Treasury data shows insurers eyeing flood risk assets

photo: Royal Bank of New Zealand

New figures from the Treasury show one in four homes in high-risk flood areas could cost hundreds or even thousands of dollars in extra insurance premiums.

And in New Zealand, premiums have risen by almost 30 per cent in just 18 months, with more insurers cutting prices to settlement levels as risk models become more sophisticated.

Experts Previously warned As the risk of weather events driven by climate change continues to rise, some properties will become too expensive to insure or even impossible to insure at all.

Actuarial consultancy Finity has been monitoring insurance premiums on behalf of the Treasury since the end of 2022, with the property data set selected to match New Zealand’s natural disaster profile.

The addresses are real, but other information, such as the age of the property, insurance amounts, and building materials, is random, so the “houses” in the dataset are not real people’s homes.

Since October 2023, monitoring has expanded to 1,710 properties in suburbs across the country known to be affected by river or surface flooding.

The latest report, released this week and based on data from April 2024, shows insurance remains widely available.

For the homes in the earthquake dataset, 93% had online quotes available from at least two of the four insurers monitored by Finity: IAG, Tower, AA Insurance and Vero.

The exception was Canterbury, where nearly half of properties received just one offer.

For properties at high flood risk, 92% were also able to get online quotes from at least two insurance companies – but 25% of those were quoted at least $250 in additional flood insurance premiums.

In the most extreme cases, flood insurance premiums can be as high as $4,500, although the vast majority of high flood insurance premiums are less than $1,000.

Despite the wide availability of listings, properties in some flood-affected suburbs did struggle to get multiple online offers.

In the Christchurch suburbs of Avondale and Woolston, none of the high-risk properties in the data set received more than one online offer. Even low-risk properties struggled, with only 10 per cent of Woolston properties and no Avondale properties receiving a second offer.

“The difference in availability between high/low risk properties and no risk properties suggests that at least some insurers may be using flood risk as a driver of underwriting criteria,” the report’s authors said.

A November 2023 monitoring report published this week noted that three of the seven insurers monitored appeared to base their pricing on flooding at the address level. “The other four do not appear to adjust their prices significantly based on local flood risk.”

Suburbs with high earthquake and flood risks had the lowest availability, the report said.

Overall premiums have also increased by thousands of dollars at times since monitoring began in September 2022 before Hurricane Gabriel struck.

Nationally, the average minimum online asking price for a property was $1,839 in April, up 15% year-over-year and 29% since monitoring began.

Canterbury (28.5 per cent), Tasman (23 per cent) and the West Coast (22.5 per cent) recorded the largest annual increases.

Insurance Council chief executive Kris Faafoi said premiums “tend to rise after large-scale natural disasters, such as the Auckland anniversary weekend flooding and Cyclone Gabriel last year”.

“We are still seeing the impact of this in Finity’s data. With construction inflation and reinsurance rates stabilising, some of this pressure is easing and has fed through to premium levels.”

Climate change researchers warn that by the end of the next decade, insurance companies may begin to withdraw from some communities with higher exposure to extreme weather events.

A study published in 2020 by Climate Sigma, looking only at major centres, predicted that by 2050 10,000 coastal homes could face total insurance lapse, meaning they would be either unavailable or too expensive to cover.

Fafoy said the move to risk-based pricing meant insurers could continue to offer cover “while appropriately pricing the risks to life and property”.

The Insurance Commission, major insurers and the Council have urged successive governments to develop national climate adaptation plans detailing how at-risk communities can be protected or even moved out of danger.

Parliament’s Finance and Expenditure Committee is currently hearing submissions as part of Bipartisan survey Climate adaptation.

Faafoi said the insurance industry supported efforts to improve resilience across the country.

“This will require a step-up effort across many departments, parliaments and governments to meet the challenges facing New Zealanders, communities and regions from more frequent and severe natural disasters,” he said.

“The way New Zealand companies work together with all parties offers the best chance of successfully investing in mitigation and adaptation measures, sends the right signal to reinsurers that New Zealand is reducing risk, and helps ensure insurance is affordable and accessible.”

The cross-party inquiry is due to report in September and its recommendations will be used to help shape legislation, which is due to be introduced in early 2025.