Kerre Woodham: Who should be paying more for home insurance?

It's not really a huge shock, is it? The news that homeowners will have to pay even more for home insurance to help the Natural Hazards Commission (formerly known as the EQC), is to be expected. Insurers have been warning for years that premiums will rise and will continue to rise, that they may have to put some of the cost of risky properties back onto homeowners and in some cases, they'll be declining to insure homes altogether. And we've already started to see that.  

In 2017, a then-record $242 million in weather-related claims was paid out. Just six years later, climate related claims were more than $3.5 billion due to the Auckland anniversary floods and Cyclone Gabrielle. It's incredible when you see the insurers' charts, 20 odd years ago they'd say this is a record year or this is a once in 100 year, then the next year, or three years later it would treble in terms of the cost of the claims that had to be paid out. 

So there's a pattern, you'd be a fool to ignore it, and the government is not doing so. Nor is the insurance industry. The Natural Hazards Commission provides cover for capped portions of residential buildings and land damaged by earthquakes, landslides, volcanoes, hydrothermal activities, tsunamis, storms, and floods (land cover only). Leaving private insurers to cover the rest.  

The NHC has struggled to recover following the Canterbury earthquakes and faces huge future claims costs. The new modelling lifts the likelihood of a big earthquake, with construction costs soaring post-pandemic and the reinsurance market hardening. The NHC is so underfunded that there's only a 37% chance the levy income will meet the costs over the next five years, according to the Treasury. And the NHC must cover the first $2.1 billion of claims related to a natural disaster before it can tap into its reinsurance cover. So just like any insurance claim, you must pay your excess, and then it will chip in. It's just in this case, $2.1 billion is your excess.  

Given there's only $500 million in the kitty, if there was a big disaster today or tomorrow, the government would have to find more than $1.6 billion to cover the claim costs before reinsurance cover could kick in. Associate Finance Minister David Seymour says levies will almost certainly need to rise, Cabinet’s set to decide on the changes in the coming months. An insurance consultant told Ryan Bridge this morning it'll probably cost homeowners an extra $200 to $300 more a year. And if that sounds like a lot, well count yourself lucky, because there are some people who simply won't be able to get insurance for their homes.  

And it's not just people in the obvious places on cliffs or banks next to rivers who will be paying. Everyone is at risk. And those living up the top, who’s homes are built on traditional drainage areas or water soak areas are part of the problem. We're all in this together. So, what are your options? If you have a mortgage you have to be insured, but it might mean that people take the bare minimum because that's all they can afford, meaning they are left underinsured and depending on the kindness of strangers to recover after disaster strikes. Will Give A Little be the insurer of choice for people who can't afford to cover themselves?  

I assumed Hamilton might be the safest place to live, and I was right. Volcanologists say Hamilton is probably the safest place to live. It’s away from the coast which cancels out tsunamis. It’s a safe distance from known fault lines, although there is the caveat that one could be lurking. It's far enough away from Auckland's volcanic field to be considered safe, and even if the Waikato River flooded its much lower than the houses around it. In the North Island, there's no real escape so should the north be paying more? Do we start pointing the finger at other areas? Can the people of the Waikato say “Hey, not us. We are living in a really safe a

Episode Transcript

Speaker 1 (00:06):
You're listening to the Carrywood and Mornings podcast from News
Talks HEADB.

Speaker 2 (00:11):
It's not really a huge shock, is it. The news
that homeowners will have to pay even more for home
insurance to help the Natural Hazards Commission formerly known as
the QC is to be expected. Insurers have been warning
for years that premiums will rise and will continue to rise,

(00:33):
that they may have to put some of the cost
of risky properties back onto homeowners, and in some cases
they'll be declining to ensure homes altogether. And we've already
started to see that. In twenty seventeen, a then record
two hundred and forty two million dollars in whether related
claims was paid out. Just six years later, climate related

(00:56):
claims were more than three point five billion dollars due
to the Auckland Anniversary floods and cyclone Gabrielle. And it's
incredible when you see the insurer's charts for the New
Zealand landscape. They keep them dating back to the sixties,

(01:18):
and I've seen them at about three different conferences, and it
is extraordinary watching the number of claims rise and rise
and rise. And twenty odd years ago they'd say this
is a record year. This is a once in a
one hundred year. Then the next year or three years
later it would treble in terms of the cost of

(01:42):
the claims that had to be paid out. So there's
a pattern. You'd be a fool to ignore it, and
the government is not doing so. NORA is the insurance industry.
The Natural Hazards Commission provides cover for capped portions of
residential buildings and land damaged and earthquakes, landslides, volcanoes, hydro

(02:04):
thermal activities, armies and storms and floods and and cover only.
It leaves private insurance to cover the rest. The NHC
or the EQC has struggled to recover following the Canterbury
earthquakes and faces huge future claims costs. The new modeling

(02:25):
lifting the likelihood of a big earthquake, with construction costs
soaring post pandemic, and the reinsurance market hardening. They're saying, no,
we don't want to no, no, I'm sorry New Zealand.
You say that place with all the volcanoes, the earthquake
prone place, the one that's between two tectonic plates, that's

(02:47):
surrounded by water, that has mountains that allow the rain
clouds to climb up and then exhausted dump down onto
the range below. Yeah, no thanks. And if you do
want reinsurance, it's going to cost You're going to pay
through the nose. So underfunded the NHC that there's only

(03:09):
a thirty seven percent chance the levy income will meet
the costs over the next five years, according to Treasury
and the NHC must cover the first two point one
billion of claims related to a natural disaster before it
can tap into its reinsurance cover. So, just like any
insurance claim, you have to pay your excess and then
it will chip in. It's just in this case it's

(03:32):
two point one billion is your excess given there's only
five hundred million in the kitty. If there was a
big disaster today or tomorrow, the government would have to
find more than one point six bill to cover the
claim costs before reinsurance cover could kick in. So Associate

(03:52):
Finance Minister David Seymour says levies will almost certainly need
to rise. Cabinets set to decide on the changes in
the coming months. An insurance consultant told Brian Bridge this
morning it'll probably cost homeowner an extra two to three
hundred dollars more a year, and if that sounds like
a lot, well count yourself lucky, because there'll be some

(04:18):
people who simply won't be able to get insurance for
their homes. And it's not just people in the obvious
places on cliffs or banks, next to rivers or streams
who should be paying. Everyone is at risk, and those
on living up the top who live in homes built
on traditional drainage areas or water soak areas are part

(04:41):
of the problem. We're all in this together. What are
your options? If you have a mortgage, you have to
be insured, but it might mean that people take the
bare minimum because that's all they can afford and are
left underinsured. And depending on the kindness of strangers to
recover after disaster strikes will give a little be the

(05:05):
insurance of choice for people who can't afford to cover themselves.
I assumed Hamilton might be the safest place to live,
and I was right. Vulcanologists say yes, Hamilton is probably
the safest place to live so away from the coast.

(05:26):
It's the furthest inland city which cancels out tsunamis safe
distance from non fault lines. Although there is that caveat
could be one lurking. It's far enough away from Auckland's
volcanic field to be considered safe. And even if the
Wakata River flooded, it's way down. You know. Houses might

(05:49):
be built close to the river, but they're up high
in the North Island there's no real escape. So should
the North be paying more? Do we start pointing the
finger at other areas? Can the people of the White
Cuto say, hey, not us, We are living in a

(06:12):
really safe area. If you choose to live anywhere outside
of Hamilton, it's on you. Do we ban the rebuilding,
make them no go zones of any area that's been
flooded two, three, four times in the past one hundred years.
And it's all very well and good. For those who

(06:32):
have not been flooded, or have not been affected, or
haven't seen their homes turn to smithereens to say, well,
just move. You know, we can't possibly keep paying for
that house to be rebuilt. But for most people, their
home is their castle. It is their most significant financial investment.

(06:53):
If they can't sell their home, they can't move. They
have to patch it up and make do so I
would be really interested to hear your thoughts on this one.
Do we go in this as we're all in this together,
except that we're living on the shaky aisles? That we
are a natural hazard magnet and that's the price you

(07:18):
pay for living in a bucolic paradise. Should some areas
pay more than others? Do you get the insurance companies
who's business business it is to gauge risk, to basically

(07:38):
set cover across the country based on the riskiness of
each region. Do we ban the rebuilding on non flood areas?
What do you think the answer might be? As we
struggle to come to terms with living within our environment,
we're not so far removed from early settlers really, as

(07:58):
we try to balance the advantages and disadvantages of living
where we do.

Speaker 1 (08:02):
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