Country’s largest insurer IAG begins insurance ‘retreat’ from flood-prone homes
Wednesday, 20 September 2023
The country’s largest insurer IAG will not issue new insurance policies on flood-prone and landslip-threatened homes categorised as either 2 or 3 after the Auckland Anniversary weekend flooding in January, and Cyclone Gabrielle in February.
One broker described it as the beginning of a country-wide “insurance retreat” which would leave owners of flood and landslip-prone homes struggling to sell them.
IAG has written to insurance brokers outlining its plans for its NZI brand, but the insurer confirmed the changes would go across all its brands, including State and AMI.
The insurer said it was writing to homeowners directly to tell them about its plans, saying it understood it was an “uncertain time” for owners of flood-damaged homes.
In the communication to brokers, IAG said it would provide no new insurance on homes rated as either category 3, or category 2 by the government and local councils after floods and cyclone, even though some category 2 homes were considered repairable.
IAG would also not renew house insurance policies on category 3 homes, and the worst of the category 2 homes; however, cover would continue until owners had had their homes bought out in a managed retreat scheme being created by local councils and the Government, or they refused a buyout offer.
The Government intends to buy out the worst-hit homes, which it deemed no longer safe for people to live in, and some category 2 homes could end up bring moved into category 3.
IAG would continue to renew insurance policies of existing customers on category 1 and some category 2 homes, brokers were told, “subject to the extent of the damage”.
The insurer would also “consider” providing insurance to new owners of category 2 and 3 homes in cases where it insured the current owners, but it would decide whether to do this case by case.
“IAG is currently contacting customers in impacted regions who have made a claim, to let them know how the Government Land Categorisation may affect their ongoing insurance cover, as a result of the highlighted risk of flooding or landslip to their property,” said Wayne Tippet, IAG’s executive general manager for events response.
“Once the categories have been confirmed, IAG will work with customers on a case-by-case basis to discuss their insurance options,” he said.
“AMI, State and NZI customers do not need to contact us – we will contact them to discuss their individual needs.”
Owners of category 1, and repairable category 2 homes, faced changes to their insurance, Tippet said.
This could include higher premiums.
“Any changes will be made at the policy’s next renewal,” he said.
The insurance broker, who spoke on condition of anonymity, said “the tipping point has finally arrived whereby a large insurer is embarking on large-scale retreat of insurance cover for these risk-prone areas”.
The category scale has five rungs: 3 for homes no longer safe to live in, 2A for properties that need “further assessment”, 2P and 2C which need extensive flood protections, and 1 for homes that can be repaired without flood defence modifications.
“The fact that the retreat is also applying to 2A as well as restrictions to 2P and 2C is a reflection that the tide has turned,” the broker said.
He predicted that would leave some homes as stranded assets, unable to be sold, or which could only be sold at low prices.
“The banks will also likely take a harder line and will be unlikely to offer lending on these types of properties,” he said.
The threat of homes becoming very costly to insure, or entirely uninsurable, has been long-predicted.
But in August, IAG admitted it was intending to head down the path of greater risk-based pricing, where the owners of homes at higher risk of things like floods and landslipa would pay more for their cover.
Its announcement followed a similar one from its large rival Suncorp, owner of Vero and majority-owner of AA Insurance.