Review – how rising climate threats reshape New Zealand's insurance landscape

The insurance sector in New Zealand is facing increasing challenges as climate change drives the frequency and severity of extreme weather events.

A new review by Joanna Aldridge, group head of catastrophe modelling research at QBE Insurance, and Rob Bell, managing director of Bell Adapt, underscored the growing importance of weather-related risks to the industry.

Escalating climate-driven losses

Historically, New Zealand’s insurance market has focused on managing earthquake risks due to the country’s seismic activity.

However, weather-related disasters are emerging as a significant concern, particularly following the Auckland Anniversary floods and ex-Tropical Cyclone Gabrielle in early 2023. These two events collectively resulted in over $4 billion in insured losses, a stark increase from prior weather-related claims.

This trend reflects a shift in exposure patterns, with insurers now needing to address climate risks alongside existing natural hazard models.

Aldridge said the review aims to provide insurers with an understanding of future changes in extreme weather events that may result in insured losses in New Zealand.

Projected changes in New Zealand’s climate 

New Zealand’s geographic position in the South Pacific Ocean and its narrow, mountainous terrain amplify its exposure to climate-driven events. The review highlighted several key risks:

• Rainfall and flooding: Heavy rainfall events, often caused by atmospheric rivers (ARs), are becoming more intense. Projections indicate that extreme rainfall may increase by 5% to 14% per degree of warming, elevating risks of pluvial and river flooding.
• Sea-level rise: Coastal flooding and erosion are expected to worsen as sea levels rise by up to 0.77 metres by 2120. Local land subsidence in some areas could further accelerate this timeline, leading to earlier impacts.
• Cyclones: Although tropical cyclones rarely reach New Zealand, ex-tropical cyclones that transition into temperate zones are a growing concern. These events, fuelled by warmer sea temperatures, could bring more frequent and severe wind and rainfall impacts.
• Wildfires: Higher temperatures and reduced rainfall are contributing to an increased wildfire risk, particularly along the eastern parts of both the North and South Islands.

Bell noted that the review is a timely summary of available data on New Zealand’s projected climate risks, offering critical insights for assessing insurable hazards.

Implications for insurers

New Zealand’s insurance market has historically concentrated on earthquake risk when setting reinsurance requirements and catastrophe modelling frameworks. The limited development of weather-related catastrophe models for New Zealand leaves insurers exposed to emerging climate-related threats.

The review highlighted that extreme weather losses may occur in clusters or compounding events, particularly during prolonged climate phases such as La Niña. For example, successive storms and floods in 2023 illustrated how natural climate variability could amplify losses over a single season.

Addressing the knowledge gap

Despite advances in climate science, significant gaps remain in understanding how climate change will affect weather extremes in New Zealand.

For instance, the behaviour of atmospheric rivers and their contribution to flood risks is not well captured by current models. Additionally, the interaction of sea-level rise with storm surge and pluvial flooding requires further study to improve risk assessments.

Risk mitigation strategies 

The review emphasised the need for proactive measures to reduce the exposure of New Zealand’s built environment to climate-related hazards. These include:

• expanding flood and wildfire hazard zones to account for climate projections and restricting new developments in high-risk areas
• upgrading stormwater systems and implementing urban designs that manage increased rainfall volumes more effectively
• updating wind loading codes to reflect the potential impacts of more severe cyclones and storms
• encouraging insurers to reward policyholders who implement risk reduction measures, such as flood defences and firebreaks

Collaborative solutions needed 

The review concluded that insurers, governments, and communities must collaborate to build resilience against climate-related risks.

Investments in research, infrastructure, and risk mitigation will be crucial in ensuring the long-term sustainability of the insurance market in the face of changing climate conditions.