Consumer NZ says it expects insurance retreat to impact more areas around New Zealand because of increased flooding, landslides and sea surges

A consumer advocacy group says it expects insurance retreat to impact more areas around the country because of the increasing number of floods, landslides and sea surges.

In its latest survey looking into insurance premiums, Consumer NZ’s research lead Rebecca Styles said about 1% of over 3000 survey respondents told the organisation that they couldn’t switch insurance providers because no other provider would insure them.

While 1% may seem like a small figure, Styles said it’s a sign of a market that’s not working for people.

“With one insurer, obviously you’ve got to pay it and there’s not many other options of doing anything else …You need to have an insurer to access the NHC (Natural Hazards Commission) scheme and there are knock-on effects for your mortgage. You need insurance for your mortgage.”

But Styles said that 1% is the tip of the iceberg. “I would expect that number to grow over the coming years with more extreme weather.”

“So I would expect it’s good to have that as a starting point of data and I would expect it to go up in coming years if nothing changes with the insurance market and if nothing happens with the climate adaptation framework. Those sorts of things need to work in concert for us to see the market working properly.”

“A market works when customers are engaged and can move around and get the price that works for their home and household budget,” Styles said.

Lay of the land

Insurance is a growing cost-of-living issue and continues to be in the spotlight as people see their premiums jump and more extreme weather events in New Zealand.

It has led to the Government pausing its decision on whether to increase the Natural Hazards Insurance Levy, and instead focus on a six-month review which aims to look at home insurance affordability and costs.

Insurance availability has recently come into question with reports of AA Insurance temporarily suspending new house and landlord policies in places like Westport and Canterbury.

Alongside this, the Government launched its National Adaptation Framework in October. The framework includes creating a national flood map and introducing legislation clarifying the responsibility of local government by requiring adaptation plans in the highest priority areas.

But it also comes with a message to New Zealand homeowners.

Documents on establishing a National Adaptation Framework were proactively released, with a paper Watts took to Cabinet outlining proposals. Alongside this was a Minute of Decision document from the Cabinet Economic Policy Committee.

In this document, the committee agreed: "The Government's intent is to move towards an end state where the Crown no longer distorts risk signals and blunts incentive to manage risk by providing financial assistance where homeowners suffer significant losses after major events (especially in the form of residential property buyouts)".

Speaking to reporters at the time, Climate Change Minister Simon Watts said: “What the framework is signalling clearly is that the Crown being the one that is always having to foot that bill is not going to be a financially sustainable model for the country going forward.”

This year, the Government has already provided monetary support to regions affected by extreme weather events through mayoral relief funds.

In January, heavy rain and floods affected places like Northland, the Coromandel Peninsula, Bay of Plenty, the East Coast and Gisborne. A landslide came down at the Beachside Holiday Park at Mt Maunganui, leading to the deaths of six people.

Currently a storm system is causing major disruption across New Zealand.

Over the weekend, the Bay of Plenty and Tairāwhiti Gisborne experienced flooding, Wellington experienced flooding and gales. Waikato was also hit with extreme weather, which led to flooding, slips and the death of a man after his vehicle became submerged.

Parts of Christchurch and Banks Peninsula are also experiencing flooding, and several areas are under states of emergency across Aotearoa.

Simon Watts on managed retreat

To reinsurers, New Zealand is viewed as the second riskiest country in the world when it comes to natural hazards, only behind Bangladesh.

With growing insurance and climate pressures, managed retreat has been in discussion. This is the movement of people, assets, activities and sites of cultural significance away from areas at risk from climate change and natural hazards. 

Speaking to Newstalk ZB, Climate Change Minister Simon Watts said while it is an extreme option - it’s still a consideration.

In terms of responding to climate change and extreme weather events, Watts said it was important to think about the “lowest cost decision that will achieve and mitigate the risk”.

“At the end of the day, we want to make sure that Kiwi households and businesses have really good information that they can trust to make informed decisions around where they buy, where they live, and where they rent their home.”

More resilience

Prime Minister Christopher Luxon told reporters on Tuesday the Government was building back up a more resilient infrastructure network, using the Hawke’s Bay Expressway as an example. 

"It's building back to be twice as strong with respect to flood resilience. We're building back road networks across the country,” Luxon said.

“We’re building resilience into everything this Government does. We put a lot of money into it over successive budgets. That’s how we roll. We put it into a core activity.”

When asked about whether the Government would consider climate adaptation resilience funding, Finance Minister Nicola Willis said every investment that the Government makes in infrastructure needs to be done within the context of increasing resilience challenges.

“It shouldn’t be the case that we do some money on whatever we feel like doing, shiny new things and some money on resilience.

“Everything should be looked at in the context of: are we prioritising enough to ensure our existing infrastructure is well maintained, that it is resilient to future shocks and that when we are making new investments, they’re what’s needed to contribute to the overall resilience picture.”

When asked what the Government was doing about managed retreat, Willis said the Government had kicked off a review of insurance affordability and uptake.

“It is the case that insurance companies are increasingly doing risk-based pricing in their insurance and we need to better understand what impact that would have on New Zealanders’ ability to get insurance in the future,” Willis said.

“We think there remains a very important role for the Natural Hazards Commission which provides insurance coverage for land and housing affected by major hazards. So that fund continues to play an important role into the future.”

Willis said under the new Resource Management Act, the Government has issued new national directives to make sure councils better plan for hazards - in terms of where development could occur and how they’re preventing the risks of those hazards.

$6 billion fund cut

Labour leader Chris Hipkins told reporters on Tuesday that there was a $6 billion fund that was investing in flood protection work, managed retreat and ensuring that infrastructure we have is more resilient to severe weather events.

“The current Government cut that fund almost as soon as they became the Government. We need to get back to doing that work as quickly as we can.”

When asked if Labour would put money aside to deal with these extreme weather events, Hipkins said: “We have to do a number of things. We have to invest in infrastructure. And we started with the $6 billion fund that National scrapped. We have to look at some of the underlying vulnerabilities that we have … It is the sort of thing you need to work through in Government.”

In regards to this funding, Luxon has previously said the current Government was spending this money and putting it through normal processes. “We want to run it through our existing processes and we have set budgets up and funds up that actually can deal with events like this,” he said in January.

Hipkins said Labour had told the current Government that they would work through this with them.

“I don’t think this needs to be a thing that political parties compete on in the election. It is a necessity.”

Hipkins told interest.co.nz on Monday: “Climate change is a cost-of-living issue. It’s a health issue. It’s a housing issue. Climate change connects directly to so many of the issues that New Zealanders are really concerned about.”

‘Step in the right direction’

Styles said she thought the government review into residential insurance was great and “definitely a step in the right direction”. 

“It’s quite a tight turnaround so that will be interesting to see what they can find out.”

Styles said she would eagerly be waiting the results of that and what policy outcomes could come out of that.

She thought this would fall onto the next government and how proactive they feel about making changes.

“We probably still got a way to go before we see prices coming down.”

As for the climate adaptation framework, she said it was pretty scant on detail and more broad brushstrokes.

“It will come down to who’s going to pay for it all. I think that’s still the nitty gritty thing that needs to be worked out.”

While it was small steps in the right direction, Styles said “we’re a ways from having a result that works for consumers”.

Underinsurance

Consumer NZ’s research also found that three in 10 New Zealanders list the cost of insurance as a top financial concern, and around three quarters of New Zealanders are at least somewhat concerned about the cost of insurance.

Alongside this, Consumer NZ found the median premium for a large house in Auckland had dropped by around 11% compared to the previous year. The median premium for a large house went up by about 10% for Wellington and Christchurch.

Styles said on reflection, the dip in Auckland’s median premium is a correction from the big price rises in Auckland after the 2023 floods and Cyclone Gabrielle.

“I think that reflects more of a correction and the work of the buyouts and the council’s infrastructure plans that has helped alleviate some of the risk in that. So it’s brought it down a wee bit.”

During the Natural Hazards Commission’s latest appearance in front of Parliament’s Finance and Expenditure Committee, its chair Chris Black said about 60,000 houses were not insured in New Zealand.

The commission’s chief executive Tina Mitchell said 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.

Styles said she hoped the government’s review would bring to light the amount of under-insurance in New Zealand.

With changes to the levy on hold, Styles said if a massive event did happen, there’s not enough money in the kitty to pay it - and then it would fall back onto the government.

“A tough call is going to have to be made because if the levy doesn’t go up and the government’s not guaranteeing it, then the private insurer will end up paying more of that chunk,” Styles said, and that would trickle down to consumers’ premiums.

Styles acknowledged that it could be hard for homeowners as these were big structural issues.

She encouraged people to shop around and to make sure they took into consideration not only the price but how much level of cover they would be getting.

“For instance, we’ve got a retaining wall. So when I’m looking for a policy, I’m going for the most I can get for a retaining wall policy … Other people’s houses will have different things that they’re looking for.”

Styles said because household budgets could be tight, people are looking at cost.

“Just make sure you’re not at risk of being underinsured by going with a policy that doesn’t offer you the same benefits as perhaps a more expensive policy does.”