'Petone will be under water': Here's what you need to know if your home is a flood risk
Insurer says it expects places like Petone to be wiped out by the middle of the century. What does that mean if you own a home there? Insurance company IAG has warned home owners that their homes could be at risk due to wild weather events and climate change in New Zealand. The company's executive manager of corporate relations for IAG, Bryce Davies, recently stated that areas such as Petone in West Auckland could be under water by mid-century. This is not expected to improve, as claims have risen rapidly and the more claims insurers receive, the more they may have to increase what they charge or stop offering cover in riskier areas. However, homeowners need insurance to have a mortgage, or to put a house back together if something happens to it. Ben Tombs, a PhD candidate in the University of Otago’s faculty of law, highlighted multiple layers of risk that threaten New Zealand houses. He also highlighted the increasing risk from slow-onset events like encroaching sea level causing coastal inundation, and the climate change making extreme weather events more frequent and intense. There are also concerns that climate change is causing these return periods to decrease, causing these events to occur every 50 years instead of 100 years. Insurance premiums are also rising, with IAG's house insurance going up by 20% to 30%.
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West Auckland home owner Nicola Farley told a public meeting insurance company IAG had warned her it could end her flood cover. First published in March 2023.
Floods and cyclones this year have highlighted how at-risk many New Zealand houses are to wild weather events and climate change.
And it is not expected to improve. Bryce Davies, executive manager of corporate relations for IAG in New Zealand recently said areas such as Petone would be under water by the middle of this century.
So what do you need to know if your home is at risk?
At its most basic level, apart from the prospect of homes being damaged, a big issue is that people may be at risk of not being able to get insurance on their homes.
Claims have risen rapidly in recent years. And the more claims insurers receive, the more they may have to increase what they charge – or stop offering cover in riskier areas.
But homeowners need insurance to have a mortgage, or to put a house back together if something were to happen to it.
It’s not just a problem in New Zealand. In August, the BBC ran a story noting that for those who could still get insurance in Florida, it would cost, on average, US$7783 (NZ$13,161).
Ben Tombs, a PhD candidate in the University of Otago’s faculty of law, said there were multiple layers of risk that threatened New Zealand houses.
“First off, there is an increasing risk from slow-onset events like encroaching sea level causing things like coastal inundation. So that’s the first layer of increasing risk; put crudely ‘sea-level go up, risk go up’,” he said.
“The good thing is that this is fairly intuitive, linear and mappable. If you can have a sense of the rate of sea-level rise over time, you can then use mapping tools to see what parts of your local topography are about to get wet.”
But on top of that, he said climate change was making extreme weather events more frequent and intense.
Storms that might have previously been one-in-100-year events are now more common.
“Note that the intensity of that event has not changed, only the frequency,” Tombs said.
“Many insurance terms are set out in terms of ‘return period’, which is a fancy term for likelihood of a specific scale of event over a set amount of time. For example, a one-in-100 return period means that event will occur on average once every 100 years.
“Climate change is causing these return periods to go down – that is to say, the same intensity could happen every 50 years instead of 100 years. As a result, the range of viably insurable events is narrowed, even though the scale of that damage would have been insurable before. So that’s the first nasty element,” Tombs said.
“The second nasty element is that, as a result of the return period on extreme events decreasing, so too, is the possibility for truly catastrophic events increasing. That is to say, the return period on some truly biblical level storms is getting lower,” he said. “These are the events at the very far end of the distribution curve, like the one-in-5000 and one-in-20,000 events, which are absolutely devastating. As time goes on, these events become more and more of a possibility.”
Are there alternatives for insurance?
Insurance premiums are rising – IAG said its house insurance was going up by 20% to 30%.
But only some insurers charge according to the specific risks of an individual property. In 2021, Tower began to charge higher premiums to people whose homes were at an elevated risk of flooding.
Consumer NZ investigative team leader Rebecca Styles said for now, people who were facing big increases in insurance cover costs could shop around to see if another firm could offer a better deal.
“Other insurers are basing prices on community spread,” she said. “They spread the risk across the country. That would be my first port of call.”
Some insurers have hinted they may move to more risk-based pricing in future.
Styles said anyone who was completely priced out of private insurance still had the option to apply directly for EQC cover.
But she said that would only provide the cover that would be available if the person had private insurance as well, so it was quite limited. EQC offers up to $300,000 in cover for natural disasters.
How long might it be before insurers take more drastic action?
Tombs said whether insurers would pull out of areas completely would depend on the return period for claims events.
“A storm of one-in-100 is insurable, because it’s a lower chance of the insurer paying for your stuff getting wet, a risk that they take on because they’ve calculated that they can still make that payout and sustain a profit. Bearing in mind that insurance companies require profit to underpin their business model.
“It depends on how insurance companies and re-insurance companies strategise their profit model and calculate risk.”
Areas that are affected by rising sea levels will experience flooding events more frequently.
Insurers such as IAG have signalled that more needs to be done to reduce risk in some areas.
A spokesperson said its intention was to continue providing insurance to as many New Zealanders as possible.
“For many years, we have been clear that New Zealand needs to take urgent action to keep people safe from the impacts of natural hazards and climate change. Failing to act means that New Zealanders will continue to be exposed to harm, as we saw with the weather events earlier this year.
“We believe that the best way to keep insurance available and affordable is by reducing natural hazard risk through good planning decisions, investment in protection and resilience measures, and where necessary, through relocating at-risk properties.”
Tombs said people who were worried about the future of their houses could talk to their neighbours as a starting point. “Chances are they’re in a similar position,” he said.
“You can also go along to a community consultation event run by the council. If there is no consultation event being put on by the council, petition for one. The point is, it is easy to feel isolated by this issue, it is inherently isolating. Insurance policies are tailored for your property, and there is an element of individually shouldering risk that is baked into being a homeowner.
“As insurance premiums climb or even withdraw, it will be isolating for those who are cut off from means to relocate, and/or are stigmatised for their circumstances. We may even feel tempted to blame people in this position, to even say that they deserve it for their unsound business decisions or selfishness,” Tombs said.
“As tempting as this may be… it only further cuts off fellow New Zealanders. Believe me when I say that even though it may relieve frustrations we may have with some people’s or local authorities’ decisions, it’s ultimately unhelpful for a long-term solution.”
What if you’re thinking about buying a house?
Styles said anyone shopping for a house should check LIM reports and council records. “EQC has a new tool, a natural hazard portal, you can go and check... do all the homework in the world to make sure you’re not buying in a particularly risky area.”
How much of it is on homeowners?
Tombs said most people would agree that there should be some individual responsibility, but not necessarily to the exclusion of government assistance.
“This is an extremely complex topic and there are many different scenarios that will all draw in various judgements of individual responsibility. We already do this in other areas like the EQC and the ACC. Future solutions will hopefully recognise that there’s a difference between someone who disputes a LIM because it affects their property value, and someone who moved into public housing that turned out to be in a flood zone.”
Styles said much of what needed to happen was still to be worked through with central and local governments.
“From my perspective, consumers are piggy in the middle at the moment between these major forces, and structural change needs to happen to give homeowners in at risk areas some more reassurance they can rebuild or move away if their house is damaged.”