Reserve Bank voices fears climate change will render homes uninsurable
Wednesday, 28 November 2018
The Reserve Bank has warned that some properties may be rendered uninsurable by climate change.
In its quarterly Financial Stability report issued today, the Reserve Bank (RBNZ) looked at longer term risks to the financial system, which included banks and insurance companies.
And it highlighted the potential impacts on property owners, including homeowners, whose properties could become more expensive to insure, or have their resale value drastically cut, if they become uninsurable.
'Some insurers in New Zealand appear to have begun adjusting their products and pricing to reflect emerging climate risks, and some existing properties could ultimately become uninsurable,' RBNZ said.
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Insurance companies would be able to manage their exposure to properties which become increasingly prone to extreme weather events, such as coastal properties, because they choose each year whether to renew policies, on what terms, and at what price.
'Property insurance contracts are negotiated annually, allowing insurers to reassess risk and adjust policy terms each year,' RBNZ.
'Whilst this supports the efficiency and stability of the insurance sector, it poses challenges for property owners and lenders.'
Already Tower has moved to risk-based pricing for natural disaster cover for homes, and the two largest insurers IAG and Vero have said they will follow suit.
It's meant some homeowners have already been experiencing large increases in the cost of insuring their homes.
Price changes, or removal of insurance entirely, would impact the price property owners could sell their places for, the RBNZ said.
It could also change the way banks lend on increasingly climate-threatened properties, if they were willing to lend on them at all.
One possible result might be banks choosing to lend much less on risk-prone homes.
'This may mean placing less reliance on backward-looking valuation models at account for possible drops in value of properties as insurance costs rise,' RBNZ said.
'Coastal property is likely to be the most affected, as rising sea levels may result in some properties being lost to the sea entirely.'
'The Reserve Bank will engage further with banks and insurers to understand how they are incorporating these and other climate-related risks within their businesses,' RBNZ said.
Climate change will have a significant effect on New Zealand's economy and financial system,' it said, especially in primary industries.
'For many countries, emissions from fossil fuels and the energy sector will be the key areas of focus. But for New Zealand, it will likely be the agriculture sector, which accounts for around half of our emissions,' it said.
Climate change was a long-term risk to the financial system, RBNZ said.