Insuring homes and properties could become much more difficult in some areas as intense weather events increase risks.
Photo: RNZ

Thousands of residential properties could be left unprotected and uninsurable in the coming years, as new research points to a looming insurance crisis due to climate change.

A new report from the Helen Clark Foundation and engineering consultants WSP warns that an “insurance rollback” could make insurance premiums for flood-prone properties unaffordable.

An estimated 10,000 coastal properties in Auckland, Wellington, Christchurch and Dunedin could become uninsurable by 2050, due to coastal erosion and flooding.

Other properties in flood-prone areas further inland were also at risk.

The report, titled Bonuses under pressuresaid that without intervention the country faced a sharp rise in insurance premiums, with insurers likely to completely withdraw flood cover for the most at-risk properties.

Its author, Kali Mercer, said keeping premiums accessible and affordable for policymakers remained a thorny challenge.

“Maintaining high residential insurance coverage, particularly against floods, is essential to preserving the country’s economic and social resilience in the face of climate change and to preventing people living in vulnerable areas from falling into poverty by weather-related disasters,” she said.

“Insurance helps individuals, communities and the country as a whole recover from climate-related shocks.”

Several recommendations were made, including a subsidy system for those who cannot afford coverage, standardization of insurance policies and ensuring transparency of pricing criteria.

“We also need to ensure that the insurance market remains as competitive as possible,” Mercer said.

The report also urges policymakers to stop “inappropriate” development in flood zones, flood-prone areas and coastal areas that risk becoming uninsurable in coming decades.

Government intervention is also required, including through the development of a residential flood insurance scheme, similar to arrangements in place in the UK and France.

“Such a system, depending on its design, could aim to fill one of many potential ‘protection gaps’ in the future,” the report said.

This could include homes that cannot access private insurance but are still within a risk threshold, homes located in areas where insurance has been removed due to risk, and homes that face a future planned relocation process and require coverage in the meantime.

Insurance withdrawal occurs when insurance companies gradually withdraw coverage in certain areas because increasing levels of damage – particularly from flooding and coastal erosion – make it difficult to sell coverage in those areas. unattractive or impractical.

Richard Woods, head of WSP’s Risk and Resilience service sector, said it was unclear when and in what form the withdrawal of insurance would take place, but plans needed to be made.

“These and other extreme weather events linked to climate change are still very much on people’s minds,” he said.

“They remind us that climate change is much more than just an environmental problem.

“This is an urgent economic and social challenge for communities.”

“The country is only one major catastrophe away before insurance withdrawal becomes a much more complex problem than it already is.”

Key recommendations made in the report include:

• Recognizing the critical role of residential insurance in maintaining societal resilience, amid increasing risks from climate change.
• Avoid further development in flood risk areas that exceeds agreed risk tolerances.
• Invest in climate risk mitigation and adaptation to keep home insurance premiums accessible and affordable for longer. This should include clearly defining responsibilities and decision-making processes on how adaptation will be planned, financed and implemented at national and local levels.
• Agree on a framework and financing model for the planned relocation of housing located in at-risk areas where other types of intervention are not cost-effective or technically viable.
• Develop one or more public residential insurance schemes, to fill current and future insurance gaps caused by climate change, particularly for flood risks.
• Consider other interventions in the residential insurance and financial markets, to maintain high levels of insurance penetration, such as: Subsidizing premiums for certain homeowners; Standardize and simplify insurance contracts; Agree on the level of transparency expected of insurance companies on how they make decisions affecting premium prices; Monitor and promote competition in the insurance market.