“For some of them, the insurer paid them out, and then said they weren’t going to cover them ever again … Everyone is in a different boat.”
Land claims proving complex
The range of issues that surfaced from the cyclone and floods in the upper North Island last summer is extensive.
By December 1, insurers had settled $2.7 billion of storm-related claims - 87 per cent by volume and about 75 per cent by value.
Insurance Council of New Zealand chief executive Tim Grafton said that while insurers wanted to wrap things up as quickly as possible, some parts of the process are inevitably arduous.
He explained that some homeowners, affected by slips, had to wait months for the earth to stop moving before geotechnical assessments could be done.
Toka Tū Ake EQC chief executive Tina Mitchell noted that geotechnical engineers were in hot demand, as the events of 2023 created the largest number of land claims the insurer has ever dealt with.
Grafton said it also took time for local and central government to design a system to decide which properties were uninhabitable and could be bought out.
He said insurers often waited for councils to classify properties, giving property owners a two-month window to challenge classifications, before settling claims.
Grafton noted there had been cases where homeowners had used their payouts to fix their properties, only for the council to classify the land as uninhabitable.
He believed lines of communication between Auckland Council and private insurers could be improved a lot to streamline the process.
Currently, the Insurance Council of New Zealand lodges official information requests every fortnight to get lists of properties deemed uninhabitable by Auckland Council.
By December 1, 15,555 claims with private insurers were unsettled.
When it was put to Grafton that it seems like there would be a long tail to the events of last summer, he said he hoped not.
Where to now?
While the weather events saw some people lose their loved ones and homes, the impact is wider.
Home insurance premiums rose by 23 per cent between the December 2022 and December 2023 quarters, while contents insurance premiums jumped 24 per cent and vehicle insurance premiums were up 17 per cent.
Grafton noted that one of the drivers of the large increase - double-digit construction cost inflation - is abating.
Nonetheless, reinsurers (which insure insurers) see New Zealand as being riskier following the weather events. This, coupled with the fact reinsurers are facing increasingly expensive severe weather events worldwide, is seeing them hike their prices.
Simon Young - a principal at the consultancy Finity, which advises insurers on pricing - believed insurers had to better assess and price risk to retain reinsurers’ confidence and support.
Insurers have for some years been using increasingly granular data to price risk, and reduce the extent to which low-risk policyholders effectively subsidise high-risk ones.
Young believed this trend would continue, meaning owners of property in flood-prone areas will find it increasingly difficult to get cost-effective insurance, if any cover at all.
He explained insurers that weren’t already pricing flood risk at an address level would need to do so to remain competitive.
If they didn’t adjust their pricing, they’d end up with all the high-risk customers, which would force them to put up all their customers’ premiums.
Young said that while the disastrous weather events of 2023 were accelerating insurers’ shifts towards “address-level pricing”, the journey towards insurers reflecting the full flood risk may take many years.
“Insurers are very aware of the critical role they play in New Zealand society,” he said.
Young recognised pricing for full flood risk is standard practice in Australia.
“Premiums over $10,000 are not unheard of in some of the high-risk flood plains where properties flood regularly,” he said.
“New Zealand is now catching up with having the available science and insurers starting to adopt it in their pricing.”
Throughout 2023, the bosses of the country’s largest insurers publicly called for central and local government to better mitigate risks by improving infrastructure and stopping the issuance of building consents in flood-prone areas.
The Government isn’t, at this stage at least, making moves to get EQC to broaden its coverage to flood damage to buildings.
There is about $357 million in EQC’s Natural Disaster Fund - enough to settle remaining claims from last summer’s weather events, in Mitchell’s view.
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.
