Tower becomes first to consider coastal erosion in risk pricing

Tower becomes first to consider coastal erosion in risk pricing | Insurance Business New Zealand

Tower becomes first to consider coastal erosion in risk pricing

Tower has set its sights on risk-based pricing for coastal erosion in what is being hailed as another landmark step by the industry to take on climate change.

The news comes almost a year after Tower announced it would make a new pricing model based on individual homes’ publicly posted flood-risk ratings. It was the first insurer in New Zealand to do so.

The pricing model meant around 100,000 customers received a low, medium, or high rating for their home based on its potential to be affected by a flood and the estimated cost of replacing or repairing it.

Ten per cent of customers saw the flood risk portion of their premiums increase, with a few hundred of them receiving high ratings which saw increases of over $500 a year. While Tower’s flood risk ratings do not currently extend to coastal erosion, that is about to change as the insurer aims to target that risk next year.

A risk assessment recently released by the national government found that 72,065 New Zealanders lived in areas exposed to once-a-century coastal inundation flood risk, while about 675,500 lived in areas prone to inland flooding. A 2020 sea level rise study found that these once-a-century flood events could become an annual occurrence within the next two decades based on modelling that refined risk to two-kilometre blocks of coastline, NZ Herald reported.

Tower wanted to refine that risk down to individual coastal properties. Its plan was to test the model with customers before sharing the data with councils and government, then making it public.

“We definitely want to get the model right, and we're working with the University of Waikato and two or three other global modellers,” said chief executive Blair Turnbull.

Where Tower favours risk-based pricing, however, other insurers prefer to put embargoes on providing cover for certain areas of the country.

Turnbull said Tower had a stance against using embargoes.

"What we do say is, we will offer a price, [and that price] will reflect the risk of your home in that area," he said, though he admitted that as climate-driven impacts increased in frequency and severity, there was a risk of more customers being affected by hikes from flood risk ratings.

Tower was one of many insurers to welcome the government’s National Adaptation Plan for climate change. It was also vocal in praising law reforms that would require companies to disclose climate-related risks effective next year.

"My overriding personal view, but also Tower's view, is that we need to pay much greater attention to not building on flood-prone areas,” Turnbull said.