Parliament’s Finance and Expenditure Committee (FEC) has been warned the increasing frequency of major natural hazard events is causing global reinsurers to reassess New Zealand's risk profile.
The Insurance Council of New Zealand (ICNZ) told the FEC in a public submission on Tuesday the increase in natural hazards is impacting the cost and availability of reinsurance, which in turn is affecting the cost and availability of general insurance across the country.
The FEC was given the responsibility of determining how NZ manages the risks and expenses associated with future extreme weather events back in May.
The Committee's holding an all-day public meeting on Tuesday to hear submissions to the inquiry.
In his submission, ICNZ Chief Executive Kris Faafoi said NZ needed to be sending “strong signals” it was doing everything it could to prepare for and reduce climate risk in order for reinsurance markets to continue to have confidence in NZ.
“Maintaining that reinsurance is vital for our economy,” he said.
As of March this year, insurers have so far paid out over $3 billion from the damage and destruction caused by Auckland Anniversary Floods and Cyclone Gabrielle in 2023. Insurers to-date have received over 117,000 claims from the two events which the ICNZ has described as the largest ever insurance weather events NZ has experienced.
Reinsurance, or insurance for insurers, transfers risk to another company to reduce the likelihood of large payouts for a claim. The ICNZ represents fire and general insurance companies.
Faafoi said if climate risks weren’t addressed and were allowed to become greater over time, it could result in increasing premiums and withdrawal of insurance cover.
“That scenario on a large scale would have serious implications for families, communities, local councils, the Crown and the wider community,” Faafoi said.
Insurance pricing is increasingly becoming more risk-based, with general insurer Tower being the first insurer in NZ to introduce risk-based pricing back in 2018.
NZ’s other general insurer giants like IAG and Suncorp have since followed in Tower’s footsteps.
Managed retreat
Matt Whineray, the ex-Chief Executive of the NZ Super Fund and the current chairman of the independent reference group set up by the Ministry for the Environment (MfE) also made a submission on Tuesday.
The group is assisting MfE in the development of policy recommendations for the climate adaptation framework.
Whineray told the committee one of the challenges around managed retreat was that it requires compulsion.
“It's not something that we as a nation particularly like and has been problematic in the past in the use of things like the Public Works Act. So I think that is a real challenge,” he said.
In discussions with MfE, Whineray said several principles had been considered as important.
This ranged from the requirement that “all actors” possess relevant climate risk information to the principle that parties benefiting from investments in defensive infrastructure should share the costs.
“This also would include local and central governments as property owners, infrastructure owners and potential funders in locations where retreat is inevitable. Sharing of the cost of defensive infrastructure should include recognition of the time limit that climate change is imposing,” Whineray said.
He added later on in his submission that the Government’s climate adaptation framework would have to endure for more than 100 years across numerous political cycles.
A “big education programme” would be needed to ensure widespread understanding of the adaptation approach and decision-making process.
The inquiry plans to provide recommendations and principles on the framework and report back to Climate Change Minister Simon Watts on the 5th September.
Watts said in June that this would ensure the Government would have the fundamental elements to be able to put in place an Adaptation Framework Legislation Bill into the House in early 2025.
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