New research has found within the next 15 years, thousands of homes at risk of coastal inundation will only be able to get partial insurance cover, before becoming completely uninsurable by 2050.
Research done by Belinda Storey for the Deep South National Science Challenge has identified 10,230 homes in Auckland, Wellington, Christchurch and Dunedin that are located within 1km of the coast and are in a 1-in-100-year flood zone.
Storey found insurers would start retreating from Wellington and Christchurch in 2030, a few years before retreating from Auckland and Dunedin, because there are smaller tidal ranges in these cities, which make them more at risk of storm surges.
Storey’s research only covered these four cities. She said she took a conservative approach towards her findings.
“Insurance is a requirement for residential mortgages in New Zealand and failing to maintain insurance can trigger default,” Storey said.
“While mortgages are often granted with repayment periods of up to 30 years, insurance contracts are renewed annually. An insurer can exit a market within 12 months, while a lender may still have decades before their loans mature.
“Currently, despite rules requiring mortgagors to insure, the general absence of compliance checks means banks do not currently know whether some properties they mortgage remain insured beyond the first year of ownership.
“Once insurance is unavailable, property buyers will find it difficult to borrow money to purchase a property, and existing owners may need to make expensive modifications to their homes to prevent flood waters reaching inside.
“Insurers may be willing to continue to provide insurance to high risk areas if active differentiation between these areas and lower-risk area is widely accepted. This differentiation could include policy exclusions or very high premium prices and excesses.
“We expect particular hazards may be dropped first, for example people may still have insurance for flooding caused by excessive rain, but not insurance for damage caused by a storm surge. In some cases it may be difficult to identify a single cause of a flooding event - for example if rain water cannot drain because of a storm surge - which could result in litigation between policy holders and insurers.
“After insurance is unbundled we expect properties to quickly lose insurance for climate-related hazards.”
See Storey’s full report here.