Climate Change.

It’s something that’s getting a lot of press in the insurance industry right now, and for good reason - New data released by Te Kāhui Inihua o Aotearoa (Insurance Council of New Zealand) shows that the total insurance payments back to communities for extreme weather events is closing in on $200 million for the year to date, up until June. In 2021 we set a new annual record for these payments at $324 million.

Sure, we don’t know whether this year will overtake the last and set a new record, but the data is pointing to a rising trend in climate-related insurance in both in NZ and abroad.

This trend is putting a strain on both homeowners and insurers - more frequent and severe extreme weather events coupled with soaring building costs and ongoing supply chain issues.. Don’t even get me started on the rising cost of reinsurance. All of this flows through into your premiums.

Insurance transfers risk, it doesn’t reduce it, so we need to act now through government to build resilience to local risks, be that flooding, sea level rise, drought or wildfires.  

Investment is needed in natural and man-made measures in order to keep risks at a level where insurance is affordable for both homeowners and insurers alike over the medium to long term.

According to a current research project exploring climate change by Te Komata o Te Tonga - By 2050, at least 10,000 homes in our biggest cities will be effectively uninsurable, however spiking premiums and policy exclusions could start being felt as soon as a decade from now.. In Wellington, just 12cm of sea level rise could see average premiums more than quadruple for about 1700 homes, the report estimates, that’s if insurers fully priced the increased risk into policies.

Read more: Dire sea level rise predictions not scaring off home buyers in sought-after Lower Hutt suburb

However, there is hope.

Almost all insurers said they are planning to investigate new models for fluvial and pluvial flood risk (river and surface flooding) and consider pricing changes in the next year or two. As the new models do not cover coastal flood risk, it may be considered later and, we are told by insurers, could present much more significant insurability challenges.

Given the potential fallout, in December last year EQC minister David Clark asked Treasury to work up plans for a flood re-insurance scheme, similar to the Flood Re model in the UK - Officials told him it could be implemented within a year, but advised against it, advising to progress the work though the National Adaptation Plan instead.

The government recently unveiled said National Adaptation Plan and they’ve made a commitment to “develop options for home flood insurance to support community resilience to the consequences of extreme weather and facilitate recovery after the event”.

It’s early days and yeah, it may take a while to introduce – but I think it’s positive and it instils at least a little bit of hope in the insurance industry.

Joshua.

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Disclaimer: Before you make any decisions, discuss your situation with an adviser from Velocity Financial, and seek advice from professionals, such as a lawyer and accountant, to find the best solution for your unique situation.

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