Joint release: The Helen Clark Foundation and WSP in
New Zealand
A new report by the Helen Clark
Foundation and engineering consultants WSP highlights a
looming crisis for residential insurance in Aotearoa New
Zealand. As climate-related extreme weather events escalate
in frequency and intensity, ‘insurance retreat’ could
leave thousands of properties unprotected.
An
estimated 10,000 coastal properties in Auckland, Wellington,
Christchurch, and Dunedin could become uninsurable by 2050
due to coastal erosion and inundation. Properties located in
flood prone areas inland are similarly at
risk.
The report – titled ‘Premiums
Under Pressure – How climate change will reshape
residential property insurance, and what to do about it’
– finds that, without intervention, residential insurance
premiums for flood prone properties will continue to rise
steeply and become unaffordable for many, with insurers
eventually expected to withdraw flood coverage altogether
for the most at-risk
properties.
Low-income households and
communities will be disproportionately affected, with
unaffordable premiums likely to leave many without coverage
just when they need it most. This poses a serious social
equity issue for the nation.
As insurers adopt
‘risk-based pricing’ due to climate change impacts, WSP
Fellow and report author Kali Mercier says the thorny
challenge facing policymakers is how to keep premiums
accessible and affordable.
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“Maintaining high
residential insurance coverage, especially for floods, is
critical to safeguard the country’s economic and social
resilience in the face of climate change, and to keep people
in vulnerable locations from falling into poverty when
weather-related disasters strike. Insurance helps
individuals, communities, and the country as a whole bounce
back from climate-related shocks.
“There are several
potential options to keep insurance accessible and
affordable, and as a country we need to urgently decide
which we are going to adopt. Some of the more promising
include subsidies for those who can’t afford insurance,
standardisation of insurance policies (so people know what
they are covered for), and making pricing criteria more
transparent. We also need to ensure that the insurance
market remains as competitive as possible.”
Among a
suite of detailed recommendations, the report urges
policymakers to stop inappropriate development in flood
zones, flood-prone areas, and those coastal locations that
are likely to become uninsurable within decades. The country
must also invest in risk mitigation and climate adaptation
measures to keep residential insurance premiums lower, for
longer. For some properties, this will include a planned
process of relocation to safer locations.
The report
recommends that the Government start planning now to develop
a public residential flood insurance scheme, as other
countries such as the United Kingdom and France have done.
Such a scheme would fill a number of insurance ‘protection
gaps’ as they arise, so that insurance remains accessible
– though only for properties that are still safe to live in,
and that meet agreed flood risk tolerance
thresholds.
Richard Woods, service line leader for
risk and resilience at WSP, says it’s uncertain just when,
and in what form, insurance retreat will occur, but it’s
inevitable in the not-too-distant future and is something
that needs to be prepared for now.
He points to the
devastating flooding and cyclone events of February 2023,
which paid out over $2 billion in insurance
claims.
“These and other climate change-related
extreme weather events are still very fresh in peoples’
minds. They’re a reminder that climate change is more than
just an environmental issue. It’s a pressing economic and
social challenge for communities.
“The country is
just one major disaster away from insurance retreat becoming
a much more complex problem than it already is. We need a
collaborative approach to adaptation and retreat, where
decisions by insurance companies complement democratic
decision-making about how we adapt to climate change, rather
than leading it.
“This report and its
recommendations are intended to spark a serious conversation
about how to maintain New Zealand’s current high level of
residential home insurance. Our approach to insurance must
evolve; it should support community resilience, not leave
people behind.
“The future of residential insurance
depends on our willingness to act now, or we face a crisis
that could engulf our most vulnerable communities. With a
government work programme on climate adaptation and risk
assessment well underway, now is the time to be having that
discussion.”
Key report recommendations
include:
include:
- Recognise the vital role of residential
insurance in maintaining societal resilience in the context
of increasing climate change-related risks. - Avoid
further developments in flood-risk areas that exceed agreed
risk tolerances. - Invest in climate risk mitigation
and adaptation to keep residential insurance premiums
accessible and affordable for longer. This must include
setting out clear responsibilities and decision-making
processes for how adaptation will be planned, funded and
implemented at national and local levels. - Agree a
framework and a funding model for planned relocation for
homes in risky areas where other types of intervention are
not cost-effective or technically viable. - Develop a
public residential insurance scheme or schemes to fill
current and future gaps in insurance caused by climate
change, especially for flood risk. - Consider other
interventions in the residential insurance and financial
markets to maintain high levels of insurance penetration,
such as: Subsidising premiums for some homeowners;
Standardising and simplifying insurance contracts; Agreeing
on the level of transparency that is expected from insurance
companies about how they make decisions affecting premiums
prices; Monitoring and promoting competition in the
insurance
market.
