While stabilised construction costs offer some relief to commercial property landlords after years of rising property insurance premiums, insiders say a shift to risk-based pricing may still catch out some policyholders.

A global rise in commercial property insurance premiums since 2022 has been driven by a challenging combination of an increase in weather-related natural disasters, economic volatility and increased reinsurance costs.

Bayleys national director valuation and advisory services, Carl Waalkens says New Zealand’s experience reflects that global pattern, but a unique cluster of factors has meant insurance premium increases have been felt more acutely.

“Those include having a relatively small commercial insurance market here combined with damaging local weather events such as Cyclone Gabrielle,” Waalkens says.

“On top of New Zealand’s natural hazards, surging construction costs have contributed to soaring premiums and overall occupancy costs.
“Supply chain disruptions, labour shortages, material, infrastructure and compliance costs have all driven building costs upward, creating a domino effect across the market,” he says.

Waalkens says the good news is construction costs have stabilised over the past year, offering potential relief, though future trends remain uncertain due to ongoing global political and economic volatility.

According to Stats NZ the insurance sector’s inflation rate was 8.6 percent year-on-year as of March 2025, significantly outpacing the general Consumer Price Index (CPI) of 2.5 percent.

Vega Protect head of insurance, Roharn Smith says a noticeable shift in the market has been insurance companies taking a more risk-based approach to assessment as one way to tackle the increased costs and challenges of its core business.

A risk-based approach to insurance means premiums are calculated on the risk profiles of individual buildings, rather than being based on broad population averages and building values. It requires detailed data on individual buildings and can result in variations in premiums between buildings that would seem to be of similar value.

“In the last 12 to 18 months we have definitely seen a shift toward risk-based pricing as a response to the increasing frequency and severity of weather events,” Smith says. With more property-specific data available, insurers are able to dig deep into individual structures to establish their risk.

“The data includes everything from elevation modelling to soil type or flood mapping. It means they can rate one building over another, rather than relying on a broad regional pricing plan,” Smith says.

The risk-based approach has caught out some building owners with unexpectedly higher insurance premiums.

“It has been a shock for some, depending on where they’re based, and what effect they’ve had from some of the recent events. I’m thinking of Auckland particularly and the effect of the 2023 flooding in the city.”

The upside is that risk-based pricing can also incentivise property owners to be proactive in addressing potential risks to their properties in the hope of lower premiums, Smith says.

“Risk mitigation and proactive asset management is huge. Insurers do reward people who take positive steps to improve their risk. Investing in good flood protection or installing modern fire suppression systems can all help lower insurance premiums.”

Smith says seeking out that comprehensive market knowledge is the best weapon policyholders have in the current changing environment for insurance premiums.

“Though key market drivers are changing we haven’t really seen their effects here yet and reinsurance costs remain high. I think we're going to see continued upward pressure on premiums particularly for high-risk sectors and older buildings.

Smith says that early planning and seeking sound professional advice is key for policyholders. “There is motivation there to look very hard at your buildings and to get good advice on what you can do to mitigate risks if you haven’t yet invested in resilience.”