The United Kingdom’s Build Back Better offers homeowners grants of up to £10,000 ($21,412) to install flood resilience measures when repairing their properties after a flood.
The California Earthquake Authority offers owners of some quake-prone homes grants of up to US$3000 ($4956) to retrofit their homes. Those who complete the verified retrofit can get insurance premium discounts of up to 25%.
While the commission is quite different, covering a larger number of perils for example, the agency is keeping tabs on the use of incentives in comparable schemes overseas.
“It absolutely isn’t a stupid idea, but it’s a lot more complicated than it first appears,” Horrocks told the Herald.
She said it was a matter of figuring out whether the benefits would outweigh the costs and unintended consequences.
The commission provides privately insured homeowners with limited cover to help rebuild or repair their homes and limited areas of land if they are damaged by a natural hazard event.
In the event of a disaster, it will settle claims using funds it receives by levying people with private insurance. It also has reinsurance cover and is backstopped by the Government.
The concept of insurers subsiding their customers to reduce both the likelihood of them making a claim, and the cost of that claim, isn’t novel.
For example, the Accident Compensation Corporation subsidises the cost of bicycle safety courses. Some private health insurers also subsidise their customers’ gym memberships.
Nonetheless, this isn’t something on the radars of private general insurers.
A spokesman for the industry group for private general insurers – the Insurance Council of New Zealand – made the point that because premiums cover a wide range of hazards, reducing the risk of one particular hazard may not make an appreciable difference to premium levels.
Horrocks recognised this.
“You’re not going to get a big insurance premium reduction just because you’ve done something like remove your chimney, because the next thing that comes along might be a flood or a landslide,” she said.
The Insurance Council spokesperson said its members were focused on “supporting the collective effort to improve resilience at the national level”.
“By working with the Government, councils and others as part of a New Zealand-wide approach, it helps send the right signals to global reinsurers that as a country we are reducing risk to ensure insurance is affordable and accessible.”
Horrocks agreed there were a number of things that needed to be done to reduce risk, particularly in the face of climate change and insurers using more granular data to price premiums according to risk. She believed introducing incentives was simply one tool that could be useful.
She said parameters would need to be put around the scheme to keep it affordable and contained.
Horrocks also said a challenge would be ensuring the scheme was fair.
Indeed, there was a risk it would mean only property owners who could already afford to make their homes more resilient received subsidies.
“Can we navigate some of those issues around not subsidising multimillion dollar properties around the cliffs in Auckland?” Horrocks questioned.
She said that making a safety argument could be easier than making a strong economic case.
“When you invest in risk reduction, there isn’t an automatic return on investment.”
The commission is still exploring the idea at a high level. So, details around costs, and possible legislative change are yet to be worked through.
Christchurch engineer, Ben Exton, is a proponent of thinking outside the square when it comes to incentivising investment in resilience.
“Construction costs have exploded in Aotearoa New Zealand and any additional cost that is not seen as urgent or vital will naturally be avoided by homeowners or developers,” he said.
“So, to create a genuine mind-shift, Kiwis will need a financial push in the right direction much the same as in other territories.”
Exton believed schemes in the United States and Japan had been “extremely effective”.
“Aside from the individual benefits for home homeowners, the entire community benefits from a resilient housing stock, with less drain on construction resources,” he said.
Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
