WELLINGTON, April 29 (Xinhua) -- Insurance premiums in New Zealand increasingly reflect detailed assessments of a property's flood and earthquake risk, indicating that all affected parties proactively manage these risks.

Insurance makes an important contribution to New Zealanders' financial and economic well-being, by spreading the cost of adverse events across time and policyholders, Reserve Bank Director of Financial Stability Assessment & Strategy Kerry Watt said on Monday.

Residential dwellings and land account for a majority of New Zealand households' net worth, Watt said, adding the country's uptake of residential insurance, at around 96 percent, is high by international standards.

Premiums for residential insurance have significantly outstripped general inflation over the past decade, reflecting both elevated construction cost inflation, and also higher reinsurance costs, as global reinsurers reassess New Zealand's risk profile, Watt said.

New Zealand's insurance industry moves towards greater use of risk-based pricing for residential dwelling insurance, meaning that the value of insurance premiums is more tailored to the specific risks a property faces such as earthquakes or floods, he said.

A long-term trend towards risk-based pricing will pose challenges for some property owners, Watt said, adding owners of higher-risk properties may find insurance increasingly unaffordable, and for some properties, a withdrawal of insurance availability is expected although full insurance retreat is rare.

"Insurers' adoption of greater risk-based pricing is a rational response to a changing operating environment, including climate change," he said, adding over time risk-based pricing can provide a strong signal to encourage the proactive mitigation and lowering of exposure to risks, which can be beneficial for society's overall risk management.

Affected stakeholders, such as insurers, central and local governments, home buyers, and lenders, should take action to improve their understanding of natural hazards so that future affordability challenges can be proactively managed. Enditem

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