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A third of NZ flood damages not insured – NZIER

A Public Good Insight released today by the New Zealand Institute of Economic Research (NZIER) estimates New Zealanders’ uninsured losses from the Auckland Anniversary Weekend floods and Cyclone Gabrielle amounted to $2.3 billion – representing a third of the physical assets. A year on from these events, the report highlights why swift action is needed by the government and councils to create a standardised reporting framework to address the “protection gap” amid growing climate risk and insurer withdrawal.

The Incentivising Resilience to Adverse Climate Change Events report notes that insured damages from 2023’s climate-related disasters in New Zealand reached an estimated $3.56 billion, across nearly 120,000 claims. However, Treasury estimates the damage to households, businesses and infrastructure in the two major North Island events alone amounted to between $9 billion and $14 billion, with around a third not covered by insurance.

 This doesn’t include the $500 million to $1 billion forecasted by the Ministry of Foreign Affairs and Trade as the impact of losses to New Zealand’s economy and exports. Unlike property damage, crop losses typically aren’t insured. In the context of predicted sea level increases and changing weather patterns, this is especially concerning. Insurer IAG has already said it will stop offering insurance for properties in particularly high-risk areas, and more insurers are likely to follow. Tower recently commented that some homeowners will only be able to afford partial cover from now on. 

“The challenge is the lack of a uniform approach to evaluating the real costs of climate change weather events, which hampers decision-makers’ ability to compare the risk against the costs of resilience measures such as managed retreat,” says NZIER Principal Economist Michael Bealing. 

To understand how much risk (and therefore cost) is acceptable, we need to know what’s at stake. Knowing the true economic toll is also critical to effectively communicating the risk, and enabling property owners to make informed decisions. 

“The risks are no longer a long way off – insurers are withdrawing now. We’re calling for the new government to urgently establish a centralised system that more accurately measures the risk of damage, to help avoid inequitable outcomes and overcome uncertainty about investment in resilience-building measures,” adds Bealing. 

As the Insight notes, there is no guarantee that central or local government will cover uninsured damages, especially as climate-related disasters become more frequent. Funding under the various flood recovery support packages from local and central government was equivalent to 13% – 20% of the estimated damage to publicly owned infrastructure alone. 

“The government has a crucial role to play in building and maintaining public infrastructure. Public infrastructure resilience is pivotal for preparing for, responding to and recovering from natural disasters. This infrastructure should include publicly available assessments of the risk, using standardised risk assessments, so that households and businesses can make informed decisions about their risk management strategies,” Bealing says.

The Insight also highlights that the government could become the “insurer of last resort” under the new Earthquake Commission structure, which will become the Natural Hazards Commission from July 2024. It calls for both local and central governments to consider whether there is a market failure that needs to be addressed, and investigate ways to incentivise New Zealanders and businesses to reduce their own risk, citing various initiatives used overseas to help keep insurance available and affordable in high-risk areas. 

Such measures include Germany’s “flood passports”, awarded to residents who invest in certified building surveys and on-site assessments to receive lower insurance premiums. Instead of increasing prices in higher-risk areas, this sees insurers incentivise mitigation and adaptation activities. Other possibilities include resilience bonds, such as those launched by the European Bank for Reconstruction and Development, which raised US$700 million for climate resilience projects. California is now considering its own bonds.

“It’s positive that prior to the election, National announced its support for working alongside councils, insurers, banks and communities to develop a framework for adaptation. Its coalition partner ACT supports more flexible funding arrangements for local councils to support resilience. However, we also note that subsidising insurance was ruled out. “That makes it even more critical for the new government to have the right reporting structures in place to fully understand the scale of the risk and its impacts on our economy, and clearly publish those results. By advocating for this approach, we hope to empower our communities and decision-makers to create a more resilient and sustainable future,” Bealing says.


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