Is the availability of insurance in New Zealand about to take a hit?

Experts say we could be looking at an insurance retreat in as little as 25 years

Is the availability of insurance in New Zealand about to take a hit?

Insurance News

By Ksenia Stepanova

New Zealand can hardly expect a year without some weather event losses, and 2020 has been the year of the floods – starting with the Southland floods which resulted in a State of Emergency, took out the Milford Road and left visitors stranded, through to the most recent Napier floods, which have left almost 100 homes uninhabitable.

Belinda Storey, managing director at Climate Sigma, says that we can certainly expect such weather events to continue – however, she warns that we need to start planning for a future with significantly heightened climate risk. She says insurance will likely become more and more difficult to obtain as inevitable changes such as sea level rise progress, and this could impact on people’s ability to sell homes or obtain mortgages.

“I started looking into the insurance piece because I wanted to understand how pricing of property was likely to be affected by climate change,” Storey explained.

“New Zealand has a historical practice of ‘all perils’ insurance, which means we don’t have peril-specific cover for residential property. That’s served New Zealand very well, because as far as our nickname of the ‘shaky isles’ is concerned, there are very few places that don’t have some natural hazard. But that does mean that when we have a significant change in a particular peril, that could potentially lead to an insurance retreat.”

Climate Sigma recently conducted a series of analyses which looked at the insurability of coastal properties, and Storey says insurance availability could be affected decades before water actually ends up at a property’s front door.

She says that in order to properly address this, we need to take a hard look at where we actually build our properties, and ensure that we are getting the message across by looking at an appropriate timeframe.

“In order to be able to communicate anything to people about climate change, my very strong view is that you need to make it real for them, and we need to make it timely,” Storey said.

“In our research, we focus very much on the next 20 years, because that’s a timeframe people can consider when making an economic decision.”

“We looked at the sea level rise that will happen over the next 20 years, and there’s very high certainty around that,” she said.

“There is going to be at least 10cm, and there might be 12cm. Our analysis showed that Wellington is the most sensitive to sea level rise, and Auckland the least – but what was surprising was just how little sea level rise it took to change the probability of a one in 100 year event.”

“There is a significant change coming in terms of insurance availability,” Storey added.

“By the time you get to a 12cm rise in Wellington, you can expect that the insurance in those locations is no longer available. We would expect to see partial retreat start to occur within Wellington and Christchurch within the next 10 years. Full retreat would happen in the next 25 years, based on our analysis – and this is only from sea level rise.”

The rise in natural disaster risk is not limited only to New Zealand, and Swiss Re’s head of sustainability reinsurance Dr Gillian Rutherford-Liske says the insurance sector has a huge role to play in a global response – both in terms of action, and spreading awareness.

“We’re living in a world that is really alarming at the moment, and that’s testing our personal resilience and society’s resilience,” Dr Rutherford-Liske said.

“The world is experiencing increased insured losses due to natural catastrophes, and climate change, urbanisation and growth of wealth all play a really big role. There’s a huge exposure increase in high-risk areas – on the coast, river flood plains – and climate change amplifies this trend. That will play an increased role over the next decade.”

“As an industry we have a really big responsibility, and we have an opportunity,” she explained.

“At Swiss Re, we’re a major underwriter of climate and catastrophe risk – around 10% of the global market share. We’re also making heavy investments into how to handle the uncertainty of these risks now and into the future.”

Dr Rutherford-Liske noted that Swiss Re paid over US$11 billion in natural disaster claims last year, and that included claims from storms, floods and wildfires. She says she believes that these risks can still be covered by the insurance sector, but that this can only happen if risks are actively mitigated.

“We’re often asked ‘is the world becoming uninsurable?’ We consider the world to still be insurable in a future with more uncertainty – but that said, mitigation is needed, and adaptation measures are needed,” she said.

“They need to be decisive, and they need to happen now.”

“I think there’s a role we can play as an industry in raising awareness, and awareness is what leads to action,” Dr Rutherford-Liske concluded.

“Swiss Re publishes a lot of content, and one is the natural catastrophe sigma report that we publish annually. That looks at what’s causing the big economic and insured losses, and what the protection gap is. That helps us understand the problem, and that’s super important in understanding how we need to act.”

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