A Victoria University of Wellington professor is calling on the New Zealand government to establish a mandatory public insurance levy and broaden the mandate of the Natural Hazards Commission (NHC), arguing that the country’s current policy settings are ill-equipped to handle the scale of climate-related risks facing property owners in the decades ahead.
Jonathan Boston, Emeritus Professor of Public Policy, made the case in his new book, Insuring the Future: Reimagining Home Insurance in Aotearoa, and spoke at length on RNZ’s Nine to Noon on June 9, as Wellington residents were being evacuated due to extreme coastal swells. He described the scene as a “microcosm” of what the country already faces. “We need to understand that New Zealand is a reasonably risky place to live and to own property. We have multiple geophysical risks and we have increasing weather-related risks associated with climate change,” Boston said.
Over the past 25 years, residential property insurance premiums have risen ninefold, or fourfold when adjusted for inflation, according to Boston. At the household level, he said his own home and contents insurance had climbed from under $2,000 to nearly $8,000. Across the broader market, home insurance costs have gone up approximately 40% over the past two years, according to the RNZ report. Boston warned that the trajectory points toward insurance becoming out of reach for a growing number of New Zealand homeowners. “More and more people will be finding it very difficult to afford insurance,” Boston said.
The government is drafting a climate adaptation bill and last year received recommendations from an independent reference group. That group concluded that property buyouts should not be an expectation, and that the government could continue as the insurer of last resort over the long term. Climate Change Minister Simon Watts has said the government intends to reset public expectations about what financial assistance homeowners can anticipate after a major climate event.
Boston took a contrary view, arguing that withdrawing state support in the face of mounting climate risk is the wrong approach – both morally and economically. “One of the defining functions of the state, one of its inherently critical functions, is to deal with risks that are beyond the capacity of individuals and local communities to manage and address themselves. The report seems to be saying in the face of unprecedented risks as we go forward, the state should kind of withdraw from managing that risk. In my view, we should be doing the opposite,” he said.
Boston said properties that can be defended cost-effectively should receive public backing, while those in locations that cannot be protected should be relocated – ideally before any significant damage occurs. Any government assistance, he argued, should carry spending caps and should prioritise principal residences over holiday properties. “Housing is a human right. We need to ensure that people have adequate shelter,” he said. He also contended that a proactive stance would ultimately cost the country less than a reactive one. “Our view was that for a number of reasons, it was going to be preferable from an economic point of view in terms of the cost to the country and the cost to the state if we have a proactive approach to addressing the problem – avoiding risk where we can, mitigating risk when we can, and removing people out of harm’s way when other options are not available,” Boston said.
Boston’s central policy proposal involves widening the NHC’s scope to include weather-related hazards such as floods, windstorms, and hailstorms. The commission traces its origins to the Earthquake and War Damage Commission, and then the Earthquake Commission. Boston argued it needed expanding to cover weather. “It’s going to be weather-related hazards that are going to increasingly dominate people’s lives over the coming decades and beyond,” he said. Boston pointed to France, Switzerland, and Spain as countries where similar multi-peril public insurance frameworks already operate.
Beyond expanding coverage, Boston argued that placing weather-related financial exposure within the NHC would give the commission a direct incentive to fund adaptation measures – since reducing the frequency and severity of insured events would lower its own long-term costs. “If the commission has some responsibility for taking on the risks associated with weather-related events such as floods, and if it has the tools to help the process of adaptation, it will have a very strong incentive to use those tools to mitigate its long-term risk,” he said. Any expansion would mean higher levies on insurance consumers in the short term, he acknowledged, though he said better planning and risk reduction investment should bring those costs down over time.
Boston’s remarks come alongside a separate but related push from the Insurance Council of New Zealand (ICNZ), which on June 3 called on political parties across the spectrum to replace the Fire and Emergency New Zealand (FENZ) levy with a Community Protection Levy. Under that proposal, FENZ would receive direct Crown funding instead, with an estimated $600 million to $700 million per year freed up for hazard risk reduction work ahead of disasters. ICNZ chief executive Kris Faafoi said the current levy structure places an uneven burden across different insurance categories and is no longer suited to the risk challenges the country faces. “New Zealand needs to invest more in reducing risk before disasters happen. The current levy is too complex, too uneven, and no longer well suited to the risks New Zealand faces today,” Faafoi said.
ICNZ cited two infrastructure projects as illustrations of what earlier investment can achieve: a $4 million Taradale stopbank that helped shield communities during Cyclone Gabrielle and a $15 million flood protection scheme in Kaitaia that the council said had avoided an estimated $50 million in damage. ICNZ also stated that pre-disaster investment can return $5 to $8 for every dollar spent in avoided losses. “Councils are being asked to lead adaptation, but they need reliable funding to do it. We cannot keep spending more on disaster recovery while underinvesting in prevention,” Faafoi said. Both Boston’s policy proposals and the ICNZ submission feed into ongoing government work on a climate adaptation bill, the drafting of which is currently under way.
