Some members have been in touch with us about what to do about their AMI insurance policies – particularly if they’ve received a renewal notice for their policies.

This issue mainly affects AMI policyholders outside of Christchurch because policyholders in Christchurch have few options for changing insurer because little new insurance is being offered there currently.

We think there’s no reason for alarm. The government’s back-up financial support package for AMI means that the company can continue to carry on as normal and pay out claims and continue to service existing policyholders and seek new business.

The financial support from the Crown is a last resort and will only be called upon if AMI’s financial resources become too low for it to operate as a prudent insurer or if the government feels it needs to step in. AMI has paid the government an establishment fee of $15 million for setting up the financial support package.

Breathing space

It gives AMI a breathing space to look at options for bringing in new capital or selling its existing business or parts of it. AMI in some ways was “too big to fail” and any collapse would have created unnecessary panic and possibly jeopardised the rebuilding of Christchurch.

There are no risks to current policyholders while the government support package exists.

AMI’s mutual structure – it’s owned by its policyholders – is one of the reasons why its premiums are often lower than some of its competitors. It also had an A+ financial-strength rating by the international insurance ratings agency AM Best before the earthquakes struck, which has now been lowered to A-. The new rating reflects the government’s support package.

Some other insurance companies have expressed outrage at the AMI “bailout” and are no doubt angling to attract some of AMI’s current customers. That’s their right as competitors but you should look carefully at what they are offering.

Check premiums as usual

Our usual advice is to check round with other insurers when your premium comes up for its annual review. This is more important than ever because most insurers’ premiums are likely to rise for house and contents, and car insurance following the earthquakes in Christchurch and Japan.

If AMI – or another insurer – increases its premiums substantially at the time of your annual review or advises you of a premium increase, then of course you see if you can get the same cover at a better price from another company. But in our view there’s no need to do anything before then.

More from consumer.org.nz

• Backup financial support for AMI - details of the government financial support package
• House and contents insurance - compare policies, pricing and ratings for a range of consumer profiles

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