As people ditch traditional indemnity insurance because of cost, specifically targeted forms of insurance could bolster uptake

Having specifically targeted forms of insurance could help increase people's uptake of insurance, a climate expert says.

Examples of specific schemes include microinsurance, which is when people on lower incomes make regular premium payments proportionate to the likelihood of specific events happening and cost of the risks involved.

Another option is parametric insurance. This is when someone is insured against a specific event happening and the insurer would pay a set amount based on the magnitude of the event.

These suggestions come as a growing number of New Zealanders are ditching their traditional indemnity insurance because of the cost. 

This isn't isolated to Aotearoa. During a panel discussion on insurance at the Adaptations Futures Conference 2025 in Christchurch last week, Intergovernmental Panel on Climate Change Working Group II vice chair Adelle Thomas brought up her home country of The Bahamas. 

“We had Hurricane Dorian in 2019 and less than 10% of the private homes were covered by insurance, which is very low insurance uptake.”

People would get insurance initially if they had a mortgage on their home, but once that mortgage was paid off to a certain point, people opt out of having insurance because it’s expensive, Thomas said. 

Thomas, who has done research in the Caribbean, found smallholder farmers were interested in insurance if they could be guaranteed they would have a payment instead of having to get a claims adjuster out to their farm to figure out the damages. 

“That’s where parametric insurance comes in, because once a hurricane or something reaches a certain strength, you automatically get paid out.”

But it was important to explain parametric insurance and microinsurance into practical things people could understand, so they could see how this would make an impact on their lives and benefit them, Thomas said. 

An example she used was an insurance company partnering with a local fishing organisation and working to help those in the fishing industry understand the need for insurance. 

“So a fisherman could understand 'if I purchase this insurance then that means if there’s a big hurricane and I cannot fish for weeks and I don’t have any income, I would have this insurance to help support my family.'”

Thomas said having those innovative tools could help vulnerable people on the ground and makes insurance more available and affordable. 

“I think this is one way to increase the uptake of insurance.” 

Parametric cover in New Zealand

Other panellists included the Minister of Climate Change for Tuvalu Maina Talia, Insurance Council of New Zealand Chief Executive Kris Faafoi, and Professor Rebecca Bednarek from Te Herenga Waka - Victoria University of Wellington.

Faafoi said New Zealand and the Pacific were starting to see parametric insurance.

“I think it essentially works when there’s a type of event and a severity of event, it just triggers a payment and there’s a certainty of the payment happening,” Faafoi said.

Going through a settlement process is not what was needed in an urgent situation, he said.

Faafoi said there were some communities where there might be challenges around affordability when it came to insurance coverage. 

Some of those areas would be areas of high natural risk, especially to climate risk, Faafoi said. 

“I think it’s a relatively easy case for parametric [insurance] as we’re starting to see more of these extreme weather events in New Zealand.”

Faafoi said iwi were interested in having that conversation with insurers. 

“There are people within tribal areas where traditional insurance cover is not an option for a number of reasons but to have surety and an iwi where they will have money to be able to assist those communities after an event is where parametric cover can help.” 

Invest in adaptation

But one of the key ways to tackle the high cost of insurance is to invest in adaptation in order to reduce those risks, Thomas said. 

In New Zealand alone, costs relating to climate adaptation have increased by $666 million and the country can expect those costs to increase. 

During the panel conversation, Thomas said people could not expect insurance companies to continue taking on risk.

“We need to have governments involved to adapt … We actually need to support small island states and have money to actually put in place adaptation measures that protect communities, that can make insurance affordable and feasible.”

When asked by panel facilitator Carlos Ruiz-Garvia from the United Nations Framework Convention on Climate Change what the biggest challenges facing insurance accessibility when it comes to climate change were, Thomas said insurance is often treated as a standalone solution to climate risk, but "we can't just rely on insurance to solve our problems".

“We’ll get insurance to be the silver bullet to solve our problems but that is, and has been proven to be, far from reality,” Thomas said. 

Taking a risk management approach, Thomas said there were four key components. 

“There’s a risk assessment, which is identifying and understanding our risks. There is risk reduction, which is actually investing in adaptation to reduce those risks and investing in mitigation to make sure that we keep global warming to 1.5C.

“There’s risk transfer which is using tools like insurance to transfer that risk and then there’s risk retention, which means that you have to recognise that some impacts will remain, and you have to prepare for those impacts.” 

Thomas said these were four big pieces of a puzzle and only focusing on insurance meant you’re missing the whole picture. 

The challenge was thinking insurance was “going to come in and save the day” without small islands having the resources to adapt to reduce their risks and also have money to respond to loss, damage and risk retention, Thomas said. 

For Talia, climate finance remains difficult for small island developing states to access. 

Climate finance is local, national or transnational financing which aims to support actions that will help with climate change adaptation and mitigation. 

"This will apply across the board when it comes to insurance facility," Talia said. 

For Faafoi, the challenge was; “an inability of politicians, whichever jurisdiction that they are in, to make the right decisions, and a lack of collaboration between sectors to make sure where we are mitigating against risk, we’re making hard decisions”.

“We have modelled what is going to happen and we’ve got an opportunity to have the right policy and investment to reduce risk [and] mitigate risk,” he said.  

“Here in New Zealand, we’ve made some difficult decisions for communities who face extreme risk, but if we don’t take that opportunity in a bold way then accessibility to insurance here in New Zealand, and it’s a similar story around the globe, is going to become extremely challenging.” 

Collaboration

Faafoi said; “we need to make sure that we’re working together very closely in our local and central governments, banks and communities to lean into some of these issues, to make sure that not just insurance is accessible and affordable in the future, but we’re actually protecting some of these communities and at a macro level”. 

“We’re protecting our communities from some very serious economic pain if we don’t take some of these issues seriously.” 

But collaboration was not just in a resilience and disaster sense, he said. 

“I think insurers need to have, right around the world, different types of relationships with their central and local government and regulators to make sure we can do everything to keep insurance affordable here in New Zealand.” 

Using a New Zealand context, Faafoi said if you’re paying for house insurance, 40% of that premium is regulatory cost. 

“So with a bit of tax, about 45% of that is actually what the insurers are charging to try and send a price signal around risks for a house." 

“So again, if we think this is a gnarly macroeconomic problem and insurance is a risk indicator to that, then we also need to have conversations with regulators and governments about how those premiums are pure risk indicators - not necessarily indicators of other costs that might be thrown into a premium as well.” 

Faafoi said the 40% is something taken on the chin. 

“But if insurers are trying to send risk signals via premium, the dampening of those risk signals by other kinds of regulatory costs aren’t helping the consumer or citizens get a really fair indication of what those risk factors are.”

“And if you continue to pile more costs as a result to try and meet some of the costs of our collective challenge, again insurance isn’t an indicator of risk, it’s an indicator of other costs,” Faafoi said. 

Potential expansion

Bednarek said there have been longstanding solutions to disaster risk which has been “at the heart” of New Zealanders’ comprehensive insurance. 

But there are escalating challenges of risk - not just in New Zealand but globally, Bednarek said. 

Bednarek said there was potential for the expansion of public pooling mechanisms - for public and private partnership type models.

“As risks become more and more known, the private market just becomes a less accessible means to get insurance … I think that the idea or question for a context like New Zealand, is how comprehensive do you want this government intervention to be?” 

“Do we include climate-related risk in this equation and does getting some of the public insurance in this climate risk space - such as for flooding which is excluded in our model for New Zealand - does that give you some more levers to actually pull in terms of resilience, even as you’ve got to also balance that against the question of the risk signals,’ Bednarek said. 

Bednarek also said there was huge scope when it came to community-based models. 

“So if we actually look at some models that are more at - as well as the parametric and the microinsurance - that community leadership type level, I think that’s an exciting opportunity.”

Faafoi said these were multi-dimensional problems and required collaboration as well as mature conversations on planning, building and community. 

“I think if you can navigate all of that, the accessibility to insurance issue is a much easier conversation to have, but if you don’t have all those parts of the conversation coming together then risk is risk, and our members and the reinsurers price risk.

“And if they don’t see that risk being reduced, then there will be a signal set in the price.”