich Re said recently that higher losses for reinsurance companies will lead to premium increases of at least 15% at the upcoming renewal period from July 1.
Australian insurers have a large share of the New Zealand personal insurance market, with Suncorp and Insurance Australia Group estimated to have about 50% market share.
Many businesses in Christchurch’s CBD were still yet to reopen after last year’s earthquake but yesterday’s quake is expected to have an even greater impact, with many of the city’s commercial buildings ripped apart and key tourism infrastructure destroyed.
Australian Prime Minister Julia Gillard has offered whatever assistance is required, describing the earthquake’s impact as “truly shocking”.
Several major Christchurch hotels have been badly hit with operators saying it is too soon to evaluate the damage, but it is estimated that the bill will amount to $3.81 billion.
Severe damage to hotels, buses and roads will almost certainly hurt Christchurch’s tourism industry, which was preparing to host the Ellerslie International Flower Show in March.
Christchurch is also a key venue for the 2011 Rugby World Cup, which starts in September.
Tourism executives say the quake is certain to damage Christchurch’s summer tourism industry because most hotels were operating at 100% occupancy.
The industry is hopeful it will not affect the region’s lucrative ski season which starts in June but the New Zealand currency has already started falling against the US dollar.
Christchurch International Airport is expected to reopen today after Virgin Blue and Jetstar cancelled domestic and international flights into and out of Christchurch due to the airport’s closure.
Jetstar cancelled 13 flights yesterday and diverted three others to Auckland and Hobart. Jetstar’s Christchurch services to and from Auckland, Welllington and Queenstown will not operate until further notice.
The Australian government estimates there as many as 8000 Australians in the region and 433 in Christchurch.