IAG quells fears at climate adaptation inquiry over 'imminent' loss of insurance

Wednesday, 17 July 2024

The select committee inquiry into climate adaptation has heard fears that some homeowners will not be able to get insurance, rendering their homes unsellable.

The country’s largest insurer IAG has hit back at claims to the climate adaptation inquiry that an increasing number of homeowners will lose insurance cover, or be asked to pay so much, they will not be able to afford to insure their homes.

“There’s an assumption of an imminent loss,” said Bryce Davies from IAG, the owner of the State, AMI and NZI brands.

“We understand why they say that, but let me be clear: Insurance is widely available, and it’s not about to disappear,” said Davies, speaking at the finance and expenditure select committee inquiry hearings on Tuesday.

The inquiry by the finance and expenditure select committee is gathering opinions on how the Government can create a nationwide climate adaptation strategy and framework.

Many people sharing their opinions on Tuesday spoke about the impacts of advancing climate change on the value of individual homes in areas that are at an unacceptably high risk of natural disaster events like floods.

There are fears that insurers and banks may no longer continue insuring, or lending on homes, in areas at high risk of events like flooding, the committee heard, or might charge substantially more.

Concerns about the future of insurance on a subset of at-risk homes has been rising in recent months.

In its May Financial Stability Report, the Reserve Bank of New Zealand Te Pūtea Matua said: “A withdrawal of insurance availability for high-risk properties is likely to occur only gradually.

“However, some owners may find insurance increasingly unaffordable. Insurers may begin to make coverage of some risks optional as risk-based pricing becomes more commonplace,” it said.

However, reports done for The Treasury on availability of insurance last year indicated most homeowners had at least two insurers willing to provide cover on their homes.

IAG is not a name familiar to many households, but the many insurance brands it owns are: State, AMI, NZI, Lantern Insurance, Swann Insurance, NAC Insurance and and Lumley.

Davies acknowledged that as the country adapted to climate change, there would be financial hits for some homeowners.

“It’s inevitable people will lose money, some of the equity in their homes,” Davies told MPs.

There has been a particular focus at the inquiry on the compensation that should be available for owners of properties that are no longer considered safe to live in.

There was resistance from multiple people giving evidence to the inquiry to the idea that all property owners should be compensated for all of the loss of value in their properties.

Member of the public Steve Riden told MPs that he did not think it was fair for taxpayer money to be used to compensate people for holiday homes, should they no longer be safe to be used.

The cost of such compensation was unfair to impose on non-homeowners, and future generations, who might never own a home themselves, he said.

Davies questioned whether it was time to draw a line under any expectation of compensation for people building new homes in high-risk areas.

In its written submission to the inquiry, IAG said a climate adaptation framework must ensure costs were shared fairly across distinct groups and generations, and reflected “individual and collective responsibility”.

Coastal erosion and sea rise will threaten some communities in the next few decades.

He said it was time for building in high-risk areas to stop.

IAG said the Government should be “exhaustive, precise and realistic in setting objectives and principles” for climate change adaptation.

The insurer said only Bangladesh was at greater risk of natural disasters than New Zealand, and that in the past 20 years this exposure had led to many major natural disasters and more than 100 declared states of emergency.

IAG said climate adaptation should focus on ceasing to create new property risks, so that over the coming decades, the proportion of homes exposed to flooding would fall because the country was making better land-use decisions.

But, “our ability to bend the curve is held back by a fatalistic attitude in which the impacts of natural hazards are seen as inevitable and there is an unspoken assumption that there is only so much that can be done in dealing with them.

“As a result, we continue to focus on response and recovery ahead of avoiding, reducing or building resilience to the impacts of natural hazards,” it said.

The inquiry has also heard form people who considered that climate adaptation policy was driven by alarmists, and that people should shoulder the cost of their own property-buying decisions.