Insurer IAG fires shot across incoming government's bow on the rising costs of extreme weather events

Insurance / news

IAG says it has paid out more than $1 billion in insurance claims for the North Island floods & Cyclone Gabrielle

20th Nov 23, 10:49am by Gareth Vaughan

New Zealand's biggest insurer is urging the incoming government to push on with natural hazard risk reduction, climate change adaptation and managed retreat work to help keep insurance available and affordable in the face of stark impacts, and rising costs, from extreme weather and natural hazards.

IAG, which operates the AMI, State, NZI, NAC, Lumley and Lantern brands, and provides general insurance offered through ASB, BNZ, Westpac and The Co-operative Bank, says it has been clear for more than a decade that NZ needs to take urgent action to keep people safe from natural hazard and climate change impacts.

IAG says it has now paid out more than $1 billion worth of insurance payouts for the January North Island floods and Cyclone Gabrielle, second only to payouts made for the Christchurch earthquakes.

"We believe that the best way to keep insurance available and affordable is by reducing natural hazard risk through good planning decisions, investment in protection and resilience measures, and where necessary, through relocating people away from at-risk properties," IAG CEO Amanda Whiting says.

"My message to our new government would be to prioritise this important work."

Whiting says IAG received 51,000 insurance claims for the North Island floods and Cyclone Gabrielle, with 99% of motor vehicle, 97% of contents, and 93% of home claims having now been settled. Average claim costs are rising, she says, noting average weather-related claim costs were $35,000 in Hawke’s Bay, $30,000 on the West Coast, and $21,000 in Gisborne Tairāwhiti.

By international standards, NZ has high levels of private insurance. Whiting says the best way to keep insurance available and affordable is by reducing natural hazard risk through good planning decisions, investment in protection and resilience measures, and where necessary, moving people away from at-risk properties.

“For over a decade, we have been clear that New Zealand needs to take urgent action to keep people safe from the impacts of natural hazards and climate change. If we continue along this path, and do not act with urgency, New Zealanders will continue to be exposed to harm," says Whiting.

"It is also becoming evident to government and communities that a failure to reduce these risks may impact the long-term availability and affordability of insurance in some communities."

The previous government last year released NZ's first national adaptation plan, which set out that the Ministry for the Environment and Treasury would lead a programme of work on how NZ meets the costs of climate change and invests in resilience. Banks have told a subsequent parliamentary inquiry into climate adaptation that insurance withdrawal would leave them with stark options.

IAG says it insures $940 billion of commercial and domestic assets in NZ.

See IAG's latest wild weather tracker report here.
Also see our Of Interest podcast on insurance and climate issues with Tower CEO Blair Turnbull here.

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.

34 Comments

by makechange | 20th Nov 23, 12:24pm 1700436240

What options are available in areas requiring managed retreat?

Who pays relocation costs and recompense, and how might one determine how that be done fairly?

by Averageman | 20th Nov 23, 1:17pm 1700439438

Buyer beware so suspect its the owners that have enjoyed in some cased the benefit of decades in great position. That said based on the last couple of years is to sell it to someone else and claim its worth a Zillion. Example of "Absolute Beachfront", which is about to be in your ...lounge.

https://www.trademe.co.nz/a/property/residential/sale/bay-of-plenty/wes…

by Yvil | 20th Nov 23, 2:14pm 1700442865

You know, if you don't like beachfront properties, you don't need to search for them.

by Averageman | 20th Nov 23, 2:51pm 1700445072

Constructive as always. A guy at work has a family property back a bit from here. He was showing us pics of the sea damage to the dunes over the last five years. He also pointed out the listing, for the reason that the pics avoid the truth about sea rise damage in this location.

by Yvil | 20th Nov 23, 5:41pm 1700455260

Thank you, I'm glad that you consider my posts "constructive as always"

by lockdowndays | 20th Nov 23, 11:32pm 1700476364

Hey now, that attitude is just burying your head in the sand ;)

by Whatwillhappen | 20th Nov 23, 1:33pm 1700440438

The ideal would be to identify areas that will eventually need a managed retreat. Put that information on the LIM and watch the value of the property diminish over time as demand for houses in disaster areas dries up. Current owners can enjoy it until it's no longer viable, then it gets demolished at the cost of the owner (try enforcing that).

You'd have to be living under a rock to not have hear about climate change, natural disasters increasing, risk of sea level rise. There should be no rights to receive taxpayer largesse for your own stupid decisions (AKA risk taking). Taxpayers should only be on the hook for areas where the disasters or need for retreat were unknown, or created by a third party o should then be on the hook for most of it).

by RickStrauss | 21st Nov 23, 10:17am 1700515039

Fair.

Though on the last point, having taxpayers being on the hook for managed retreat for a bunch of other properties should fundamentally change our conversations on Welfare. It would be perverse if folk were wanting taxpayers to prevent them from losing wealth because their house was flood/cyclone/other-affected while also wanting to clamp down on far smaller taxpayer assistance to the poor at the bottom of society.

by redcows1 | 21st Nov 23, 12:57pm 1700524665

You've got to be kidding. We just had a global pandemic and our government threw $billions to pretty much everyone making everyone beneficiaries. And yet still the majority despise those on a benefit of any sort.

by RickStrauss | 21st Nov 23, 1:35pm 1700526917

I'm kidding if claiming that people actually will adjust their conversation re welfare. Many will still see themselves as deserving and the horrible poors as undeserving. Only money to the second is welfare, of course.

by interesting1234 | 22nd Nov 23, 12:59pm 1700611156

I don't despise people on benefits, as there are legitimate reasons to have them. There will always be some that rort the system, and those that do should be rightfully despised. However I would have to say that there is a balance that will never be found in the welfare space. Those that receive it are lucky to have a system of government and tax that allows for benefits, however we do need to think about the distribution of benefits to ensure the system is sustainable across the board. Superannuation is a prime example, as well as the accomodation supplement, and then there is the complex calculations of WFF that seem to penalise those wishing to work and earn more, thus encouraging many not to strive for better. This is a discussion that is necessary and more so by the week if we are supposed to balance the current account deficit and find a more equal system where those that have do not continue to have influence and advantage over those that have not.

by DIYman | 20th Nov 23, 12:44pm 1700437478

Good to see the real numbers, so they paid 1B for 940B of insured property.

Lets take a 1M house of which half is land, so the house is worth 500K , divide one number by the other and you have an average payout of $532 per customer in a bad year. double the 532, to give IAG something for their time and marketing, and you would expect the company premium to be roughly $1100 a year, not two or three times that. and this was a bad year.

Forty years ago, I started putting my "insurance " premiums into a separate bank account, and when there was enough in the ac to buy a house, after the EQ, I invested it in a second house. which surprisingly an insurance company rented of me for one of their clients to live in while their house was rebuilt. Obviously I had to pay cash, because that house was an as is where is, but with a 20% yield, I wasnt complaining. 10 years later, I'm still getting 10% based on the original price.

by Whatwillhappen | 20th Nov 23, 1:28pm 1700440127

If you don't have insurance you're not paying EQC premiums. That means you're stuffed if there's some sort of natural disaster affecting your land, because EQC covers land damage.

by DIYman | 20th Nov 23, 2:03pm 1700442192

You are correct, 100% correct, but if you have a spare house up your sleeve, I think you can afford the loss. Another thing to consider is the risk, only buy land more than 20m above sea level; and not beside a river, or at the top or bottom of a cliff

In christchurch after the EQ, rezoned properties without insurance were paid out for the land,

by kiwikidsnz | 20th Nov 23, 2:38pm 1700444313

"In christchurch after the EQ, rezoned properties without insurance were paid out for the land, "

That extended the moral hazard built on SCF & other modern precedents which now sees councils across NZ throwing other peoples money at every squeaky wheel.

Typical of todays "no one's personally responsible for anything" entitlement attitudes.

by DIYman | 20th Nov 23, 5:03pm 1700453015

I agree, the middle ground shouldn't be 100% value, but in this case the land was almost taken forcibly , there wasnt much voluntary handing over of land, and the council wanted to clear the decks so to speak. 100% does seem very generous for someone who has saved the cost of paying insurance.

by redcows1 | 20th Nov 23, 8:28pm 1700465297

Of course they were paid out.

Red zoning land had absolutely nothing to do with insurance., completely separate issue.

by powerdownkiwi | 20th Nov 23, 9:20pm 1700468430

Well, it drives rather than is driven.

The problem is scale; nobody can 'pay' at some fairly identifiable point. When the 'Re' lot fold their hands, it's game over. If Insurance actually factored all the stuff I study - resource and energy depletion - into whether things can be future-done, and at what 'cost'; this would be a much wider discussion. And most of us would maybe carry 3rd Party, but nothing else on anything else. At real cost, we won't be able to afford that future. Currently, we're hiding from it via debt - but that door has to close sometime.

by kiwikidsnz | 20th Nov 23, 9:37pm 1700469459

The Courts didn't agree, got to Appeal & Labour folded.

https://i.stuff.co.nz/the-press/business/the-rebuild/95319282/quake-out…

by Te Kooti | 21st Nov 23, 9:31am 1700512311

Only buy land 20m above sea level, Are you chicken Little?

How does Auckland Airport have a market cap of $12b when it is 2m above sea level? The existentialist nonsense on here is ridiculous, doomsday preppers. Even Elon Musk described the green lobby as a death cult and he's not wrong. Weirdo's

by agnostium | 21st Nov 23, 10:54am 1700517243

"How does Auckland Airport have a market cap of $12b when it is 2m above sea level?"

Because it's based on fictional value. It won't take many more cyclones like the one we had last year to decimate that value.

by Te Kooti | 21st Nov 23, 11:03am 1700517814

Actually you are right, that is just it's market cap. It's Enterprise Value is $14b.

It has sophisticated investors including Black Rock, you of course know way more than they do.

by WellingtonInvestor | 20th Nov 23, 2:56pm 1700445409

I understand in Japan that with earthquakes, insurance will only pay 50% of that homes value. In NZ there doesn't seem to be much competition in the insurance industry, with large companies owning multiple brands. Feels a bit like the NZ ISP/telco industry, with consolidation of the companies, with some big companies owning many different brands. Or the Supermarket or building industry for that matter.

by agnostium | 21st Nov 23, 10:56am 1700517368

I believe that the risk of earthquake is one of the reasons houses in Japan aren't designed to last very long. They are demolished and rebuilt much more frequently than here. Would be interesting to know if the value insured is purchase price or replacement price and whether it factors in devaluation.

by Idoubtit | 20th Nov 23, 3:18pm 1700446728

My car insurance through AA is due to be renewed shortly - premium has increased by 25% since last year! With no claims etc. outrageous.

by cjmain | 21st Nov 23, 8:21am 1700508091

same here but with Tower, shopped around and couldn't find cheaper, average increase is supposedly 35% this year.

by CN - new | 20th Nov 23, 6:07pm 1700456860

What is a residential dwelling worth if the owner is unable to get insurance on the property?

by powerdownkiwi | 20th Nov 23, 9:21pm 1700468507

Whatever someone with cash is prepared to stump up, as long as they are prepared to wear any losses themselves.

by DIYman | 20th Nov 23, 9:56pm 1700470617

that scenario happens every day in christchurch, land value plus perhaps $100k, and that 100K assumes it is liveable,

land value is hard to define,

in an established suburb, so you might get 500k, for a property with an RV of 800k, its not the 100k thats gone up, its the land thats gone up

I bought one with an RV of 350k, for 180k, and another one with an RV of 700k for 350k, plenty of people paid less

in a new suburb its easy, land is for sale next door at a defined price

by Kate | 21st Nov 23, 10:14pm 1700558076

I'm really interested in this. I'd have thought if the property is subject to a hazard notation (e.g., flooding, erosion, etc.) and hence can't get insurance, it would be the land value that sunk in value? But, you're saying the land value is going up?

by DIYman | 22nd Nov 23, 7:27am 1700591278

the as is where is houses in christchurch are not on flood prone land, that land was mopped up by the government, in a different deal.

they are houses which are out of level by lets say 80mm, and have a foundation or construction system, which makes re levelling uneconomic ,

the RV for most old properties , I mean anything lest say 50 years old or more, tend to undervalue the land and over value the improvements

peoples willingness to buy land dictates the price, rather than their willingness to buy an out of level house,

after the EQ the land value on the RV was seen as the number to pay, but gradually it rose, see my sentence above .

I know one site where the buyer paid a lot more than the land, and later told me it was the existing house which he then demolished, that gave him existing use rights to do with closeness to boundary or recession plan or whatever that was worth paying for.

I know of other sites where the house had already gone, and the existing use rights had expired, and a resource content was required to build closer to the street than the latest council plans allow.

by Kate | 22nd Nov 23, 8:25am 1700594752

Thanks - that makes sense.

by interesting1234 | 22nd Nov 23, 1:05pm 1700611520

Have a look as Esk valley Kate. Council knew it was a huge flood zone in a 1 in 100yr flood, it is proven in the documentation they hold, yet they still signed of on the residents living on the flood plane then ran for the door the second liability came knocking and ran to mumma govt for a handout.

by interesting1234 | 22nd Nov 23, 12:52pm 1700610764

"My message to our new government would be to prioritise this important work."

Translation: Please spend public money to save US (insurance juggernaut) money as we have sadly had to fulfil our obligations to policy holders on a larger scale than predicted