Climate change is fuelling a significant increase in insurance premiums, with experts wondering who should cover the costs.
There's been an elevation in insurance costs for at-risk properties following worsening floods and natural disasters - and a new analysis suggests we'll soon need a better public backstop.
WSP Fellow and Helen Clark Foundation deputy director Kali Mercier says some people's insurance costs have doubled over the last year - and many people are feeling the pinch.
"Consumer New Zealand surveys have shown it's one of the top three economic concerns in families at the moment, insurance prices. So it's already a problem."
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Episode Transcript
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Speaker 1 (00:06):
You're listening to the Sunday Session podcast with Francesca Rudgin
from News Talks EDB.
Speaker 2 (00:13):
Now, we've had warnings around the impact of climate changes
on insurance premiums for a while now, particularly after what
we've witnessed in recent floods, but questions remain over who
should cover the rising insurance premiums for at risk properties.
Should we all be chipping in or is it on
the shoulders of the individual homeowners. A new analysis and
report by the Helling Clark Foundation and WSP has looked
(00:34):
into this issue and it's suggesting a better public backstop
to be put in place. The reports author is Carlie Mercer,
and Carlie is a deputy director of the Helling Clarke
Foundation and WSP fellow, and she joins me, now, good morning, Carly.
Speaker 3 (00:49):
Good morning.
Speaker 2 (00:50):
Are you good? Thank you? Tell me what are the
biggest threats we're facing from climate change impacts on properties?
Speaker 3 (00:56):
Yes, So, firstly, we have a move from insurance companies
to risk based pricing for flooding, which essentially means that
we've now got better data, which means insurance companies can
price a house down the hill and a house up
the hill and say well, this house has actually got
a much greater flood risk, so we're going to charge
you more for your premiums. And that sort of move
is slowly happening now. Within a short space of time,
(01:18):
probably a few years, I imagine, most insurance companies will
have moved to that, and that means for some houses,
their premiums are going to be shooting right up. Meanwhile,
we've also got climate change obviously happening, and we're seeing
much more severe flooding in some places as a result already,
and that's going to get worse. So over time, some
people's premiums are going to become increasingly unaffordable. And then
(01:39):
we're also going to probably see in not two distant future,
insurance companies choosing to withdraw entirely from withdraw ensuring some
properties because they're just too risky.
Speaker 2 (01:49):
At the stage, they have been pretty good at continuing
to ensure, haven't they. I mean, we haven't had a
sort of a full insurance retreat in New Zealand yet, not.
Speaker 3 (01:59):
At all yet absolutely so we've got we've got relatively
affordable ish but still very accessible insurance in New Zealand.
Most places can still get quotes from two or three
companies online. So yes, we're doing okay for now, but
the problems are going to be within the next few
years in terms of insurance retreats. But we're already seeing
(02:19):
problems in terms of affordability. So some people's insurance has
doubled in the last year. For example, I think the
average is about a thirty percent rise in Wellington. My
taxi driver the other day was paying eight thousand dollars
for his not very big property on a one person income,
so you know there's already strain. I think consumer consumer
(02:40):
New Zealand surveys have shown that it's one of the
top three economic concerns in families at the moment. There's
insurance prices, so it's already a problem.
Speaker 2 (02:48):
The Natural Hazards Commission that might cover damage to land
from storms and floods, but not from coastal erosion, and
coastal erosion is a real issue, isn't it.
Speaker 3 (02:57):
Yeah, coastal erosion isn't covered by insurance in general because
it's the scene as predictable, so it's not one of
those things that they'll ensure private company. So private insurance
currently ensures flood risk and NHD previously EQC. They ensure
other natural hazards like earthquakes and so on. But other
countries actually have public insurance schemes like the NHG that
(03:20):
do cover floods as well. So that's kind of what
we're talking about in the report, whether we need to
be looking at something like that here, Charlie, do we.
Speaker 2 (03:26):
Know how many residential buildings could be at risk?
Speaker 3 (03:32):
Well, we know that there's around quarter of a million
properties currently at flood risk and those risks are going
to be increasing over time in many of many locations
because of climate change. It depends how fast climate change happens, essentially,
but some predictions say that within fifteen twenty years we
might see ten thousand houses that are not able to
(03:54):
get insurance at all. And obviously there'll be a whole
lot more that are only able to get partial insurance,
or perhaps they'll be able to ensure, but they'll have
to pay a really high access or they'll not be
insured for their full value. So you know, it's a
risk for a lot of places quite quickly.
Speaker 2 (04:09):
And so what should we be doing about this? Should
the country implement a public insurance scheme?
Speaker 3 (04:16):
Well, that's what we're recommending, and I'm recommending that we
don't necessarily need it in the next two years, but
we probably will within the next five to ten, and
I think we should be getting it set up now
pretty urgently. And the other thing I think we need
to do is look at finding a measure for affordability.
What's affordable and what's not affordable, and should we be
looking to subsidize people who can't afford insurance. And the
(04:37):
reason for that is that insurance transfers risk from families, individuals,
communities to the financial markets, and it's absolutely essential for
community but also for the country's resilience in facing climate change.
So if you look at the christ Church earthquakes, we
were the highest in short, that was the highest insured
seismological event in history at that time, and that was
(04:59):
the reason, although it felt terrible at the time, that
was the reason we were able to bounce back so
quickly as a country. So maintaining high insurance rates is
absolutely essential for our response to climate change as a country.
So I think that's why I think we need to
be doing Yep.
Speaker 2 (05:12):
Yeah, So, Katie, I was going to say, when you were
talking about affordability, are we talking about subsidizing private insurance
or or creating or providing some sort of state insurance
that's affordable.
Speaker 3 (05:23):
Yeah, so one either or Really I think in the
initial stages, it's probably easier to subsidize private insurance in
the same way that we maybe help people with winter
energy payments or subsidize with a community service card the healthcare.
It's I guess a temporary thing we could be doing,
but I think in the long term, as climate change
gets worse, we're going to need some kind of public
insurance scheme, probably ideally together we work together with insurance
(05:45):
companies to set up a scheme that works well for
both private and for the country as a whole.
Speaker 2 (05:51):
Who needs to take action here? Is it central or
local government or both?
Speaker 3 (05:56):
It's all of us. But central government are currently working
on an adaptation framework, and I think a climate adaptation framework,
and I think that's where they need to be really
thinking carefully about how insurance fits into that picture. And
one of the things we absolutely need to be doing
is working out which places in New Zealand need to
be putting in place risk mitigation and making sure that
(06:17):
we don't build inappropriately in flood zones as well. So
there's a lot that we can be doing in terms
of getting ourselves prepared physically for climate change, and that
will also keep premiums down for longer, so we don't want,
for example, some places over time are going to have
to be probably moving. Communities might be having to move
because you know, coastal orosional makes their places no longer
(06:39):
safe to live in, and we need to have plans
on how we're going to do that, and most importantly,
who's going to pay. I think if we leave it
all up to local governments, we're going to we don't
have a fairly inconsistent approach across the country because some
local governments have more funds available than others. So I
think central government is going to have to step up
to the party and fund some of that adaptation work.
Speaker 2 (07:00):
Absolutely right, and so they are in the process of
creating that strategy or plan.
Speaker 3 (07:04):
At the moment are but I think it's a real
struggle to get agreement on who's going to pay. That
has been the sticking point for quite a few years now.
If we don't agree who's going to pay, pretty quickly,
we're just going to keep having situations where we're not
ready for climate change, we have disasters, lots of people
lose their homes. We really need to be getting ahead
(07:27):
of this and having plans in place and making sure
that we can keep those premiums down by being ready
for climate change essentially.
Speaker 2 (07:34):
What is your concern if we don't find a solution here.
Speaker 3 (07:38):
Well, my concern is that especially I'm especially worried about
those communities that bearing the brunt of climate change. Perhaps
if we think about ones on the east coast of
the North Island bearing the brunt of climate change in
terms of regular flooding, but also quite low income and
unable to pay for things like flood walls and for
(08:00):
stock banks and things like that that are going to
be increasingly flooding, but unable to afford insurance. And what
that means is that you're going to have poverty being
entrenched more and more for some groups of people, and
I think that would be a real shame. I think
we all sort of bear the burden of climate change.
We've all sort of created it. No one person's obviously
are responsible for it, but we've all created it a
(08:21):
little bit. So I think we all should be sharing
the burdens of it as well, cart be.
Speaker 2 (08:24):
Really nice to talk to you. Thank you for your
time this morning.
Speaker 1 (08:27):
For more from the Sunday Session with Francesca Rudkin, listen
live to news talks there'd be from nine am Sunday,
or follow the podcast on iHeartRadio
You're listening to the Sunday Session podcast with Francesca Rudgin
from News Talks EDB.
Speaker 2 (00:13):
Now, we've had warnings around the impact of climate changes
on insurance premiums for a while now, particularly after what
we've witnessed in recent floods, but questions remain over who
should cover the rising insurance premiums for at risk properties.
Should we all be chipping in or is it on
the shoulders of the individual homeowners. A new analysis and
report by the Helling Clark Foundation and WSP has looked
(00:34):
into this issue and it's suggesting a better public backstop
to be put in place. The reports author is Carlie Mercer,
and Carlie is a deputy director of the Helling Clarke
Foundation and WSP fellow, and she joins me, now, good morning, Carly.
Speaker 3 (00:49):
Good morning.
Speaker 2 (00:50):
Are you good? Thank you? Tell me what are the
biggest threats we're facing from climate change impacts on properties?
Speaker 3 (00:56):
Yes, So, firstly, we have a move from insurance companies
to risk based pricing for flooding, which essentially means that
we've now got better data, which means insurance companies can
price a house down the hill and a house up
the hill and say well, this house has actually got
a much greater flood risk, so we're going to charge
you more for your premiums. And that sort of move
is slowly happening now. Within a short space of time,
(01:18):
probably a few years, I imagine, most insurance companies will
have moved to that, and that means for some houses,
their premiums are going to be shooting right up. Meanwhile,
we've also got climate change obviously happening, and we're seeing
much more severe flooding in some places as a result already,
and that's going to get worse. So over time, some
people's premiums are going to become increasingly unaffordable. And then
(01:39):
we're also going to probably see in not two distant future,
insurance companies choosing to withdraw entirely from withdraw ensuring some
properties because they're just too risky.
Speaker 2 (01:49):
At the stage, they have been pretty good at continuing
to ensure, haven't they. I mean, we haven't had a
sort of a full insurance retreat in New Zealand yet, not.
Speaker 3 (01:59):
At all yet absolutely so we've got we've got relatively
affordable ish but still very accessible insurance in New Zealand.
Most places can still get quotes from two or three
companies online. So yes, we're doing okay for now, but
the problems are going to be within the next few
years in terms of insurance retreats. But we're already seeing
(02:19):
problems in terms of affordability. So some people's insurance has
doubled in the last year. For example, I think the
average is about a thirty percent rise in Wellington. My
taxi driver the other day was paying eight thousand dollars
for his not very big property on a one person income,
so you know there's already strain. I think consumer consumer
(02:40):
New Zealand surveys have shown that it's one of the
top three economic concerns in families at the moment. There's
insurance prices, so it's already a problem.
Speaker 2 (02:48):
The Natural Hazards Commission that might cover damage to land
from storms and floods, but not from coastal erosion, and
coastal erosion is a real issue, isn't it.
Speaker 3 (02:57):
Yeah, coastal erosion isn't covered by insurance in general because
it's the scene as predictable, so it's not one of
those things that they'll ensure private company. So private insurance
currently ensures flood risk and NHD previously EQC. They ensure
other natural hazards like earthquakes and so on. But other
countries actually have public insurance schemes like the NHG that
(03:20):
do cover floods as well. So that's kind of what
we're talking about in the report, whether we need to
be looking at something like that here, Charlie, do we.
Speaker 2 (03:26):
Know how many residential buildings could be at risk?
Speaker 3 (03:32):
Well, we know that there's around quarter of a million
properties currently at flood risk and those risks are going
to be increasing over time in many of many locations
because of climate change. It depends how fast climate change happens, essentially,
but some predictions say that within fifteen twenty years we
might see ten thousand houses that are not able to
(03:54):
get insurance at all. And obviously there'll be a whole
lot more that are only able to get partial insurance,
or perhaps they'll be able to ensure, but they'll have
to pay a really high access or they'll not be
insured for their full value. So you know, it's a
risk for a lot of places quite quickly.
Speaker 2 (04:09):
And so what should we be doing about this? Should
the country implement a public insurance scheme?
Speaker 3 (04:16):
Well, that's what we're recommending, and I'm recommending that we
don't necessarily need it in the next two years, but
we probably will within the next five to ten, and
I think we should be getting it set up now
pretty urgently. And the other thing I think we need
to do is look at finding a measure for affordability.
What's affordable and what's not affordable, and should we be
looking to subsidize people who can't afford insurance. And the
(04:37):
reason for that is that insurance transfers risk from families, individuals,
communities to the financial markets, and it's absolutely essential for
community but also for the country's resilience in facing climate change.
So if you look at the christ Church earthquakes, we
were the highest in short, that was the highest insured
seismological event in history at that time, and that was
(04:59):
the reason, although it felt terrible at the time, that
was the reason we were able to bounce back so
quickly as a country. So maintaining high insurance rates is
absolutely essential for our response to climate change as a country.
So I think that's why I think we need to
be doing Yep.
Speaker 2 (05:12):
Yeah, So, Katie, I was going to say, when you were
talking about affordability, are we talking about subsidizing private insurance
or or creating or providing some sort of state insurance
that's affordable.
Speaker 3 (05:23):
Yeah, so one either or Really I think in the
initial stages, it's probably easier to subsidize private insurance in
the same way that we maybe help people with winter
energy payments or subsidize with a community service card the healthcare.
It's I guess a temporary thing we could be doing,
but I think in the long term, as climate change
gets worse, we're going to need some kind of public
insurance scheme, probably ideally together we work together with insurance
(05:45):
companies to set up a scheme that works well for
both private and for the country as a whole.
Speaker 2 (05:51):
Who needs to take action here? Is it central or
local government or both?
Speaker 3 (05:56):
It's all of us. But central government are currently working
on an adaptation framework, and I think a climate adaptation framework,
and I think that's where they need to be really
thinking carefully about how insurance fits into that picture. And
one of the things we absolutely need to be doing
is working out which places in New Zealand need to
be putting in place risk mitigation and making sure that
(06:17):
we don't build inappropriately in flood zones as well. So
there's a lot that we can be doing in terms
of getting ourselves prepared physically for climate change, and that
will also keep premiums down for longer, so we don't want,
for example, some places over time are going to have
to be probably moving. Communities might be having to move
because you know, coastal orosional makes their places no longer
(06:39):
safe to live in, and we need to have plans
on how we're going to do that, and most importantly,
who's going to pay. I think if we leave it
all up to local governments, we're going to we don't
have a fairly inconsistent approach across the country because some
local governments have more funds available than others. So I
think central government is going to have to step up
to the party and fund some of that adaptation work.
Speaker 2 (07:00):
Absolutely right, and so they are in the process of
creating that strategy or plan.
Speaker 3 (07:04):
At the moment are but I think it's a real
struggle to get agreement on who's going to pay. That
has been the sticking point for quite a few years now.
If we don't agree who's going to pay, pretty quickly,
we're just going to keep having situations where we're not
ready for climate change, we have disasters, lots of people
lose their homes. We really need to be getting ahead
(07:27):
of this and having plans in place and making sure
that we can keep those premiums down by being ready
for climate change essentially.
Speaker 2 (07:34):
What is your concern if we don't find a solution here.
Speaker 3 (07:38):
Well, my concern is that especially I'm especially worried about
those communities that bearing the brunt of climate change. Perhaps
if we think about ones on the east coast of
the North Island bearing the brunt of climate change in
terms of regular flooding, but also quite low income and
unable to pay for things like flood walls and for
(08:00):
stock banks and things like that that are going to
be increasingly flooding, but unable to afford insurance. And what
that means is that you're going to have poverty being
entrenched more and more for some groups of people, and
I think that would be a real shame. I think
we all sort of bear the burden of climate change.
We've all sort of created it. No one person's obviously
are responsible for it, but we've all created it a
(08:21):
little bit. So I think we all should be sharing
the burdens of it as well, cart be.
Speaker 2 (08:24):
Really nice to talk to you. Thank you for your
time this morning.
Speaker 1 (08:27):
For more from the Sunday Session with Francesca Rudkin, listen
live to news talks there'd be from nine am Sunday,
or follow the podcast on iHeartRadio
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