Soaring insurance costs are one of the “big factors” behind Christchurch City Council proposing a 13.24% average rate hike for the 2024/2025 financial year to cover higher expenses from insurance, inflation, and interest rates.
The Council is currently in the consultation stage of its draft Long Term Plan (LTP) for 2024 to 2034 and the LTP’s financial overview shows the cost of its insurance premiums for the 2024/2025 financial period are up 20% or $6.4 million compared to the 2023/24 financial year.
The Council says the “significantly increased” insurance costs are due to rising costs of construction and increased levels of risk in the New Zealand insurance market.
In the Long Term Plan, Christchurch Mayor Phil Mauger says the Council is operating in a tough environment “like every household and business across the city”.
In the 2024/25 financial year, the council is proposing to collect $788 million in rates from Christchurch.
“This Draft Long Term Plan proposes an average rates increase of 13.24%. I am well aware that rates rises have a big impact on your back pocket. It’s a familiar story at this point, but as you prepare your submission, there are a lot of factors such as interest costs, insurance premiums, and inflation, that we have little ability to control,” he says.
In the 2023/2024 financial year, council rates rose on average by 6.41% for existing ratepayers.
The council says in the LTP that it has only “limited control” over approximately 12% of the 13.24% of the proposed average rates increase because of factors like insurance, inflation and interest rates.
In its financial overview report, Christchurch City Council says inflation has added an additional $23.8 million of operational costs to the 24/25 financial year alongside higher interest costs of $14.8 million, due to increased interest rates on new borrowing.
New net borrowing has widened to $2.6 billion over the 10 year period, which is $66.8 billion higher than planned in the previous LTP.
“The servicing cost of the new borrowing is $9.7 million in 2024/25, increasing to an annualised amount of $24.2 million from 2025/26,” the council says.
Climate resilience
In the report, the Christchurch City Council says it wants to accelerate its climate adaptation efforts as well as open a Climate Resilience Fund.
The Council has provided the climate fund as one of its plan ‘options’ it would like to undertake that would speed up work on certain projects and programs – but it would lead to an increase in rates.
The Council says the establishment of the fund could reduce the financial impact of climate change on future generations if the fund is established now.
“During the current 10-year LTP period we could amass as much as $127 million, assuming we started the fund in year two of the LTP. This would have a 0.25% impact on rates (approximately an extra 16 cents a week for the average residential property) in year two of the LTP and then we would add 0.25% to the rate for each year it is implemented. If we rate this to the end of the LTP it will be a 2.25% rate increase,” the report says.
“If we don’t create the fund, the Council will need to consider how it funds future climate resilience actions alongside other competing priorities in future years.”
“Climate change is creating new levels of complexity for our infrastructure and capital projects such as roads, buildings and utilities. Responding to climate risks will be essential over the span of this LTP.”
Alongside this, the council says the Christchurch district faces “diverse climate hazards” from rising sea levels to more frequent extreme weather events.
“We propose to maintain the Coastal Adaptation Planning Programme at $1.8 million per year, which will increase by another $1.8 million (to a total of $3.6 million per year) in 2027/28 as adaptation planning work ramps up across the district.”
“We could bring forward to 2024/25 the additional $1.8 million annually that is currently proposed to start in 2027/28. This would accelerate the Coastal Adaptation Planning Programme and boost overall community preparedness and resilience. The early investment would result in a rates increase of 0.29% (approximately an extra 19 cents a week for the average residential property) from 2024/25.”
Public consultation on Christchurch City Council’s draft LTP is running between March 18 and April 21.
Billion dollar baby
Up in the North Island, Auckland Council’s draft long term plan for 2024-2034 has also recently been released and insurance is in the hot seat as well.
Auckland Council wants to set aside a minimum $1 billion portion of its proposed $3 billion to $4 billion Auckland Future Fund fund for self-insurance, meaning the council wants to set aside funds to cover potential losses rather than buy insurance cover for it instead.
Doing this will “support the council’s ability to better respond to shocks and to be able to fund more expenditure in response to climate change, to contribute to costs associated with a natural event, or provide liquidity in the event of a major financial disruption,” the plan says.
Auckland Council says its property insurance costs have risen more than 44% in the 2023/2024 financial year and going down this self-insurance route will save the council almost $25 million in annual insurance premiums.
“The majority of the council’s insurance premium spend is concentrated on the above and below ground property insurance policies. The best use of the Auckland Future Fund (to save the most premium spend) is assessed to be to provide a significant level of self-insurance on the above and below ground policies with more limited self-insurance coverage for some other insurance policies.”
Public consultation on the Auckland council’s LTP is running from February 28 to March 28. Feedback is then considered in April before all decisions being made in May.
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