By Jenée Tibshraeny
Climate Change Minister James Shaw isn’t concerned insurers and banks will beat the Government to it, and end up being the ones to effectively decide who pays for climate change.
Rather he says insurers are “acting very responsibly” and working with the Government as it figures out how to spread the financial burden of climate change.
Insurers made headlines in 2018, as their moves to price premiums in a more granular way sent a number of premiums through the roof.
While the availability of data has meant insurers have largely applied this risk-based pricing to earthquake risk, Robert Muir-Wood – the chief research officer of one of the world’s leading risk modellers RMS – at the end of last year told interest.co.nz his firm’s focus was turning to flood risk.
With property owners in the likes of Dunedin and the Hawke’s Bay already struggling to get insurance cover, one could argue insurers are deciding the rate at which coastal retreat occurs. Or how climate change is mitigated against and adapted to.
KPMG NZ’s sustainable value director, Charles Ehrhart, in November told interest.co.nz policymakers should keep an eye on the social repercussions of risk-based pricing.
The Reserve Bank, in its latest Financial Stability Report, also warned of risk-based pricing, taken to the extreme reducing the “risk-pooling benefits that insurance provides”.
Governor Adrian Orr added the regulator was making sure insurers were thinking about climate change long-term and not just seeing risk-based pricing as a money grab.
Nonetheless, Shaw doesn’t believe insurers and banks, equipped with the power to decide what they insure and what they finance, are dictating how the country deals with climate risk.
“They [insurers] do have a role to play and they are thinking about their pricing models and how this is going to go, and obviously that’ll affect the eventual outcome. But no, we’re working on this together,” he says.
“I think they completely understand that.”
Asked how concerned he is about the fact the general insurance market is dominated by two Australian-owned companies – IAG and Suncorp – so if one makes major policy or premium changes, or even decides to retreat from the New Zealand market, the effect could be detrimental, Shaw responds: “There are also risks to the insurance companies themselves.
“If they made any massive sudden moves that caused a shock in the economy that would actually blow back on them.
“It would have an impact on the banks, it would have an impact on their customers and that wouldn’t work out terribly well for the insurance companies themselves.
“They are in my view treading through this quite carefully and quite methodically.”
Govt working on model to distribute costs of climate change
Shaw’s comments follow Local Government New Zealand (LGNZ) on Thursday releasing a report that recommends central and local government form a “National Climate Change Adaptation Fund” to “ensure that costs of adaptation are shared equally, and do not over impact lower socioeconomic households”.
The research concluded $5.1 billion of local government infrastructure (roads, water networks, buildings, etc) was at risk if sea levels rose by a metre, $7.8 billion if these rose by 1.5 metres and $14.1 billion if they rose by 3 metres.
Shaw acknowledges central government will need to help local councils cover the costs associated with rising sea levels in the future.
He says work is underway to figure out how to split these costs, but it’s too early to talk about the funding models being considered, let alone put a date on when money will actually be put on the table.
Funding has been allocated, and Cabinet approval granted, for work on a National Climate Change Risk Assessment to begin in the first quarter of this financial year, ahead of the Zero Carbon Bill being passed by around July.
Part of the assessment will consider how the financial burden of climate impacts is spread.
“I think that there’s a model out there, which appropriately shares risk between private property owners, banks, insurance companies, local government and central government and does that in a way that doesn’t create any moral hazard,” Shaw says.
“Now that’s complex, and it’s worth taking the time to do…
“We don’t need that tomorrow, but what we do need to do is get started on it.”
The Government’s focus this year is getting a “more sophisticated view of what’s at risk, when is it likely to be at risk and how do you pay for it”.
Shaw wouldn’t be drawn on the funding models he’s mulling, saying he doesn’t want people to make decisions based on his comments at this stage.
He says he’s open to all options and not committed to any one option.
He recognises the LGNZ report saying there is a “window of roughly 25 years before government starts parking its ambulance at the bottom of a metaphorical hill”.
“There is some urgency, but there’s no need to panic,” Shaw says.
“But if we don’t act urgently, then we will be in a panic.”
59 Comments
I am concerned that some property owners who own high value coastal property are pressuring local and central Government to fund their property protection and therefore preserve the value. I feel that they need to take responsibility for their choices and pay for it themselves. There is some history in Wellington for example where home owners have forced the local government to rebuild damaged seawalls in exiting locations rather than accept a managed retreat.
Central Government and Local need to be reminded that they have a responsibility to all, and if they are taking actions to protect just a few, then those few rates bills need to reflect the recovery of those costs. I do agree with Mr shaw that the Insurance industry can and must play a part here, rather than spreading risk cost across all.
What seawall rebuild in Wellington are you referring to?
A good example of the complexity is the entire community of Eastbourne. Everyone there is under threat, no matter what elevation or distance from the high tide mark they are - given the sole access road itself runs along the foreshore. It's one of the wealthiest suburbs in the Wellington region.
The model that should be used to my mind would be that used when the Raumati seawall was constructed many decades ago. Council borrows and builds and applies a targeted rate (for the next 20-50 years, or whatever the life of the infrastructure is determined to be) to all those properties benefiting.
In the case of Eastbourne for example, there is talk of a tunnel from Wainuiomata and the cost would be shared by every property presently using the coastal accessway. Then there is the issue of those individual properties that still need to use that coastal access to get to their properties. That should be left to property collectives (streets/neighbourhoods) to self fund any upgrades to the access road and its coastal protection works as and when required.
They are huge issues but the point being, once the options are costed, this may not be viable going forward, and sea access only, such as is the case in many places in the Marlborough Sounds, might be the way that community has to go in future.
Managed retreat - where the rest of the community compensates Eastbourne property owners for relocation - should not be considered to my mind. I think we need to dump the notion of "managed retreat" and simply leave that to market forces (which would likely include house price decline as risks and costs increase).
Bernard Hickey discussed a couple of examples on the Panel on National Radio yesterday.
Why would 'managed retreat' mean community compensating those affected? it only needs to mean those affected accepting less access, and ultimate cut off, with the local authority not having to restore existing coasts or buffers. In general terms though i agree with your comment.
As I interpret it, "managed" in the context discussed by LGNZ means mandated or regulated retreat, and hence this question of compensation, or "Who pays" as per the title/content of this article.
If we instead referred to it as "anticipated" retreat that would be better, to my mind. There would need to be some legislative changes giving local authorities the powers to abandon/not replace reticulation infrastructure (water, sewer) that is damaged. Some kind of well articulated process needs to be followed in this regard in order that private home/property owners can plan accordingly.
Additionally, there should be some form of 'right to defend' at the owners expense - presently most local authorities make coastal protection a prohibited or non-complying activity.
Kate your first comment suggests that if not managed retreat, then perhaps abandonment, if remediation is not viable? Hence your second comment? Does the law require local authorities to maintian the existing? Don't they have the authority to decide it is not viable to maintain? Seems too prescriptive to me?
My understanding is that the legality of the maintenance issue (for those who did not accept the government's offer of compensation) has been considered with respect to those remaining in the CHCH Red Zone. Last I read up on it (report attached), there is a requirement that the maintenance of reticulated services must be ongoing (i.e., cannot simply be withdrawn/cut off), but central and local government were in dispute about which of them would have to pay for that maintenance;
https://www.hrc.co.nz/files/9914/7804/9551/Red_Zone_Report__FINAL_-_201…
KCDC is also grappling with a similar situation where their sewer pipe runs along private beachfront land;
https://www.stuff.co.nz/environment/90630469/bad-news-beach-rejects-san…
Had a listen - he mentions the seawall replacement at Island Bay. That's an example where the council decided to protect their roadway as all the private dwellings are the other side of The Esplanade. The cost ($1.3 million) wasn't all that great but it's a good example where a targeted rate (to those private asset holders that would have lost the only access to their properties if the road was not there) could have been applied.
Big worry for me also as a rate payer and tax payer. Councils in the past, Kapiti? tried to set zones of risk and promptly were sued? (if I recall correctly). So really councils are simply crippled from doing anything that effects values short term whch can well eman they (me/us) carry the consequences long term. I do think JS is probably going to be wrong on who leads this, I suspect the [re-]insurance companies will decide who not to ensure some (few) years in the future and then its game over for some.
They weren't sued - a resident took a judicial review to the High Court on the process followed in terms of placement of hazard notices on LIM reports. The process and the wording of what had been placed on LIMs was considered poor/wanting by the HC in its preliminary judgment - and the Council was required to reconsider certain matters prior to the J making his final determination in the case. The wording on LIMs was altered and the new hazard lines (along with all the proposed DP rules associated with them) were withdrawn. Judicial review is different to a general civil proceeding (i.e., a law suit where damages are sought);
https://www.justice.govt.nz/courts/going-to-court/without-a-lawyer/repr…
A big house with a submerged wine cellar went in on two beachfront sections at a certain holiday retreat north of Auckland. As it was being built, the council were repairing a ground and erosion damage about 100 meters away. And further south at Orewa lots of new homes are going up on the beachfront even though the council has to rebuild the seawall after every weather event. On one hand, Auckland City Council planners warn of climate change, on the other they allow huge beachfront developments, even thou the evidence of erosion is clearly evident. An absolute joke!
Insurers are doing very nicely out of the climate change scare. When adjusted for GDP weather related losses are decreasing over time. Big up the scare with useful idiots like Mr Shaw and let the premiums roll in. Nice.
When adjusted for GDP "Overall losses are well below the 1990-2017 average (0.19% vs 0.28%) Weather/Climate losses are slightly below 1990-2017 average (0.18% vs 0.22)."
https://www.tandfonline.com/doi/abs/10.1080/17477891.2018.1540343?journ…
I think you'll find that in the real world [re-]insurance cover will either become un-affordable or non-existent, simple.
Your pick of using GDP is just that another cherry pick,
"In constant 2017 US dollars, both weather-related and non-weather related catastrophe losses have increased, with a 74% increase in the former and 182% increase in the latter since 1990. "
So a) weather related losses are x2 non-weather, b) this will accelerate. c) Insurance companies will want to recover their losses which seem to be doubling, "doing nicely" hmmm not obviously. d) The super rich take a huge % of that increase in GDP so the ppl at the bottom see no gains but will suffer the losses or higher costs.
https://www.insurancejournal.com/news/national/2018/08/23/499027.htm
"“It is important to recognise that insurers may be well-versed in understanding the dynamics of such extreme events, and may able to adjust exposures through annual contract re-pricing,” the report states. “However, the potential for physical climate risks may change in non-linear ways, such as a coincidence of previous un-correlated events, resulting in unexpectedly high claims burdens.”
So annually your insurance could be substantially changing every year, or may simply be not re-offered, at which point
its you that take the loss.
Here it is put in simple terms Steven. "But it’s deceptive to track disasters primarily in terms of aggregate cost. Since 1990, the global population has increased by more than 2.2 billion, and the global economy has more than doubled in size. This means more lives and wealth are at risk with each successive disaster.
Despite this increased exposure, disasters are claiming fewer lives. Data tracked by Our World in Data shows that from 2007-17, an average of 70,000 people each year were killed by natural disasters. In the decade 50 years earlier, the annual figure was more than 370,000. Seventy thousand is still far too many, but the reduction represents enormous progress.
The material cost of disasters also has decreased when considered as a proportion of the global economy. Since 1990, economic losses from disasters have decreased by about 20% as a proportion of world-wide gross domestic product. The trend still holds when the measurement is narrowed to weather-related disasters, which decreased similarly as a share of global GDP even as the dollar cost of disasters increased."
https://www.wsj.com/articles/some-good-newsabout-natural-disasters-of-a…
The insurance numbers are reacting to reality, the contrast is with all the individuals who will duck personal cost.
And the time-line is beyond the comprehension of most of the masses - who hardly think beyond the end of the month. That problem has bigger implications in bigger spheres and if we don't extend our time-window rapidly we're in other troubles too. CC is but one of the global problems being accumulated by Homo Colossus.
"The insurance numbers are reacting to reality" which is why I think we'll see the [re-]insurance companies leading this. Even the Paris accord's pathetic targets are being failed on and with that 3C becomes very probable and 4.5C quite possible which is game over. Ergo, inevitably then aka Cunliff's "state insurance plan" we'll see the risk being dumped on tax payers at some stage IMHO, which does nothing but delay things a little.
"end of the month" indeed just listening to the USA shutdown where many so called "good earners" live pay check to pay check makes that pretty clear.
As usual the burden of whatever scheme is dreamed up will be placed on long suffering taxpayers and ratepayers. It is a potential goldmine for insurers as well as central and local government, just like terrorism it’s a nebulous undefinable ‘threat’ against which there will be ‘combat’ and any action is justified. The language is of war already.
This will no doubt include funding hundreds of academics and politicians flying long haul to annual conferences in tropical locations to see first hand the consequences of several mm of rising sea levels on tropical resorts.
Insurers, already in bed with banks, will start requiring climate change insurance especially on inland properties to ‘combat’ the ‘threat’ to coastal centre premiums.
Meanwhile pensioners will be eating cat food and home ownership and even renting will become further out of reach for the majority
Fear such an awesome tool to control the masses. The Climate Change fear machine reminds me of how effective religion was over the centuries and so benefiting economically to the few. Of course if one does not accept CC one is deemed a denier the good old if your not with us your against us. The case of almost all the wars and suffering in our history. Someone was tortured for challenging the world was something other than flat.... LOL
I fly light aircraft as a hobby out of Whanganui, and always used to doubt the sea level rise commentary - BUT on the weekned i was flying up the coast to the west of Whanganui and noted at high tide the sea was washing up against the base of the cliffs the whole length of the cliffs to the first stream (about 1 1/2 Km). Now it has partially washed the base of the cliff in places from time to time over the years as storms and big blows washes the sand from the beach, but i have never noted it to occur over the whole of this length of cliffs. (I have spent my whole life in this area) Last night my wife and i went for a walk along this length of beach and I was most interested to note that the sand was not very low, and that it hadn't been washed away down to the underlying papa shelf, which has also occured in places on occasion. So i can say yes, there is evidence that sea level rise is occuring and is impacting on us NOW. The erosion of the cliffs in this area can be expected to increase. This naturally will mean that it must also be happening elsewhere and those who own homes on low lying coastal homes, or planning to buy there, need to consider what this will do to their properties in the near future.
We are leaving an ice age - so water levels have been rising since records began.
There has been no statistical increase in the rate of increase over any time period.
Maori can document how they had their gardens on the west coast flats extending at the entrance to the Manukau Harbour but these were inundated over time by sea level rise and as you observed - today the water is to the base of the cliffs.
Yes - sea levels are rising - but nothing whatsoever to do with the levels of CO2 in the atmosphere.
Shoreman,
With 12 likes,you have clearly struck a chord with some people. If you doubt the reality of human influence on CC.then you should put up a reasoned case and if you can show that the science is wrong or overstates the problem,then those of us who believe that there is a very real issue to confront can stop worrying.
Reasoned skepticism is essential to the scientific process,so fire away with your arguments.
I can't wait to read them.
Unless China, India and America get on with this in a big way anything we do is a fart in a hurricane. Gotta say its amazing to see people expecting and in some cases getting moonbeams for beachfront properties where quite clearly half of the beach has been eroded away in the last 5-10 years. Those selling clearly know whats happening.
"The research concluded $5.1 billion of local government infrastructure (roads, water networks, buildings, etc) was at risk if sea levels rose by a metre, $7.8 billion if these rose by 1.5 metres and $14.1 billion if they rose by 3 metres."
How can the report be taken seriously when it includes stuff like that?
At current rates, it would take between 500 and 1,000 years for this to happen.
"at current rates".
There we have, encapsulated, the failure of the human race and the reason for it's imminent collapse.
Somehow we're cranially wired not to grasp the exponential function. Makes you wonder, given that we had to avoid an accelerating lion.......
Brownlee made the same mistake re Southland lignite, a few years ago. Forgot to mention growth......
The exponential function appears to be applicable in terms of reproduction.
In terms of sea level rise, it appears that when looking at decadal periods, the exponent has been zero for the last century, or really, since human measurements began (in other words, sea level rise in temperate latitudes has been consistent in the past century with no "exponential increase" measured). I can link various data sets that show this if you wish validation.
The fun aspect is the sea level drop over the last century at higher/lower latitudes. Somehow this tends to not get any mention. There is a very good reason for this drop, the rebound from the last ice age. That there is an affect from this on the temperate latitudes tends to be, well, forgotten.
I very much agree about the issues about the exponential function. Every time I see an update on the worlds population, I get depressed. Exponential growth in a finite resource world will never end well.
Wrong, its 2019, currently sea level rise estimates are accelerating.
https://climate.nasa.gov/news/2680/new-study-finds-sea-level-rise-accel…
"If the rate of ocean rise continues to change at this pace, sea level will rise 26 inches (65 centimeters) by 2100." So within 80 years 65cm is quite probable.
Not accelerating in Auckland or Oz despite the increase in CO2 post 1945. " The peak decadal rate of rise centred around 1994 at Auckland is of the same magnitude as that which was measured in the decade centred around 1943.
...The analysis reveals a consistent trend of weak deceleration at each of these gauge sites throughout Australasia over the period from 1940 to 2000.
...The longest continuous Australasian records, Fremantle and Auckland, situated on the western and eastern periphery of the Oceania region, respectively, exhibit remarkably similar trends in the relative 20-year moving average water level time series after 1920."
http://www.jcronline.org/doi/abs/10.2112/JCOASTRES-D-10-00141.1?journalC...
Current rates of sea level increase are low but are likely to accelerate rapidly. The sea as a giant thermal buffer was underestimated. Floating ice melting has no effect on sea level. But average ocean temperature is increasing and now ice on the land is moving into the sea. So a rapid change of sea level is quite possible. Certainly I won't be buying beachfront.
What fascinates me is how little the infrastructure cost of tides 3 vertical metres higher. Divide $14.1 billion by fifty years and the annual cost is petty change from the Auckland Transport budget.
if they put the cost on taxpayers they will risk a yellow vest movement. Lets all just go down smiling as if councils or Government could ever fix anything.
steven, theres no growth, banks are buying NZ government bonds yielding %2.28 when inflation is %2. They would rather lend to the government at 28 basis points above inflation for ten years than lend into the economy.
So now we have all these spending plans in an economy going no where.
The interesting thing is that CC is only the result of our burning fossil fuels. The denial is selfish - a wish to keep on keeping on. The joke is that even if they try, they can't. Lack of supply catches up with them, compounded by increase in demand. But CC will impact them meantime - they'll go down triaging.
So silly. Better we acknowledge that we're forcing things at planetary level, and back off to sustainable levels. The amount of 'wellbeing' required will dictate the population carryable. Bet we never get around to discussing that.....
There are all sorts of things that should be happening to slow climate change, buts lets be real here, its not happening. We would have to start throttling back so hard that the moves required would be very unpopular. World population growth continues unabated, there is no discussion on this at all. Less people on the planet the less of a problem we would have. The countries on the rise like China are pouring out air pollution, a few of our cows farting are a joke in comparison. Time to start heading for higher ground, the high tide mark is changing.
China is doing most of the worlds heavy manufacturing. Its per capita emissions are a long way behind ours and the west.
Arguing we shouldn't try because other countries emit more is basically how little has been agreed on or done over the last 20 years Climate change has been accecpted as fact .
Well no actually, plenty of people and countries are still in denial and climate change is not a fact. Not really interested in per capita either, countries like China and the USA are not interested in accepting climate change because they are the ones pumping out all the air pollution and fixing it would affect the state of their economy.Sadly its almost pointless talking about climate change, it well eventually self regulate the world population anyway.
The USA manufactures many of the products that we consume - Boeing aircraft for example - huge energy consumed in their construction.
We as ultimate consumers are just as responsible for the associated emissions if that is to be a concern.
If we didn't buy them - there would be no emissions. Very simple.
Let's all go back to timber coastal sailing ships. Problem solved !
I think we all know whats contributing to the problem but at the end of the day we are all talk. Are you going to stop all your holidays overseas because that Boeing is pumping out carbon ? of course not and why ? that plane is still going to Fiji with or without you anyway. The whole carbon thing is a scam when we start paying money to someone else. Who is getting all the cash and how does cash solve the problem ? Corruption is guaranteed and you will eventually find out that cash went to someone having lavish overseas holidays on a private jet !
OMG the climate change ignorance in the commentary here is hard to believe - Interest.co.nz deserves better readers. The link with carbon and temperature increase is well proven and measureable (not a model). NASA, IPCC, NIWA, any reputable climate science organisation have all confirmed that we are on track for a very hot plant unless large scale changes are made to reduce emissions. We have already warmed a degree (measured proven) but we are on track for 3+ degrees by 2100. Read some science, not ignoramus fringe evidence which has been totally discredited. Ignorance is bliss
They have a new voice on Magic Talk, well an old voice, revived, in Sean Plunkett. Tune in some day when he is flat out debunking climate science. I have contacted the station already on a number of occasions to complain about them giving this idiot a voice with no counter anywhere in sight. It is truly sad to see so many people, probably too scared of their own shadows, to face the facts of what we are doing, and what we need to do for some form of remediation. But then, I suppose capitalism could be more important, sigh.
Footnote - it is actually growth that is issue, not any particular political system or other, but capitalists think all of this is just a direct threat to them.
OMG the climate change ignorance in the commentary here is hard to believe - Interest.co.nz deserves better readers. The link with carbon and temperature increase is well proven and measureable (not a model). NASA, IPCC, NIWA, any reputable climate science organisation have all confirmed that we are on track for a very hot plant unless large scale changes are made to reduce emissions. We have already warmed a degree (measured proven) but we are on track for 3+ degrees by 2100. Read some science, not ignoramus fringe evidence which has been totally discredited. Ignorance is bliss
Tim Tam,
Rastus makes a good point. I used to get mad when I cane across comments from a denialist,but now I shrug it off. Confirmation bias is very powerful and those who deny the reality of AGW,do so not from a knowledge of the science,but from their existing worldview.Those on the right of the political spectrum are far more likely to reject GW than those on the left and many studies in the US have shown this.
Of course,those who believe in the reality of GW,are subject to confirmation bias too and must always be open to evidence that might contradict our beliefs. I have 4 young grandchildren and would love to be proved wrong,as it they who will have to confront the problems that GW will present the world with.
Open to evidence that may contradict our beliefs? "By considering the average of the tide gauges included in the Japan-5, Oceania-4 and West Coast of North America-20 data sets, both the relative rate of rise and the acceleration are negative,−0.02139 mm/yr and −0.00007 mm/yr2 respectively.
...The measured values of sea level rate of rise and acceleration are much smaller than the models' predictions and the speculations. Fig. 8 further confirms the lack of any sign of the climate models'
predict accelerated sea level rise already evidenced in many works
(Beenstock et al., 2012; Beenstock et al., 2015; Boretti, 2012a; Boretti,
2012b; Boretti and Watson, 2012; Dean and Houston, 2013; Douglas,
1992; Douglas and Peltier, 2002; Holgate, 2007; Houston and Dean,
2011; Jevrejeva et al., 2006; Jevrejeva et al., 2008; Mörner, 2004;
Mörner, 2007; Mörner, 2010a; Mörner, 2010b; Mörner, 2010c; Mörner,
2011a; Mörner, 2011b; Mörner, 2013; Mörner, 2016; Parker, 2013c,d,e;
Parker, 2014a,b; Parker and Ollier, 2015; Parker, 2016a,b,c,d,e; Parker
and Ollier, 2017a; Parker and Ollier, 2017b; Parker, 2018a,b,c;
Scafetta, 2014; Schmith et al., 2012; Watson, 2011; Wenzel and
Schröter, 2010; Wunsch et al., 2007).
https://www.sciencedirect.com/science/article/pii/S0964569118303417
https://www.youtube.com/watch?v=EAmmUIEsN9A
Young lady has more brains than an entire ...vested interest Group.......here, there....everywhere.
Read it and weep...
She shines.....articulate too....Listen....read her lips. Swedish....speaks better English than a Brexit Exit dimbo or an American twitter..., looking for a way out, a way forwards, a way with the fairies...
It is all a distraction.
Worth a watch...time is ticking. ...Any second a Politician might wake up....Alarm bells ringing....deaf as a post.. Must be par for the job. dumb, deaf and blind.
Sludge is mounting....stuff Houses, stuff billions, stuff more crap.....while top lot ...Top us all..
Economics....this ain't....
Survival................it maybe.
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