Tower to lift premiums for owners of flood-prone homes

Tuesday, 9 November 2021

The town of Edgecumbe in the Bay of Plenty experienced extensive flooding in April 2017.

Tower has started flood-risk rating individual homes which will see some at higher risk of flooding being billed more for insurance.

The increases would range from a few dollars up to hundreds of dollars a year, chief executive Blair Turnbull said.

But about nine in 10 of its customers would pay slightly less for their house insurance, he said.

All of Tower’s customers will receive a green (low risk), amber (medium risk) or red (high risk) flood rating on their homes.

* Why some insurance premiums are about to go up

Rivers bursting their banks, flash floods and more intense cyclones – how climate change is making floods more extreme.

* New tools to estimate individual property flooding risk may aid controversial risk-based insurance

People who were not Tower customers, but wanted to see what their home was rated, could do so by applying for a quote from the insurer, he said.

“For nearly 90 per cent of customers, this change means they will receive a reduction in the flood risk portion of their premium, at an average of about $25 each,” said Turnbull.

But about 10 per cent of customers would experience an increase in this portion of their premiums, he said, with the majority of these being less than $50 a year.

Market research done by Tower could also make it easier for home buyers to assess the homes they were considering buying for flood risk.

Tower insurance CEO Blair Turnbull says only about one in 10 customers will see their premiums rise as flood risk is added to property insurance information.

“Ninety per cent of Kiwis told us that access to flood risk data about a house they are looking to buy may change their thinking about the property in some way,” Turnbull said.

The Reserve Bank warned homeowners earlier this month that insurers would start to risk-rate homes on flood and extreme weather risk, saying that as soon as one insurer did it, others would have no choice but to follow.

The frequency of extreme weather events had been increasing, said Turnbull.

“Even after adjusting for inflation, we can see that the cost of these floods and large events over the last 10 years is the equivalent to the previous 45 years,” he said.

Since 2015, there had been $922 million in storm and flood-related claims paid.

Turnbull said, according to Lloyds of London Insurance Risk Index Report, New Zealand was the second-riskiest country in the world after Bangladesh when it came to natural disasters.

“We have a love affair as Kiwis with water. We like being near water, whether that be a river or a creek or coastal, but unfortunately those are also the areas that are very prone to flood-related events,” he said.

Tower would be contacting all the customers whose premiums would go up significantly but Turnbull said the shift was fair.

In Wellington, tsunami risk to homes was made graphically clear through blue tsunami safe zone signs painted on roads.

“This is a pricing model that we have seen implemented effectively overseas in countries such as the United Kingdom and is a model that people are well accustomed to with other assets such as motor insurance,” he said.

Tower could risk-rate for homes as a result of working with risk company RMS and property data company CoreLogic to map every home in the country, and assign it a risk rating for flood.

That could see near-neighbours getting different risk-ratings on their homes, despite being so close, depending on factors like the elevation of their homes, and their proximity to creeks and rivers.

Even in some relatively elevated areas like the Auckland suburb of Epsom, there could be a scattering of homes in depressions which had a flood risk from heavy rain.

“The benefit of using the RMS model is that it is so detailed that neighbouring properties can have very different ratings, depending on the camber of their land, whether they have a flood wall, and other factors,” Turnbull said.

“We don’t want to create anxiety for customers but we do want people to understand their risk perils,” he said.

Tower was sharing its information with local councils and government, Turnbull said, to help prevent homes from being built in high-risk places like drained wetlands.

Earlier this month, following the Reserve Bank warning, rival insurers AA Insurance and IAG, which owns the State, AMI and NZI brands, would not say whether they planned to follow Tower's move, which the insurer signalled in October.