The Insurance Council of New Zealand (ICNZ) still doesn’t support a flood reinsurance scheme for NZ, three years after it called the idea of introducing a scheme similar to Britain’s Flood Re a “grossly disproportionate response”.
This is despite the Council’s British counterpart – the Association of British Insurers (ABI) – finding Flood Re a success in the UK.
Flood Re is the British reinsurance scheme launched in 2016 that supports flood insurance in areas of high risk of flooding. The scheme is a joint initiative between the British Government and insurers, with the costs of the scheme covered by a levy.
An annual levy is collected from every insurer offering home insurance in the UK, and insurers are also charged a fixed premium based on a policyholder’s home council tax band.
UK 'led the way' with Flood Re
Earlier this week the ICNZ along with four other Commonwealth insurance lobby groups – the ABI, the Insurance Council of Australia (ICA) and the Insurance Bureau of Canada (IBC) – published a joint letter to the Prime Ministers of their prospective countries.
Collectively, the associations represent approximately US$200 billion (NZ$329.4 billion) in Gross Written Premium (GWP).
The letter said the NZ, Australian, British and Canadian Governments had a “critical opportunity” to collaborate with insurers and build a shared view of current and future hazard risk.
The insurer lobby groups' letter emphasised the “significant increases” in hazard risk that many insurers in the Commonwealth are reporting which is increasing premiums in regions that are particularly vulnerable to natural disasters.
New Zealand has experienced extreme weather events in recent years, with the costs of the Auckland Anniversary floods and Cyclone Gabrielle in 2023 coming to $3.8 billion in insurance payouts alone so far.
In comments made by the leaders of these four insurance lobby groups in the letter, ABI Director General Hannah Gurga commented that the UK had “led the way” with the creation of Flood Re.
She said Flood Re had helped keep insurance accessible for “hundreds of thousands of homes” in the UK.
“Our changing climate represents a real and growing threat to our resilience as a nation and globally,” Gurga said.
'Each country has its own factors to consider'
A Flood Re-like scheme for NZ was floated back in 2022 with the then EQC Minister David Clark in the previous Labour Government keen to get a similar scheme to the UK’s over the line.
The ICNZ was against the idea in 2022 and called it a “grossly disproportionate response” in its submission to the Labour Government’s National Adaptation Plan.
Interest.co.nz asked the ICNZ on Monday if the Insurance Council’s position on a flood reinsurance scheme for NZ had changed since 2022 due to the rise in extreme weather and insurance costs that the country had experienced.
An ICNZ spokesperson said each country had its own factors to consider when responding to natural hazards, including the impact on lives, property, disruption to jobs and communities, and cost.
“New Zealand is one of the most vulnerable countries in the world to natural hazards, including earthquakes, flooding and coastal inundation. In the UK, around 2% of homes are in flood-prone locations,” they said.
“In New Zealand, that figure is approximately 20% according to the Climate Change Commission’s National Climate Risk Assessment.”
Asked if ICNZ saw potential benefits in a similar scheme for NZ in high-risk areas, the spokesperson only said that the Insurance Council’s focus continued to be supporting NZ’s “collective effort” to improve resilience at a national level as well as ensuring insurance was affordable and accessible.
“There is a risk that schemes that subsidise the cost of insurance will send the wrong signals and encourage people to live in high-risk areas,” they said.
The ICNZ also confirmed there had been no discussions involving ICNZ about reinsurance options like Flood Re.
“We support the development of a framework that creates a clear, co-ordinated and consistent approach nationally to natural hazards which reduces risk, which the Government is best placed to lead on,” the spokesperson said.
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