It’s becoming almost impossible to ignore climate change. Even if you are a wealthy homeowner.
On Wednesday morning the boss of New Zealand’s second-largest insurance outfit laid it out in black and white.
Suncorp chief executive Jimmy Higgins said Auckland’s dramatic weather event, which has seen thousands of homes damaged by widespread flooding and landslips, had caught the attention of the insurers’ insurers, and not in a positive way.
Events like this, Higgins said, would cause reinsurers' risk models to be updated.
When the insurers can't get insurance for at-risk homes and properties, what chance that a homeowner or commercial property owner can?
It’s typical insurance language, but the language from the industry since this latest wild weather event is the loudest climate warning I have heard.
Now it's firmly couched in the language of economics and money, or the language of the rulers, as Korean economist Ha Joon Chang calls it.
There's nothing bleeding heart and green and hippy-dippy about risk and returns for insurers, unless its the colour of cash.
Ando Insurance boss John Lyon says climate change is one of the “mega trends” shaping the insurance sector.
While we could look to pin some blame on the La Nina weather pattern haunting our summer, Lyon says it is pretty clear weather patterns are becoming more volatile.
You know it's getting real when the insurers are baldly saying they don’t think they want to be on the hook for some of Auckland’s most pricy real estate. As academic Michael Naylor archly points out: people who live on cliffs are often rich and connected. But even your connections and cash won't save your mansion from climate change.
So who will? That's the big question.
Lyon says we can take the opportunity from these big weather events to think about how we can manage risk in an environment with so much risk.
“New Zealand is exposed to earthquake, to volcanoes, to storms, and tsunamis, coastal erosion. These are all factors that are inherent in how we operate. Insurance can contribute to protecting consumers from some of those, but ultimately some of that becomes inevitable.”
It will take a massive effort, and the barriers between local government, central government and insurers to be broken down.
Lyon says there are examples where local governments and insurers have worked together on infrastructure projects to ameliorate flooding and other weather-related issues. This is what is needed now, he says.
An OECD report into climate change and insurance said governments must focus on reducing and managing the inevitable risk of further losses and damages from climate change.
Flooding on its own is a major worry. Leading reinsurer Swiss Re churned out some disturbing statistics in 2022 - it said floods caused more than a third of natural catastrophe-related fatalities since 2011.
If money could talk, it would say that from 1991 to 2000 global insured losses from floods was about US$30 billion. In the next decade, global insured losses from floods was US$40 billion, and from 2011 to 2020, global insured losses from floods was $US80 billion.
In 2022 the New Zealand government released its National Adaption Plan, including outlining "the retreat of last resort", or moving entire communities from climate-struck areas.
That report also singled out flooding as a particular concern. About 675,000, or one-in-seven, people across NZ live in areas that are prone to flooding, which amounted to nearly $100 billion worth of residential buildings, that report said.
IAG, New Zealand's largest insurer reckons this flood will cost it more than A$350 million.
Tower is tapping into its reinsurance cover for catastrophe events and Suncorp, our second-largest insurer, says it will be months before it knows how much it will be on the hook for with more than 8000 insurance claims and counting.
Enter the Government?
Home flood insurance could be developed by Treasury and there were expectations when the Government released its adaptation plan that it would agree on the next steps by the end of this year.
In the UK that sort of insurance is already available for homes at the highest risk of flooding, but only those built before January 2009. This insurance is funded through compulsory levies and reinsurance premiums.
Flood-prone houses built after January 2009 instead have to pay whatever the market prices the risk at to discourage building in flood-prone areas. We will need some kind of cut off point here too that incentivises building in the right places, with a firm eye on potential flooding, increased wave movements and shaky cliffs.
The days of insurance companies taking on all the risk are over. We can ignore that at our own risk.
Unfortunately, Naylor says, its human nature to not pay attention to danger until its right on your doorstep.
However, seeing your doorstep slide down a cliff does tend to focus the mind.
If this latest flood, and the terrible damage that has been wrought, focuses the hearts and minds of our politicians and some of our wealthier homeowners, who often own at-risk properties, towards taking a truly community-minded approach to risk that would be a decent result from so much damage.
We will have to mitigate the effects of poor planning and poor infrastructure management together.
It has to be a communal response, Lyon says. I agree.
(*Also see last week's Of Interest podcast on climate adaptation finance with David Hall, and last year's podcast with Tower CEO Blair Turnbull on insurance & climate change).
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.