Westpac seeks strategic relationship with insurer saying ‘lending risk appetite may change’ as climate alters

Tuesday, 6 May 2025

There’s a change in what Westpac wants from insurers.

The bank, which has just reported a 10% bump in half-year profit, has issued an RFP, or “request for proposal” for a strategic relationship with an insurer.

It would be a data-driven relationship which could one day see the bank refuse to lend, or to lend less, against homes that are at heightened risk of natural hazards like flooding.

Currently, Westpac earns commissions from reselling insurance from IAG, which owns the State, AMI and NZI brands.

But the bank is looking to a future in which climate change alters the risk profile of homes at risk of events like sea level rise, coastal erosion, and inland flooding.

“One of the things that we're particularly interested in is a strategic partnership leveraging data to help New Zealanders have the right information about their homes and insurance; both costs and risks of their homes, and how we think about that as banks,” McGrath said, speaking after the bank announced its half-year profit on the Australian ASX sharemarket.

Insurers have been moving to charge people with homes at greater risk of natural hazard claims more for their insurance, and politicians have been working on how the country should prepare and pay for what is referred to as “managed retreat”, which involves homes in some places being deemed no longer safe for people to live in.

Auckland and Christchurch have both seen managed retreat after natural disasters, with Christchurch’s resdiential red zone, and some pockets of residential housing in Auckland after flooding in early 2023.

“I think the way that we get through all of this together … is with data,” McGrath said.

“We're looking for a more strategic partnership to help customers navigate that more uncertain future, rather than a traditional arrangement that's really been about referrals and is the product fit for purpose,” she said.

But for banks, there is also a “strategic imperative” for them having better data as they are required by law to report on their climate risks, though ACT MP Mark Cameron has tabled a member’s bill that would end that, should it be passed into law.

Climate reporting required banks to have climate risk data about the homes and other property that stand as security for loans they have made so they can understand their risk exposures.

Some of those loans can be on mortgage contracts of 25 years or more, with the value of the homes partially based on the continued availability of loans for people to buy them.

Westpac’s 2024 Climate Report indicated key climate risks that could manifest before 2050 included some home owners no longer being able to get insurance for their homes “increasing credit risk for Westpac NZ”.

It reported that about 2.1% of its residential mortgage lending by dollar value, and 2.1% of its commercial property lending was exposed to heightened risk of sea level rise by 2050.

In some regions the proportion of homes financed through Westpac residential mortgages was much higher.

McGrath said people buying homes were now very conscious of natural hazard risk, a conclusion that was underlined last week with the release of survey data by IAG, which showed widespread anxiety about flooding.

IAG said when asked whether they would consider natural disaster risk when buying a new home, 89% of people said they would.

Before storms and flooding in the North Island in early 2023, the number who said they would was just 55%.

“As consumers, we're all far more thoughtful about the information we'd want to see about a house before we put an offer in on it, than we were before,” McGrath said.

“And so, by definition, you would expect at a point in time in the future that both insurance appetite, and lending risk appetite, may change reflecting those risks,” she said.

However, ”we're in the early days of that at the moment”.