Home buyers now on alert for climate threats to homes

Thursday, 9 May 2024

The Reserve Bank says around 120,000 homes are assessed as being at high risk of flooding, defined as properties where flooding can be expected more frequently than once in every 100 years.

Flooding and storm damage caused in the Auckland Anniversary Weekend last year and in Cyclone Gabrielle, which followed fast on its heels, has put home buyers on the alert.

IAG, the country’s largest insurer, has released a survey that indicates that two years ago, just 55% of people would have bothered to check out the weather-related natural disaster threats to a property they were considering buying.

That had now risen to 86% of people. However, a property’s vulnerability to extreme weather or natural disasters was still the second most important consideration when buying behind price, but ahead of the crime rate in the local area.

“People have seen the devastation wrought by storms like Cyclone Gabrielle and are much more aware of the risks,” IAG chief executive Amanda Whiting said.

Insurers are moving towards greater risk-based pricing on properties, where people who own homes that are at greater risk of things like flooding, pay higher premiums. Data from the Reserve Bank Te Putea Matua shows that — as yet — many owners of flood-prone properties are not paying extra to cover that risk compared with the owners of homes that are not at high risk of flooding.

In its report released on Monday, the OECD warned about insurance cover becoming unaffordable for owners of flood-prone homes, and in some cases, those homeowners may one day find they can’t get flood cover at all.

That warning followed a similar message from the Reserve Bank Te Pūtea Matua last week in its Financial Stability Report.

Amanda Whiting, chief executive of IAG New Zealand, says ‘As a country, we are facing growing risk with unpredictable weather, alongside other natural hazards like earthquakes.’

Despite rising concerns that insurance “retreat” could leave some buildings uninsured, or only partly insured, it appeared only a third of buyers were checking on how much it would cost to insure the homes they are considering buying, or whether insurance would be likely to remain available on them.

IAG - which owns insurance brands AMI, State and NZI - found just 30% of people ranked the availability and pricing of insurance as a top three consideration when looking at buying a house, with the price of the property, its vulnerability to natural disasters, and crime being the top three most common considerations for people.

Earlier this year, IAG chief executive Amanda Whiting said people looking to buy homes should call insurers to get a view on what it would cost to insure the place before buying.

The rising costs of house insurance, which have gone up far faster than inflation, have been causing some people to cancel their insurance altogether.

Speaking at the Retirement Commission Te Ara Ahunga Ora’sNational Strategy Conference in Auckland on Wednesday, Mark Street, head of consumer at Westpac, said the bank had seen an increase in customers cancelling insurance policies.

However, for many people, saying they would consider natural disaster vulnerability of homes they are might like to buy is easier than done.

Only 55% of people said they knew where to find the information they would need to judge the risk of things like flooding to a home they were considering buying.

There was an almost universal belief that more information about natural hazards should be easily available to people looking at buying homes, IAG found.

Councils, the EQC Toka Tū Ake, and real estate agents were considered to be those responsible for providing information on natural hazard threats and histories of homes.

Flooding is not a new phenomenon in New Zealand, but as the climate warms, some parts of the country are expected to see greater levels of rainfall. Photograph shows a woman being evacutated during flooding in Invercargill in 1984.Photo: Southland Times Historic Collection

Insurers were also considered to be holders of important information. A minority of people felt the previous owners should be responsible for providing that information.

Rules governing real estate agents require them not to mislead a customer or client, nor provide false information, nor withhold information that should by law or in fairness be provided to a customer or client, the Real Estate Authority says.

The authority recommends that agents and vendors get information from EQC on previous claims, and provide it to buyers.

In the last six months, IAG recorded nine storms where claim costs exceeded $1 million, which was one fewer than the same period last year.

However, the number of claims was 6712 in the last six months, compared with 41,596 in the six-month period in which the North Island floods and Cyclone Gabrielle happened.

Those two extreme weather events cost IAG over $1 billion in claims.