By Gareth Vaughan
Auckland's unprecedented flooding highlights the importance of climate adaptation finance and the potential for parametric insurance, says David Hall.
Hall, Climate Policy Director at Toha and until recently Senior Lecturer in Social Sciences and Public Policy at the Auckland University of Technology (AUT), spoke to interest.co.nz for the Of Interest podcast.
Hall says in events like the recent flooding he feels "a sense of grizzly resignation" with what has been predicted "playing out before our eyes."
With the likelihood, as in post-earthquake Christchurch, for a long wait for some people who've filed insurance claims, Hall highlights potential for prolonged uncertainty.
Hall, who recently published a detailed paper on adaptation finance, suggests parametric insurance could complement traditional indemnity insurance. Parametric insurance is a type of insurance contract that insures a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event, as opposed to the magnitude of the losses in a traditional indemnity policy.
"So it could be the severity of the event. [For example], if a flood event reaches a certain level of precipitation, or if an ex-tropical cycle event reaches a certain threshold in terms of wind speed, or drought reaches a certain threshold. Then that trigger is hit and a payout is made. And then people can use that money in a multitude of different ways. They don't necessarily need to use it to pay for replacement or repair of the assets lost or damaged. They might choose to use it in order to relocate, for instance. And so not only does parametric insurance have the advantage of being quick, it also has the advantage of being flexible," says Hall.
"I don't think this is necessarily a replacement for indemnity insurance. But it could be a complement which could give people greater flexibility and certain comfort after events like this."
He notes parametric insurance is used in Fiji.
"When Fiji gets hit by cyclones or similar events a trigger is struck and a small payout is made to small-hold farmers and so on who are dealing with the consequences of those events. It gives you quick settlement and a bit of liquidity," Hall says.
He goes on to say that parametric insurance products might work better for a public insurance scheme, rather than private insurers, such as EQC as it morphs into the Natural Hazards Commission.
In the podcast Hall also talks about the difficulty of measuring whether adaptation finance is money well spent, insurance retreat, the urgency for climate adaptation and the politics of it plus much more.
His full Adaptation finance: Risks and opportunities for Aotearoa New Zealand report is here.
Hall was also a contributing author for the Australasia chapter in the Intergovernmental Panel on Climate Change (IPCC) report Climate Change 2022: Impacts, Adaptation and Vulnerability. Additionally And Hall was co-Chair of the Mayor's Independent Advisory Group for Auckland's Climate Plan issued in December 2020.
10 Comments
We saw what pension funds seeking commercial returns on Auckland light rail did to that process. You will end up with projects that become huge bloated monstrosities with little justificaiton other than someone on the other side of the world enjoying a retirement, propped up by decades of ticket-clipping at a premium paid for by people who live here.
Competent politicians should be able to smell that potential and civil servants should be able to push back on them based on how widly out of scope they are, but as we've seen, it only takes a few powerpoint slides to railroad something as basic as transport infrastructure for the fastest-growing parts of the city.
Here in New Plymouth where Imlive we re the recipients of some flood prevention works completed many decades ago. Also with many short run/fast flowing rivers and streams running through the city with tiny river terraces we are less vulnerable than other cities and towns. Other cities and towns around the motu will have their own unique vulnerabilities. Every inhabited part of NZ will have to come up with it’s own flood risk profile so we can get an estimate of the future cost to rate payers/tax payers/insurers of re-location and/or mitigation costs. If we spread it over many decades we may not bankrupt the country.
Yes, take this as an example;
https://www.newsroom.co.nz/why-the-onehunga-sluice-gates-didnt-open
Just massive failure to even have systems in place to ensure that existing infrastructure was operating to full capacity.
What's particularly disturbing about this article is that the council approved the hand-over of this vital EM task to a member of the public. Crazy, and not the fault of the member of the public. It's just mind-numbing, cost-cutting at it's finest.
Excellent article showing failure on a number of levels . Doesn't point out the inevitable consequences of throwing a causeway across a piece of harbour severely impeding the drainage system. So much of what we consider civilised progress takes no account of the long-term damage and consequences and our answer to problems caused is more infrastructure to cause more different problems.
Currently there is three diggers and two tractors and trailers working in the gravel based river at the bottom of the farm. If looked at dispassionately they are destroying 300 plus metres of river ecology and spending tens of thousands of regional council dollars to save literally 3ha of river bank. Worse, it's just going to shift the the problem downstream, IF it works at all. And it's a gravel based wandering river so it will only be temporary.
redcows,
We are increasingly stuck between a rock and a hard place. The cost of 'properly' future-proofing our infrastructure is staggering. It would take decades and by and large, just isn't going to happen.
NZ can't borrow enough- the markets wouldn't allow us to do that as the UK very recently found out-and we have many other calls on our financial resources such as our under immense strain health and education services.
It's not a pretty picture.
T'was a good interview Gareth - I also enjoy your well-researched and calm exploration of the detail on economic issues.
The thing that bugged me in the conversation was David's (understandable) focus on private finance. The gist was that private investors would happily invest in a climate adaptation scheme if there was a juicy return on it, but, obviously public funding would have to step in to deal with the poors (and the housing relocations etc).
This is what worries me about climate finance policy - the vultures are circling. Investors have squeezed juicy returns out of the fossil fuel industry, and now they want to do the same with the mitigation / adaptation industry too. You could hear this coming through in the speeches at COP27 and at DAVOS - the narrative that cash-strapped Governments need private finance to help them meet the challenges of climate change. We are here to help you guys - we just want 10% real returns...!
But, actually, no, we don't need their money. Govts can spend as much as they want on adaptation and mitigation - the constraint is not the purse strings, it is the availability of the things we need, and the risk that constrained supply and high demand could lead to runaway prices. If we treat this like a genuine emergency - i.e. wartime - we would start by working out what resources we need at a city or country level to make the changes required. How many thousands of hours of labour, what earthwork machinery, how many tonnes of concrete?
What we would quickly find out of course is that we don't have the supply of people and stuff to do the work needed (regardless of whether it is publicly or privately financed). Thus, we need to see the climate adaptation challenge as Keynes saw the second world war. He didn't say 'how do we get private finance into making bullets or building tanks', he advocated for:
- appropriating the resources needed to win the war (factories, workers etc)
- rationing resources that were in high demand - we can't be wasting precious tradies on building summer houses for rich folk, whilst we are desperate for houses for the thousands of people sinking into the sea in South Dunedin, and...
- Using taxes and long-term bonds etc to reduce aggregate demand in the economy to create space for the critical work
Apols for long post!
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