The first-ever climate change risk assessment of New Zealand was released by the Ministry of the Environment in early August.
It reconfirmed that warming temperatures would intensify and magnify the country’s catastrophe risk, with extreme weather events such as storms, heatwaves and heavy rainfall likely to be more frequent and intense.
In the last year we have seen this play out, and the costs associated with supporting our communities’ recovery have been significant.
The freak hailstorm in Timaru last November, the December nationwide storm and Southland lakes flooding, and the Southland floods in February have collectively cost in excess of $174million. More recently we saw a tornado rip through the upper North Island in June and extensive floods effect Northland communities in July, with the cost of recovery for both events expected to be high.
Rightly so, climate change is a top priority for the sector in New Zealand and around the world.
Contrary to an assertion in the report, the sector is well informed about the possible future impacts climate change may present, with modelling capability to test likely future scenario impacts. Insurers will increasingly use sophisticated modelling to inform themselves of the probability of extreme events occurring today and every year into the future.
These increased risks will continue to be signalled through traditional means like price and excesses, reflecting the insurance sector’s appetite to accept risk. As such we can expect certain areas throughout New Zealand to see premium increases in coming years. People looking to buy property should do their research and acknowledge that increased premiums are a key trigger to signal the risk of buying and living in higher risk areas.
However, because transferring risk does not reduce risk, it is also critical that climate associated risks are reduced. The sector will continue to advocate strongly for adaptation measures to be taken so risks to people and their businesses are reduced, ultimately supporting insurance’s availability and affordability in the coming decades.
The sooner we adapt to our changing climate, the less adaptation will cost us and the less we will be impacted by the increasing frequency and severity of storms.
Adaptation actions can include improving infrastructure such as stormwater systems, moving properties away from coastal areas and floodplains and not consenting new development in areas which will only add to future risks and bring social, economic and environmental losses. Conversely, developers looking to build in higher-risk areas should consider the durability of insurance cover if those properties are going to be increasingly at risk and new residential and commercial buildings must be built to be more resilient to a changing climate.
There are billions of dollars of assets that will become increasingly at risk, and adequately responding to climate change will mean regulators and decision-makers taking a long-view to managing these risks.
As well as identifying associated climate change risks, the Ministry’s report also prioritises those risks, with the Government given two years to set out how it plans to reduce them. Progress on achieving this will be monitored by the Climate Change Commission.
The importance of this for insurers is that for the first time there is a pathway ahead for reducing climate change risks, because unless these risks are reduced social, economic and environmental losses will increase.