Role of home insurance within the wider NZ climate adaptation plan

Multiple options being considered

Role of home insurance within the wider NZ climate adaptation plan


By Terry Gangcuangco

The New Zealand government, which recently released its 146-page draft national adaptation plan (NAP) via the Ministry for the Environment, aims to develop options to ensure that home flood insurance continues to do what it does in support of community resilience – among which is the possibility of a national flood insurance scheme for residential buildings.

The country’s first NAP has three areas of focus – reforming institutions to be fit for a changing climate; providing data, information, tools, and guidance to allow everyone to assess and reduce their own climate risks; and embedding climate resilience across government strategies and policies.

To enable New Zealanders to prepare for and adapt to the impacts of climate change, it is the plan’s goals to reduce vulnerability, enhance adaptive capacity and consider climate change in decisions at all levels, and strengthen resilience.

“These climate adaptation goals are long-term, extending beyond the life of this first plan,” reads part of the draft NAP. “The intention is to keep the broad focus of each goal consistent in future national adaptation plans, although the specific areas for action within each future plan are likely to change.

“Reducing vulnerability to the impacts of climate change means the focus is on the most immediate climate risks and impacts and on strengthening the emergency management system. Enhancing adaptive capacity and considering climate change in decisions at all levels means the focus is on people and enabling action across all sectors and communities. Strengthening resilience also means thinking long-term about the system-wide changes that are needed and what we need to do to lay the groundwork now for further action in the future.”

It was stressed that all New Zealanders have a role to play in understanding climate risks and building resilience to climate change effects, which Climate Change Minister James Shaw described as unavoidable. Insurers and banks, for instance, can reduce their climate risk exposure by investing in resilience measures or supporting customers to do the same, said the government.

The role of insurance

In the draft NAP, the Ministry for the Environment stated: “Home insurance supports New Zealand’s resilience to extreme weather events, such as floods, and helps manage climate change risks. The government intends to develop options to ensure home flood insurance continues to play an appropriate role in supporting community resilience.

“This work has important links with other adaptation initiatives, such as improved land-use planning, that reduce climate-related risk and support the insurability of assets.”

According to the draft, work is ongoing to better understand the scale and timing of insurance market changes due to improved risks information supporting more granular risk-based pricing and due to climate change exacerbating the increasing frequency and severity of flooding events. The work spans exploring options to support access and affordability of flood insurance.

“The government has choices about its involvement in managing flood risk in the short term and later as climate change increases those risks,” declared the Ministry, which is seeking feedback from as many New Zealanders as possible on the wider plan. “Additionally, the government has the choice of whether or not to support insurance markets to continue providing flood insurance (and if it does provide support, in what ways).

“In deciding on its position, the government will weigh up various factors, including who should bear these risks and how they are shared across society, including considering to what extent these risks are different to other risks; costs and benefits of various options to manage risks; who is best placed to manage and make decisions about managing these risks (e.g., homeowners, local government, central government); to what extent any government involvement is transitionary or temporary; [and] the risk of unintended consequences.”

Stakeholder support

Among the first to welcome the release of the draft NAP was IAG New Zealand, whose chief executive Amanda Whiting pointed to “deliberate actions” that can be taken to increase resilience. The CEO highlighted the need for greater investment in infrastructure and other solutions that either protect or move people out of harm’s way.  

Meanwhile, the Earthquake Commission (EQC) – which, as indicated in the government document, is the relevant portfolio in terms of developing options to address home flood insurance issues – has also expressed backing.

An EQC spokesperson told Insurance Business: “EQC supports the national adaptation plan as it will help to improve New Zealand’s resilience against the risks posed by natural hazards.

“EQC strongly supports an ‘all hazards’ approach, and we’re working with partner agencies to ensure that, while actions in the NAP are primarily focussed on climate adaptation, we make the most of opportunities to ensure they also support resilience to other natural hazards. We have been working closely with a range of central government agencies on several actions to reduce the impact of natural hazards.”

Shaw, who is urging New Zealanders to read the draft and make a consultation submission, added that “we must act now” and that, together, we can adapt.

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