After the storms, what is the future of insurance?

From The Detail, 5:00 am on 10 March 2023

Red sticker, yellow sticker, managed retreat - the way we think about insurance has been turned upside down by a summer of extreme weather events. The Detail looks at the role insurers will play in future decision-making about high risk areas.

Damage caused by a slip on Scenic Drive in West Auckland's Swanson on 1 February.

Photo: RNZ / Mohammad Alafeshat

A summer of devastating storms has put the spotlight on the role of insurers when it comes to issues like flood risk and managed retreat.

Janine Starks, a former fund manager who writes about insurance, predicts that 'insurance retreat' will drive the housing market away from areas at risk of flooding more than government-led 'managed retreat' will.

"We've got a small group of insurers who, I think, are probably acting pretty responsibly at the moment," she tells The Detail.

"Right now, in the short and medium term, they want to keep every New Zealander insured and they want to work with government to achieve that."

But some tough conversations are on the horizon.

"[The insurers are] not panicking, but what they are saying is that we've got some areas of very risky housing and it's going to get to the point where they won't want to touch it.

"I think they're being responsible and having these conversations now, on the back of a giant event, so they've got our attention and the government's attention."

In these situations, Starks explains insurers can do two things.

"[They] can either refuse to quote on your property - if it's got too much risk, you haven't raised the floor levels, there's no flood management in place around your house form the local council.

"Or they can just keep increasing the price on you because you are a very risky property that they might expect to flood in a one-in-20-year event.

"By increasing prices and then eventually not quoting, that's how insurers retreat."

Starks says insurers don't want to retreat from low- and medium-risk properties, but they are having conversations with government about managing people away from high-risk areas, or putting mitigation in place to reduce the risk.

One thing is certain, though: insurance premiums are only going to keep going up, says Consumer NZ investigative writer Rebecca Styles.

Consumer NZ's most recent survey found premiums for house and contents insurance jumped by between five and 17 percent, despite government moves to bring them down through increases to the EQC levy.

Styles says some people have started cancelling their contents insurance because of the cost.

"A lot of renters, a lot of younger people in Auckland I've been hearing anecdotal stories of, they just don't have contents insurance, so they're stuck with having to find somewhere else to live and replace the washing machine, the fridge, all of this stuff."

In the aftermath of Cyclone Gabrielle in particular, concerns have been raised about insurance companies quoting to rebuild or repair homes - even if they're in high-risk areas.

But Starks says insurance companies are dealing "in black and white".

"All they can do is deliver whatever contract you've bought off them. If you're sitting there and there's a house which only needs a repair, it may be blatantly obvious to an engineer that the floor level needs raising so this doesn't happen again.

"All the insurer can deliver for you is clinically what needs doing, the repair on the house, it's simply not a write-off. They don't insure your land, so they can't make you move or even suggest that you move - that's not their role in society."

Find out more about how the insurance sector might respond as we face more extreme weather events in the full podcast episode.

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