Three common questions about your insurance premium

A premium is the dollar amount that you pay for an insurance policy each year. Your insurance policy is an agreement between you and your insurance provider: you agree to pay an annual premium and an excess at claim time, and your insurance provider agrees to cover you up to the limits of your policy and pay for damage or loss when you make a claim, providing the conditions listed on your policy are met. Many factors go into calculating your insurance premium and can influence the cost of your premium changing year on year. Here are answers to three common questions about premiums.

What factors influence your premium?

Your total premium figure is made up of:

• a base premium, the portion of your premium that your insurance provider will have calculated to reflect the cover provided. This is based on a range of risks and rating factors which, depending on the cover you choose, may include but aren't limited to the make and model of your car, the materials used to build your home, the area you live in, our claims data and third-party data to help estimate the likelihood of a weather-related or natural hazard event claim. Part of your base premium goes towards covering your insurance provider’s own insurance, known as reinsurance. The additional financial cover helps make sure there are enough funds available to pay customers’ insurance claims and reduces the risk of an insurance company falling into financial difficulty as the result of a major event. Reinsurance costs have been on the rise due to an increase in the number and cost of weather events and natural disasters in New Zealand.

• taxes, fees and levies such as GST, Fire and Emergency (FENZ) levy and Natural Hazards Insurance (NHI) levy are collected by all insurance companies on behalf of the Government. Insurance companies include them in the premium you pay and ensure they’re passed on to the Government.

What causes your premium to change?

At AA Insurance, we regularly review the different factors that make up your premiums. In recent times, premiums across the insurance industry have been affected by inflation, shortages and rising costs and shortages of building materials and car parts. More frequent and severe weather and natural hazard events across New Zealand causes an increase in claims and, therefore, in reinsurance costs.

As more data about New Zealand’s landscape and the likelihood of a weather-related or natural hazard event becomes available, you may see the cost of your insurance change. Some places in New Zealand are considered more high risk than others and general claims statistics and third-party data can help estimate the probability and impact of natural hazard events like storms, floods and earthquakes. Customers in areas at higher risk of weather events and natural hazards could pay higher premiums, and vice versa. You may have heard of this referred to as “technical” or “risk-based” pricing.

How can you influence the cost of your premium?

Cost is often a motivating factor when considering insurance policies, but it’s important to get the right level of cover, balancing your needs with your budget. There are a few things you can do to help manage your premium:

• consider how you pay: you can choose to pay your premium in fortnightly or monthly instalments or opt to pay it in one go in an annual lump sum. You’ll pay less if you choose to pay it annually. It’s important to be aware that, if you’re paying your premium in fortnightly or monthly instalments and you experience a total loss halfway through your annual policy term, the remaining unpaid premium will be deducted from your settlement amount, as well as your excess and, for total losses on vehicles, any outstanding on-road costs.

• adjust your excess: voluntarily choosing a higher excess is one way of reducing the cost of your premium in the short term. An excess is the amount you pay when you make a claim – you pay a contribution towards the claim and your insurer pays the rest of the costs if your claim is accepted. You can choose to set a higher excess, which will lower your overall premium, but you will need to pay this higher excess amount if you make a claim. Sometimes additional excesses may apply, for example because of a driver’s age or experience.

• review your optional extras: review any optional benefits you’ve added to your policy to see whether you still need them. For example, if you’re an AA Insurance customer you may want to remove optional benefits like the excess-free glass cover for your Home, Comprehensive Car or Third Party, Fire and Theft policies, in exchange for a lower premium. It’s worth remembering that, although these changes may save you some money in the short term, it does mean that you will have to pay your policy excess for example if your windscreen need replacing in the future. You’ll find your optional benefits listed on your policy schedule or on the Policy Summary page in your My AA Insurance account.

• review your policy: now’s a great time to review your policy. We recommend checking your details are up to date and ensuring the policy and cover you've chosen is right for you and your insurance needs. We offer a range of insurance policies you can choose from. You can find more information about our different policies and cover options by selecting your insurance type from the top menu on our website under ‘Our insurance’.

You can find more information about your insurance premium at aainsurance.co.nz/premiums