New Zealand is viewed as the second riskiest country in the world when it comes to natural hazards, behind only Bangladesh.
Tina Mitchell, chief executive of the Natural Hazards Commission (NHC), informed Parliament’s Finance and Expenditure Committee (FEC) of this view held by reinsurers during the Commission’s annual review on Tuesday.
New Zealand is seen as high on the natural hazard scale because the country is susceptible to a wide range of climate risks above and below ground. Natural hazard threats above ground include severe weather events like floods, tsunami and cyclones, while below ground NZ faces risk from earthquakes and volcanoes.
“We want people to be risk literate when it comes to natural hazards because you just never know when it’s going to be your house,” Mitchell said.
“Every single person should be thinking about their property and what their risk profile is.”
The NHC is the new name for the Earthquake Commission (EQC) which went through a name change back on July 1, rolled out alongside the new Natural Hazards Insurance Act.
The Act was passed in 2023 under the previous Labour government and keeps the coverage mostly the same, but clarifies entitlements and improves the claims process for homeowners.
It also better represents the broad spectrum of natural hazards covered by the Commission, including tsunami, landslides, volcanic activity, earthquakes, and geothermal events.
During the NHC's slot in front of the FEC on Tuesday, NHC Chairman Chris Black said the Commission had achieved a lot in its financial year which ended June 30.
The NHC reported $853 million in premium income during the June-year, up from $612 million the prior year. That’s a $241 million, or almost 40%, increase.
The premium income comes from the Natural Hazards Insurance (NHI) levy which is collected by private insurers. This levy gets paid into the Natural Disaster Fund (NDF) and the Crown Guarantee, which are both managed by the Natural Hazards Commission.
The NHI levy used to be called the EQCOver levy under EQC and is currently 16 cents per $100 of the insurance cover amount – up to a maximum amount of $480.
Black told the FEC that analysis had shown that the current levy is insufficient by 50%.
“So it should be 24 cents probably, versus 16 cents on the current settings to break even over time,” he said.
The levy amount and the levy settings are currently under review.
Black said the Natural Hazard Portal, launched in July 2023 to help people find information about natural hazards claims on specific properties, had reported over 40,000 hits by June 2024. That number has grown to 80,000 since then.
“So we’re really seeing the uptake and people interested to understand and be better aware. What we're trying to do is help people make better informed decisions, homeowners, purchasers, councillors,” Black said.
Mitchell said the NHC had found people were using the hazards tool to search for property information – and then requesting property files from the NHC through Official Information Act requests (OIAs).
“We had 17,000 OIA requests in the last year. So what that tells us is that it's a tool that is being used and it is making a difference because people still can go on and buy the property. They're just more aware of what they're buying and they can make decisions accordingly,” Mitchell said.
The land claim epiphany
During the FEC meeting Labour MP Duncan Webb prodded Mitchell and Black on how prepared the Commission was for a “truly catastrophic event” off the back of the NHC getting low customer satisfaction scores in a recent independent review.
In October, the Commission published an independent review that consultancy firm Martin Jenkins had undertaken earlier this year over the Commission's response to the severe weather events in the North Island in 2023.
The Martin Jenkins report found that overall customer satisfaction targets were not met by the NHC, with only half of those surveyed being satisfied with their overall claims experience.
Black said 95% of the claims the NHC had received from the Auckland floods and Cyclone Gabrielle had a land component to them, and people's expectations around land damage had to be managed “very carefully”.
The cover provided by the NHC is generally a contribution to repairs and won’t always be enough to fully repair all of the land damage in someone’s claim.
“People are disappointed with that,” Black said.
Mitchell told Webb that if the Canterbury earthquakes had been the “building epiphany” for people, the Auckland floods and Cyclone Gabrielle had been the “land claim epiphany”.
Webb also wanted to know what the cost of assessing a claim was as a percentage for the NHC to which Mitchell replied that the NHC “can’t do Swedish rounding” due to it being a public sector entity.
“All of our costs have to be fully transparent and we are balancing accuracy and speed. And if we make an inconsistent decision on one claim, there will be a lot of complaints and queries, quite rightly, from others who see that it's an inconsistent treatment,” she said.
Reinsurance loyalty
Mitchell told the FEC while the international reinsurance market had pulled back from some countries in recent years, global reinsurers had shown “loyalty” to New Zealand.
“They really think that our operating model, where we partner with insurers, is just smart because you can scale up immediately with a standing army of claims managers and other countries don't have that,” she said.
Reinsurers also like the NHC’s investment into natural hazards, according to Mitchell. The NHC spent $10.5 million in research grants and sponsorships during its 2024 year.
The Commission spent $414 million on reinsurance cover in the 2024 year, up from the $286 million the NHC paid for reinsurance a year earlier – a $128 million increase.
This secured the NHC a record level of reinsurance of $9.2 billion starting from June 1 2024, which is almost a $1 billion more from the previous year.
55 Comments
That's secondary. Coastal climate impacts aside, mostly negligent in the way it we manage our land.
Anything we could chop down we did. Try and find a flat land native forest anywhere. Then there's the hill country, stripped courtesy of the Livestock Incentive Scheme and now washing up on beaches and suffocating fisheries.
That is typical of societies...the clearing/use of forrest has been a human endeavour for centuries for a multitude of reasons....dosnt make it sensible or right, simply a fact of scale...more people want more space/resources.
Even Maori with a comparatively small population cleared significant portions of the country pre europeans....mind you they couldnt hold a candle to the demands of the immigrants.
These are 'reported' views held by re-insurers.
Would you expect any insurer to downplay the risk? Nope. They would take any and every opportunity to talk up the risks to justify higher premiums. i.e. take this with a grain of salt, be sceptical, and think it through.
Mitchell told the FEC while the international reinsurance market had pulled back from some countries in recent years, global reinsurers had shown “loyalty” to New Zealand......that's because they have talked up the risk in NZ and are banking huge profits and more underwriters have turned up for a slice of the pie. Look at the bollocks the likes of NIWA are publishing to whip climate alarmism....shame on them.
I don’t have it to hand, but when we had the floods in Auckland there was a chart with recent extreme rain events. Other than the flood, the 2000s seemed very calm compared to the 1980s and 90s. I’m not denying global warming etc, but one flood does not make a trend.
I took a look at Auckland rainfall stats recently and there is no discernable change in the past 60 years. One standard dev is 16cm and, if anything, it's raining less.
Someone replied saying it's not the amount, it's that is now concentrated in "extreme events". I don't buy this, we are moving away from science at this point. Much more likely that we are building on flood plains, not maintaining water infrastructure and just general urban sprawl where we haven't stressed the drainage for extreme events.
But no, there's always got to be a climate angle.
Here is the data from 735 published papers - Mapped: How climate change affects extreme weather around the world - Carbon Brief
In 2004, a trio of researchers published a study that accomplished something never seen before. They calculated the specific contribution that human-caused climate change made to an individual extreme weather event.
This is just absurd. But I bet they got a hell of a lot of research grants out of it.
Your mind seems linear.
Are? is the clincher.
The addition of heat - the oceans have been acting as a huge capacitor, but that process has limits - has to either be dissipated in more events, or in more extreme ones. Can't happen any other way - energy physics is immutable, unlike economic hocus-pocus.
So the word is 'will'. Can't not.
Hutt valley 1976 (I was there) https://youtu.be/gP3haHIfOj8?si=6CgGGwugFIFRnKEP
Hutt valley 1940 (before my time) https://youtu.be/pZb4HF2orDk?si=0KU1R1L7adyED_rz
A physics understanding would help, Systems too.
There will be more events, and more extreme events - can't be anything else when you put more (heat) energy into a System.
And insurance needs to be as informed as it can - not the other way around.
I suspect you are starting from a Limits to Growth denial base-line, then concocting atop that. Will always be wrong.
There will be more events, and more extreme events - can't be anything else when you put more (heat) energy into a System.
I love this linear mechanistic thinking which does not take into account the complex homeostatic mechanisms present within every living system.
No - he's smarter and applies spin, perhaps AI helps, perhaps just him.
Hallmarks are strawman side-steps. This discussion was about solar energy gain, versus low-grade heat loss. We're slowing the latter rate, so heating the planet. Heat has to be released somehow - a hot cup of coffee ALWAYS cools, the surrounding space is always just a little warmer - and either more or more violent events, are a foregone.
He needs to obfuscate. Whether personally (fear. peer/status) or on-behalf is an interesting side question, but obfuscate is what he is doing.
A cup of hot coffee isn't a complex living ecosystem with inbuilt homeostatic mechanisms. Your attempting to compare the living Earth to a hot cup of coffee is the ultimate in mechanistic reductionism. Which I find fascinating as you seem quick to point the fingers at others for not understanding "complex systems."
Good, these volcano eruptions are really getting on my nerves!
Seriously though Id like more information on the assumptions.
$2.6 trillion -The total approximate cost of damages from weather and climate disasters in the U.S. from 1980 to present (as of August 2023). https://coast.noaa.gov/states/fast-facts/hurricane-costs.html
“They really think that our operating model, where we partner with insurers, is just smart because you can scale up immediately with a standing army of claims managers and other countries don't have that,” she said.
In other words, soak up the cash in the good times and when something actually happens, someone else comes to the party in terms of the overheads of doing the thing you've collected premiums on for years in many cases without ever having to pay a cent.
It's just a case of whos arm they can twist the hardest and get a result. And as usual, NZ fits the bill perfectly.
NHC pays for insurer provided claims resolution services. It's a well designed model that avoids the need for NHC to maintain a standing army of claims personnel. Insurers are much better equipped to upscale claims resources quickly. In ChCh EQC tried to do this itself and it was a debacle.
The premium income comes from the Natural Hazards Insurance (NHI) levy which is collected by private insurers. This levy gets paid into the Natural Disaster Fund (NDF) and the Crown Guarantee, which are both managed by the Natural Hazards Commission.
What needs to be clarified is how many land parcels go uninsured. That will slowly become a more common trend. I would think the NHI should a be charge levied via Councils alongside their rates bills to ensure all property/asset owners pay. And if the amount thereby collected increases the fund - less re-insurance will become necessary with time.
Kate, in Systems terms, we are increasingly uninsurable. Too much stuff (never been more), all aging, too many sites, too-frequent events from here on in (climate events are energy-related; it is impossible there will be less, or of lesser impact).
So unsurprising that more and more won't be. That also reflects the money/reality split - which is widening.
Eventually, 're' won't be viable either - but I suspect that by then, fiat-issued debt (sorry, I meant money ;) might be in trouble too...
By not - and it's cynically chosen, in your case I think - thinking in linear manner.
Try thinking exponentially. Double-or-quits underwriting is all you can expect from never-more physical growth.
Run that system into the Limits to Growth, and it cannot afford itself, more and more. The ignorant blame this or that 'other'; few stand back and ask the best question in the book: Why?
Because no man is an island. Landforms are contiguous - next door neighbours section slips into your uninsured property - or your uninsured property slips into the next door neighbour - fires spread - damaged structures need to be removed if beyond repair; if uninsured why should you expect the road and services to be restored; and so on. It's a matter of being part of a community. Same theory as to why you can't buy a car in many jurisdictions without also buying insurance and same theory as to why an empty section with no one living on it still has to pay rates.
And it solves the moral hazard problem.
Natural Hazards Insurance does not cover most of those things. If you self insure (or under insure) it just means you have made the conscious decision to pick up the tab. If you are talking compulsory Insurance then how do you handle high risk properties. You increase the moral hazard if they get Insurance at premiums less than an appropriate rate.
As for your comparison with paying rates on an empty section, that empty section still benefits from council services. An uninsured property does not and should not receive anything from Insurance companies or Natural Hazards.
And it solves the moral hazard problem.
Just to be a pain, I'm not sure about this. Doesn't compulsory insurance create one too? e.g. I'll risk building on a flood plain or whatever because it's insured with my rates.
On the car front, I went from full to no insurance overnight. I also became a much safter driver overnight because I knew I'd have to pay for my mistakes and therefore took less risks (same car and driver, just different behaviour). To me car insurance causes more accidents/fatalities than would be the case if car insurance was banned. Isn't that a moral hazard problem?
KK. The reason for the settlements in ChCh was Council unwillingness to remediate services infrastructure, as it is required to do, and not the EQ caused physical damage to those red zone uninsured properties. That was irrelevant. It was not a mistake, the crown had a legal obligation. Also not 'precedent setting', except possibly where similar 'walk away' decisions need to be made.
KK. Yes, and you are accurately describing the NHC pool model where lower risk properties subsidise those who choose to live on the edge. While underwriters are steadily moving to individual site based risk underwriting, the NHC does little of this. Perhaps this is partly driving the concerns being expressed to them by reinsurers. It will certainly be reflected in their reinsurance requirement and capital adequacy modelling and thus in the final cost of reinsurance and individual levy. It's time we had a discussion about the fairness of the NHC levy model and whether it is appropriately incentivising the risk mitigating site selection behaviour we want.
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