An insurance expert has told Q+A that insurance in New Zealand needs to start taking floods as seriously as the risk of earthquakes.
Finity consultant and actuary Emma Vitz said traditionally the insurance and building industries have put a major emphasis on understanding risk relating to the sudden destruction of an earthquake.
However, both Cyclone Gabrielle and the looming risk of sea-level rise due to climate change show that focus needs to be widened, said Vitz.
“We have spent years becoming experts at managing earthquake risk, and we’ve done that really well,” said Vitz, noting that it involved making earthquake insurance both available and affordable, along with building regulations that make the public safer.
But she said there hasn’t been a similar focus on flooding and other climate change-related perils, which marks New Zealand out from other comparable countries.
Australia’s industry largely uses a system of ‘risk-based pricing’, which effectively individualises the risk that each insurance customer is facing, depending on factors unique to them.
That largely hasn’t been the approach in New Zealand, which Vitz said is to do with having less data on individual buildings and risks.
For people with particularly flood-prone properties, the best way to maintain insurance affordability is to “address the risk issue,” said Vitz.
“That means investing heavily in resilience measures, and it also means we need to be judicious about where we build in New Zealand.”
“In that way, we can move towards a situation where people are safe – which is obviously the most important thing – but they’re also able to purchase insurance and keep that cover.”
Vitz said we’re unlikely to see houses become uninsurable in the short term, however it may start to become unaffordable.
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