About 60,000 homes in New Zealand are not insured, according to Natural Hazards Commission Toka Tū Ake chairman Chris Black.
The commission’s chief executive Tina Mitchell says while there has not been a massive decrease to its levy income, suggesting people are still buying insurance, whether they’re insured to the full sum amount is another question.
Mitchell, Black and the NHC’s chief strategy officer Michala Beacham spoke at Parliament's Finance and Expenditure Committee meeting on Wednesday about the NHC’s annual review for 2024/2025.
“Our levy income hasn’t reduced so we know the national portfolio is well insured - whether it’s fully insured is not something we would have sight over,” Mitchell says, as the NHC only covers the first $300,000.
“We know what the number of houses are in New Zealand … For each one of those houses we would expect to get a levy income … We are not seeing a massive dip in our levy income which suggests everyone is still buying insurance, at least to $300,000.”
Black says there were three important components: access to insurance, affordability of insurance and adequacy of the insurance.
“You can have access to something that’s affordable but it’s not adequate.”
As part of their insurance premium, homeowners pay a Natural Hazards Insurance Levy.
This money goes into the Natural Hazard Fund and is used to cover claims after a natural hazard event. The fund is also used to buy reinsurance from international financial markets, meet the costs of administering the Natural Hazards Commission Toka Tū Ake (NHC) Scheme and goes towards research and education.
For each natural hazard event, the NHC currently pays $300,000 towards rebuilding or repairing a residential home. This is called a building cover cap and currently, the Natural Hazards Insurance Levy is 16 cents per $100 of the insurance cover amount.
NHC Levy 'does need to go up at some stage'
In November, interest.co.nz reported the Government was pushing out its decision on whether to increase the Natural Hazards Insurance Levy with Finance Minister Nicola Willis saying at the time insurance was a major cost-of-living pressure for New Zealanders.
The Treasury had been consulting with industry professionals, experts and community representatives to look into the financial settings and levy settings under the Natural Hazards Insurance Act 2023. Options were put forward to maintain the levy at its current rate or to bump it up.
The options put forward for consultation were to maintain the levy at its current rate of 16 cents per $100 of cover, or increase the rate to either 22 cents, 24 cents or 25 cents per $100 of cover. In the consultation document, 24 cents per $100 of cover is considered the technical levy rate.
If kept at 16 cents per $100 of cover, this would be $480 per year. If it went up to 22 cents, it would be $660 per year and $720 if it went up to 24 cents per $100 of cover. For 25 cents per $100 of cover, it would be $750 per year.
The $300,000 building cover cap, the maximum amount the NHC can pay for a building claim, was also looked at, with options to keep it the same or increase it to $400,000.
Asked about the delay, Black says: “That’s a decision for the Government of the day and at the moment, I think the priority seems to be on the review of private sector insurance so I imagine it will come back onto the table after that but it does need to go up at some stage.”
Last week, the Government announced it was launching a six-month review into home insurance affordability and costs.
Black says the NHC could handle the costs that come with current weather events but they needed to be set up for “the big event.”
“Ultimately, there’s a Crown guarantee if a big event happens and we haven’t got enough money for that," Black says.
Using a model event for a magnitude 7.8 earthquake in Wellington, Black says if this costs $15 billion, the way it would be funded is the NHC has $10 billion of reinsurance and an excess starting at $2.5 billion.
“So that goes up to $12.5 billion. So the Crown would be on the hook for above that and they’re also on the hook for the balance from $2.5 billion back down to our current balance … which is currently about $600 million.”
Second riskiest country in the world
Mitchell says last year the commission secured $10.3 billion worth of reinsurance.
“So we went up by a billion but for the same price that we paid the year before."
The scheme was 80 years old and had a longstanding relationship with the capital markets, Mitchell says.
“When we are the second riskiest country in the world and when we’ve got the financial pressures that the country is experiencing at the moment.”
Talking about the rising risks of climate change, Mitchell says: “If I can start on an optimistic note, the global commentators say ‘look if anyone can do it, New Zealand can actually’ because we’ve got some really good foundations in place, a fantastic public-private scheme … [they also say] ‘no one has all the answers but you’re only five million people so if you guys can join yourselves up together and get going, anyone can.’”
Insurance affordability
Mitchell says affordability is a live issue and a fair issue for everyone to think about.
“Insurance affordability and the financial settings are a downstream symptom of the real problem. I think the big problem, the core problem, is that the risk is increasing.”
Mitchell says what was driving the weather-related events in New Zealand were changes in weather patterns and the amount of tropical storms coming from the north.
“Now New Zealand has a double whammy, we’ve got catastrophic risks of earthquake, volcano, tsunami - the things we’ve always lived with, and now we’ve got this new layer of climate-related risk that we’re all adjusting to as well.”
An important place to start is with data and information to understand risk and then, to look at ways of reducing the risk, Mitchell says.
“Until you shrink the risk, then you look at the financial settings and the solutions and the things that you can do for where you can’t eliminate the risk at all.”
With the Government's National Adaptation Framework, which includes creating a national flood map and introducing legislation clarifying the responsibility of local government by requiring adaptation plans in the highest priority areas, Mitchell says the NHC were helping with ensuring there’s a national view of the science and the risk.
Southern Response and new claims
Asked about on-sold and reopened claims in Canterbury, Mitchell says the original wave of claims have been settled.
“What it is, is people come in to revisit that claim for the property. The most common catalyst is people going to sell the house and doing an inspection and finding damage they hadn’t noticed before.
“Or doing renovations, or in other situations there are certain companies that proactively go street by street, offering to do free inspections … over 50% of those incoming queries are from those companies.”
Mitchell says sometimes it was earthquake damage and other times it was a normal end of life.
Southern Response were also anticipating these types of claims.
The Government-owned company also had its annual review before the Finance and Expenditure Committee on Wednesday.
When asked how long things were expected to continue, its chief executive Casey Hurren says there will be new claims that are yet to come through the door.
Two thirds of their policy holders are the original homeowners and the average age of Southern Response’s policy holders was 65.
“What you’d expect in the next 10 to 20 years is that group would look to sell their house and then may discover that there are some issues with the original appearance. So it still could go on for quite a long time as people move on and buy, and sell, houses in Canterbury.”
Hurren says the buying and selling of property is often the catalyst for discovering there’s a problem.
What Southern Response planned to do was track down people and potentially go to their properties to check if things were done properly the first time, Hurren says.
“We want to do it in a sensitive way.”
“We don’t want to spook people or scare people unnecessarily so we’re looking at smarter ways of doing it like around land conditions - so if it was poor land at the time, or if there was certain characteristics of the property … was it a heavier property, heavier cladding - that might mean there was more damage as well," Hurren says.
“So we’re doing a lot of that desktop work at the moment to try and assess that."
With some of these claims yet to come through, Hurren says: “If we sat on our hands and did nothing, it would be another 20 or 30 years we could potentially be getting claims, just as that demographic ages and moves on into downsizing or retirement homes."
“If we can do the work that we’re doing at the moment, well then we’re hoping we can bring that forward.”
“That’s why for us, there isn’t the opportunity for us to just say ‘sorry, we’re packing up and closing down now’ because for some of these people, they’re going to discover this problem as they’re dealing with their largest asset thinking they’ve worked hard all their lives and then all of a sudden discover that there might be a problem," Hurren says.
"So that’s the difficulty in all this.”
14 Comments
The govt should force the insurance companies and the EQC (whatever it called in its current form) to give limited hazard cover. Eathquake and volcano but not inundation or flood risk. Right now it's all or nothing.
Surprisingly high figure of uninsured. I can only assume they also don't have mortgages as maintaining insurance is usually required by the bank?
What happened in Chch after the earthquake to those uninsured houses?
IIRC the then govt ignored the moral hazard & eventually caved in to "be kind"
Little to do with 'kindness'. The law required services to affected red zone houses be reinstated and maintained but this wasn't physically feasible due to land elevation and compositional changes. The Govt had limited legal options and took the lowest cost path of compensated retreat.
rolande. 30% of NZ houses don't have a mortgage. Courts eventually forced a reluctant govt to include uninsured houses located within the ChCh red zones in its retreat compensation scheme. The numbers back then were tiny in comparison with the % that is uninsured now though. Based on the numbers in this article, a widespread heavy damage disaster in a metropolitan area such as ChCh or the Southland floods would have catastrophic social consequences.
EDIT: good point. Maybe the law needs to change as to what you should expect from government and council if you aren’t insured.
I was thinking something like that. Some sort of clear policy statement saying in the event of a disaster there's no bailouts. They did this with agriculture and hort a few decades ago and have largely kept to it
The law is already very specific . There is no difference between what you can expect from the government if insured or not insured. Buying insurance gets you the insurance coverage plus eqc, natural hazards. Otherwise everyone is the same.
Confusion only came because Jerry Brownlee decided there were two classes of citizen in ChCh. Those with insurance and untouchables without.
the public need to understand that there are risks in life, and take necessary precautions to mitigate them accordingly. We will see more stories of people crying foul in natural disasters expecting a government payout as they weren't insured, which will not come. The general public has a strong sense of malaise in this are I feel. If one has an uncle or someone tangibly close that loses everything, then their circle around them will naturally seek greater protections from the same fate.
Perhaps the Natural Hazards Commission should assume responsibility for all property insurance against natural disasters, and its premium be a compulsory levy added to rates bills.The Commission would be required to guarantee everyone cover. But it would have to introduce risk-based pricing—charging premiums according to each property’s natural hazard exposure. This would create incentive for wise development, reward caution, and signal the true implicit cost of building in a particular place. Its current flat-rate levy means prudent homeowners subsidise those building in high-risk areas.For existing homeowners, transition mechanisms could phase in risk-based pricing gradually. High premiums in risky areas could fund buyouts, protective infrastructure, and managed retreat, with insurance pricing guiding New Zealand’s adaptation to climate change and seismic reality.
Sounds good in theory. Here's a real case for you. A property was deemed to be at risk of inundation according to RCP6 Actually tabled to NPDC in a report. NIWA did the assessment for risk inundation in the surrounding area. This inundation would occur in about 2080. NHC would take that and charge accordingly. This would have to be done for the whole country. Another council might pick RCP4.5 or heaven forbid RCP8.5. Insurers including NHC will latch onto any type of inundation report and treat it as gospel so they can raise premiums. There's also a new set of RCPs.
Glad someone else pays attention to these reports :-)
IMO likely the government will wait until after the general election then apply the '24 cents per $100 of cover is considered the technical levy rate' not the full 25 cents so to be able to congratulate itself on its restraint.
Yes, you are probably right. The NHC is now significantly underfunded. Willis has a little breathing space as reinsurance costs are presently falling but show time is coming. Meanwhile the low risk folks in Tokoroa continue subsidising risk taking north shore cliff top dwellers. The socialise the risk NHC model is unsustainable and the sooner govt moves to a (at least partial) risk based underwriting model, the less pain will be visited on us. It will however probably require sequential Bola's or Gabriel's to sufficiently focus the key minds.
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