New Zealand is on track for yet another record-breaking year for climate-related insurance claims, prompting a stark warning that society must take a long-term view on climate risks.
New claims data released by the Insurance Council of NZ (ICNZ) reveals total insurance payments back to communities for extreme weather events are closing in on $200 million for this year so far.
Last year set a new record for such payments at $324m, up on the previous, 2020 record of $274m.
The new data does not include claims for three major storm events in July, for which total figures will not be finalised until early in September. Each of these is expected to be more than $5m.
ICNZ chief executive Tim Grafton said communities are once again enduring a hard year, reaffirming the need for risks to be reduced by investment in adaption measures such as flood defences.
“There is no doubt we are going to be exposed to more frequent and more impactful extreme weather events,” Grafton said.
“We have seen record insured losses the past couple of years and we are looking at another record for 2022.”
The trend is putting a strain on insurers and communities alike with soaring building costs and ongoing supply chain constraints all adding to premiums.
As well, the rising cost of reinsurance – insurance bought by NZ’s private insurers in the event of large-scale events – also flows through to premiums.
“As a country we need to focus high-level investment in better adaption measures to reduce risks,” Grafton said.
This, he said, will help people living in event-prone communities and also support insurance companies.
“If we sit on our hands and do nothing, insurance companies will respond to the challenges in their own ways.”
This could well mean no insurance or at best soaring insurance premiums.
“If there was no insurance then we would have to be doing something about it to reduce risk, so that’s where the focus needs to go.
“Insurance only transfers risk, it doesn’t reduce it.”
Communities need to act now through local and central government to build resilience in the face of local risks, be they flooding, a rising sea level, drought or wildfires.
“Investment is needed in natural man-made measures in order to keep risks at a level where insurance is affordable for both property owners and insurers over the medium to long term,” Grafton said.
Honest conversations need to be had where homes, businesses and community assets such as roads and water infrastructure are built and maintained.
Farmers, householders, community groups, iwi, businesses and insurers all have a role to play.
However, Grafton said, much of the work and cost will fall to central and local government to ensure there is an appropriate legal framework and investment in place to manage these risks over the decades ahead.
“What we have done in the past 40-50 years is inadequate for today so we need to look at the next 50-100 years and plan for that.
“There will be areas of NZ where the ratepayer base will be low because of population size and they will not be able to afford the work required.
“The question then being, is there a role for local government to contribute, or opportunity to harness the private investor sector?
“It comes down to what is the cost of not doing it – we need to find a way.”
The reduction of risks through investment in resilience is central to maintaining both the affordability and availability of insurance.
“In that way we can ensure that when the worst happens, insurers are there to help put businesses and communities back on their feet.”
Grafton acknowledged the challenges farmers face in getting insured.
“There are a lot of different aspects to what can be insured – fence-lines, for example, crops for another. It can be costly, so through necessity farmers are selective.”
In a new wave of cover options, Grafton said it’s likely NZ insurers will pick up on “parametric cover”, insurance that is being used in other parts of the world.
“This is black-and-white cover to a certain threshold. If the adverse event meets the set threshold barrier then there is a payout; if not, there is no payout at all.
“This could be an option that could suit farmers, but there would need to be full understanding of benefits and limits.”
Land remains uninsurable. Nowhere in the world is land covered by insurance, Grafton said.
