After being smashed by two record-breaking weather events, New Zealand is now coming to terms with the long-term repercussions

By Claire Heaney

Months after New Zealand’s devastating twin climate disasters, the clean-up continues. But there are bigger, long-term and hard questions at play.

Leaders across government, industry, business and homeowners are realising accelerating weather events, like a fast-moving oncoming train, need to be slowed.

Over and above unprecedented damage and claims, mitigation measures wreak an emotional toll on hundreds of people unable to rebuild as their properties are considered too risky and potentially uninsurable.

The cost of claims for the Anniversary Weekend floods, which started on January 27 and are considered the worst in Auckland’s modern history, and February’s Cyclone Gabrielle are eye-glazing.

They are expected to top $NZ3.18 billion ($2.9 billion). So far, $NZ1.08 billion ($986 million) or a third of the 107,560 claims, have been settled.

Vero Insurance Executive General Manager, Business Sacha Cowlrick says extreme weather and cyclones brought new challenges for an industry already struggling with high inflation, supply and labour constraints and ongoing disruption caused by the pandemic.

“The increased frequency and intensity of events occurring in New Zealand, a trend that is showing up across the world, presented the need and opportunity for us to start thinking differently about how we manage the business, what our risk portfolio looks like and how we can collectively improve community resilience and protect what matters to New Zealanders,” she told Insurance News.

She says communities need to look at how and where development takes place and what mitigants might be available.

Ms Cowlrick says the two largest claims events New Zealand has seen, outside of the Canterbury earthquakes more than 10 years ago, were stretching resources, and 150 employees from the Australian Suncorp operations were drafted to answer calls and help resolve claims.

The increasing frequency and intensity of natural disasters is driving up the price of insurance, largely from increases in reinsurance costs, claims costs and claims inflation.

Jumps in levies and taxes, including the 2022 rise in the Earthquake Commission levy, are still flowing through to premium pricing.

Ms Cowlrick says before this year’s extreme weather events, Vero’s reinsurers focused on earthquake risk in New Zealand, which is the greatest contributor to reinsurance premiums.

But the January floods and Cyclone Gabrielle mean New Zealand is now being viewed as riskier territory for reinsurers. 

“Reinsurers are interested in New Zealand’s efforts to better understand these weather-related perils, such as flooding and storms, and Vero is actively working with central and local government, businesses and banks to better understand these risks and how they can be managed.”

Ms Cowlrick says Vero is undertaking climate change scenario analysis to understand potential longer term impacts that can be assessed against possible future scenarios and time horizons.

“This work will form part of our future climate-related disclosures in 2024 and is expected to build in sophistication over time and help us understand potential future losses from weather-related perils.”

Major insurer IAG NZ, which trades under the AMI, State and NZI brands, says people are increasingly fearful of the impact of wild weather, with independent market research it commissioned revealing concern jumped markedly after the recent major weather events.

Before the two storms, 45% were concerned by the potential impact of wild weather, 26% were not concerned, and 28% of people were neutral, according to its Wild Weather Tracker from May.

After the storms, 83% of people said they are now concerned by wild weather. Only 5% are not concerned, and 11% are neutral.

IAG NZ Chief Executive Amanda Whiting says the events need to lead to change.

“In the short-term, we need to ensure that people are out of harm’s way. In the longer term, there are a range of solutions that as a country we need to work on,” she said.

“We are reiterating our three-step plan to urgently identify the country’s most flood-prone locations, agree to stop building in these places, and to invest in flood protection infrastructure.

“Essentially, we need to get better at preparing, responding, and recovering.”

Rooftop rescue: a helicopter moves in to assist in the Esk Valley. Credit: New Zealand Defence Force

In June, IAG NZ announced premium increases of between 20% and 30% for cars and houses due to inflation and reinsurance costs.     

Blair Turnbull, the Chief Executive Officer of third-largest New Zealand insurer Tower, says that before 2023 the 10-year rolling average of large event costs for Tower was around $NZ14 million ($13.02 million) a year. The total event costs for the 12 months ending March 31 were a record high of $NZ294 million ($273.51 million).

“Tower is proactively managing this increasing frequency and severity of large events that are linked to our changing climate.

“With our approach to risk-based pricing, we are sharing information with customers about their properties so they can make informed decisions and understand their insurance needs and premiums better.

“Risk-based pricing is a fairer way to price insurance as customers only pay for the risks that apply to their property.”

Mr Turnbull says flood modelling undertaken in 2021 proved important.

“While the most recent floods were particularly severe, our testing has confirmed that they followed the patterns we had modelled, which continues to give us confidence in the accuracy of our pricing and underwriting.”

The New Zealand Government has allocated initial funding of $NZ6 billion ($5.55 billion) for a National Resilience Plan to rebuild with greater resilience across road, rail, and local infrastructure wiped out by the extreme weather, as well as telecommunications and electricity transmission infrastructure.

New Zealand’s Cyclone Taskforce, in consultation with insurance companies and local councils, has sought to create a profile of high-risk areas based around three categories.

Category 1 covers low-risk claims where the property will be returned to how it was previously. Category 2 covers claims where some mitigation is required by the landowner or council. Actions might be raising nearby levee banks, improving drainage or raising houses.

But Category 3 is proving the toughest, as people will be told they cannot rebuild because of an unacceptable risk of future flooding and loss of life. Homeowners will be offered a voluntary buyout. Government and councils are continuing their discussions on sharing the cost of buying-out high-risk Category 3 properties.

There are thought to be about 700 such properties and up to 10,000 homes in Category 2 areas. The majority of Category 2 and 3 properties sit within the Auckland Council area.

“It’s been agreed that more time is required to work through the policy and parameters, and to make final decisions on how properties will be categorised,” Cyclone Recovery Minister Grant Robertson said. “This includes which homeowners will be offered a voluntary buyout.”

He says the Government must strike a careful balance between supporting affected communities and not making all taxpayers bear the cost.

Insurance Brokers Association of New Zealand Chief Executive Melanie Gorham says while some people will be pleased to receive a Category 3 buyout, others will be reluctant to leave their homes.

“Delays in decisions outside of their control are contributing to their anxiety and/or increasing the financial pressure they are under as the likes of temporary accommodation allowances under their policies are exhausted.

Muddy hell: damage in the Hawkes Bay region. Credit: New Zealand Defence Force

“Category 2 presents challenges also with councils or landowners needing to pay for improving the risk their property faces. The money must come from somewhere and very few will have ready access to it.”

Ms Gorham says brokers are working with clients to help them understand how their properties have heightened exposure due to their proximity to floodplains, coastal erosion or other factors.

“This can be confronting, particularly given these risks have typically always been present.”

Ms Gorham says while there are reports that people will forego insurance, the reality is that those borrowing money against an asset will likely be required to have insurance, meaning they will have no choice but to pay increased premiums and/or accept reduced cover.

“With so much immediate change there is a need to closely monitor that those changes are necessary and will not have unintended outcomes such as broadening definitions or exclusions beyond intent, or contributing to the affordability crisis given the increases already facing policyholders.”

Looking forward, Ms Gorham says a priority for the Government and councils is ensuring that land being developed now is fit for purpose.

“The type of building/structure and mitigating factors need to be taken into account to ensure that we are not going to revisit these issues in future years as memories fade or something perceived as more pressing makes the headlines,” she says. 

“Personal safety and confidence in where we live and work is critical.”

Insurance Council of New Zealand (ICNZ) Chief Executive Tim Grafton says regardless of the category councils have determined a property falls within, insurance companies are continuing to work with policyholders to honour contractual rights under their insurance claims.

The insurance claim is between the policyholder and their insurer, he says.

“They are unaffected by the category your property has been placed into. Your insurance policy pays for the physical damage to your house up to your sum insured or any other policy limits and benefits that may apply. 

“Whether you repair in situ, make improvements, or move to another property, your insurance monies can be put toward your recovery.”                   

Records continue to fall

Early in July New Zealand’s National Institute of Water and Atmospheric Research (NIWA) reported that some parts of the country had already recorded more than half the year’s rain. It was the wettest first half of the year on record.

“Those living in Northland, Auckland, the Coromandel Peninsula, Gisborne, and Hawke’s Bay have dealt with a constant barrage of sub-tropical lows, atmospheric rivers and ex-tropical cyclones, which caused copious amounts of rainfall. It has been quite relentless,” NIWA meteorologist Ben Noll says.

NIWA describes the fiercest rainfall, which produced widespread flooding across Auckland on January 27, as “at least a 1-in-200-year event”.

Estimates of the cost for more than 107,569 claims from the twin climate disasters of the Auckland Anniversary Weekend floods and Cyclone Gabrielle have reached $NZ3.18 billion ($2.95 billion).

To put it into context, ICNZ’s Mr Grafton says the total claims for the general insurance sector in 2022 were $NZ3.08 billion ($2.81 billion) and for the 2016 Kaikoura earthquake $NZ2.27 billion ($2.07 billion).