Insuring houses and properties could become much more difficult in some areas, as intense weather events increase risks. Photo: RNZ
Thousands of residential properties could be left unprotected and uninsurable in the coming years as new research points to a looming insurance crisis because of climate change.
A new report by the Helen Clark Foundation and engineering consultants WSP warned "insurance retreat" could leave insurance premiums for flood prone properties as unaffordable.
An estimated 10,000 coastal properties in Auckland, Wellington, Christchurch, and Dunedin could become uninsurable by 2050, due to coastal erosion and inundation.
Other properties in flood prone areas further inland were also at risk.
The report, titled Premiums Under Pressure, said that without intervention, the country was facing steep rises in insurance premiums, with insurers likely to withdraw flood coverage altogether for the most at-risk properties.
Its author Kali Mercer said keeping premiums accessible and affordable for policymakers remained a thorny challenge.
"Maintaining high residential insurance coverage, especially for floods, is critical to safeguard the country's economic and social resilience in the face of climate change, and to keep people in vulnerable locations from falling into poverty when weather-related disasters strike," she said.
"Insurance helps individuals, communities, and the country as a whole bounce back from climate-related shocks."
Several recommendations have been outlined, including a subsidy scheme for those who can't afford coverage, standardisation of insurance policies, and ensuring pricing criteria was transparent.
"We also need to ensure that the insurance market remains as competitive as possible," Mercer said.
The report is also urging policymakers to cease "inappropriate" development in flood zones, flood-prone areas, and coastal locales that are set to become uninsurable in the coming decades.
Government intervention is also being called for, including the development of a residential flood insurance scheme, similar to arrangements seen in the UK and France.
"Such a scheme, depending on its design, could aim to fill any of several different potential future 'protection gaps'," the report said.
This could include homes that are unable to access private insurance but were still within a risk threshold, homes in areas where insurance has been withdrawn because of risk, and homes that are facing a future process of planned relocation, and require cover in the interim.
Insurance retreat is when insurance companies over time withdraw cover in some locations, as increasing levels of damage - especially from floods and coastal erosion - make selling cover in those locations "unattractive or infeasible".
WSP risk and resilience service line leader Richard Woods said it was unclear when, and in what form insurance retreat will occur, but plans needed to be prepared.
"These and other climate change-related extreme weather events are still very fresh in people's minds," he said.
"They're a reminder that climate change is more than just an environmental issue.
"It's a pressing economic and social challenge for communities."
"The country is just one major disaster away from insurance retreat becoming a much more complex problem than it already is."
The key recommendations made in the report include:
- Recognising the vital role of residential insurance in maintaining societal resilience, in the context of increasing climate change-related risks.
- Avoid further developments in flood-risk areas that exceed agreed risk tolerances.
- Invest in climate risk mitigation and adaptation, to keep residential insurance premiums accessible and affordable for longer. This must include setting out clear responsibilities and decision-making processes for how adaptation will be planned, funded and implemented at national and local levels.
- Agree a framework and a funding model for planned relocation for homes in risky areas where other types of intervention are not cost-effective or technically viable.
- Develop a public residential insurance scheme or schemes, to fill current and future gaps in insurance caused by climate change, especially for flood risk.
- Consider other interventions in the residential insurance and financial markets, to maintain high levels of insurance penetration, such as: Subsidising premiums for some homeowners; Standardising and simplifying insurance contracts; Agreeing on the level of transparency that is expected from insurance companies about how they make decisions affecting premiums prices; Monitoring and promoting competition in the insurance market.