A 2021 flood in Westport left more than 100 homes uninhabitable. Photo / RNZ, Anan Zaki
By Kate Newton of RNZ
A major insurance company has temporarily stopped offering new home insurance policies in Westport because of the town’s flood risk.
A climate change policy expert says AA Insurance’s decision will be the first of many, and is urging insurers to be transparent when they withdraw from an area.
Another researcher specialising in insurance retreat says the company is sending a clear message that it wants investment in flood defences – but warned that could result in a doubling down in Westport, rather than a move out of harm’s way.
AA Insurance, which has approximately half a million New Zealand customers, wrote to Buller District Mayor Chris Russell at the end of last year to tell him the company would halt new business, home and landlord insurance policies for properties in the 7825 postcode, which covers Westport, Carters Beach and Cape Foulwind.
The company said existing policies would stay in place, and it had put a transfer policy in place for anyone looking to buy or sell a house that was currently insured with AA Insurance.
In a statement summarising the letter, published on Buller District Council’s website, Russell said most people would not be directly affected by the company’s decision.
“Whilst not ideal, this does not mark any sort of insurance retreat from Westport.”
Westport has been repeatedly flooded over time, escalating in recent years. A 2021 flood left more than 100 homes uninhabitable.
Last March, Buller District Council endorsed a plan that could eventually see the town gradually relocated to higher ground away from the Buller River, by opening up lower-risk land for development.
West Coast Regional Council chief executive Darryl Lew said the first stages of the ‘Resilient Westport’ project involved building 17km of stopbanks.
Most of that work was in the planning and design stages, but two sections had been built already.
“That is protecting upwards of 30 houses that had never received protection before. And in the next few months, we’re hopefully going to be progressing more construction of a floodbank, which will result in 50 houses being protected.”
The councils planned to update insurers – who will visit the town at the end of February – as different stages of the flood protection scheme were completed.
“West Coast Regional Council will be advocating on behalf of the Westport community by specifically and intentionally writing to the Insurance Council of New Zealand and all insurance companies, and providing them this updated information,” Lew said.
The councils hoped that would make Westport “much more attractive” to insurers.
In a written statement to RNZ, AA Insurance head of underwriting Dee Naidu said if Westport’s flood exposure dropped below its maximum exposure limit in future, the company intended to reopen its books to new customers.
“This decision reflects the elevated natural hazard risk of flooding in the area, and that our exposure has reached a level where a pause on new policies is the most responsible step to ensure we can be there for our existing customers when they need us most.”
Belinda Storey, who heads up the consultancy Climate Sigma, said Australian insurance giant Suncorp, which was the ultimate owner of AA Insurance, had made similar decisions in Australian towns.
It represented a “shift” in approach in New Zealand, where insurers had been reluctant to publicise areas they were no longer insuring.
Storey was surprised that the halt was only temporary, and seemed to be aimed at new builds rather than existing homes that would likely have insurance in place already.
That suggested the insurer was pushing for an investment in flood defences from either local or central government, she said.
“This is something that Suncorp have definitely done in Australia, where they have withdrawn insurance from a particular town on the condition that massive investment in flood defences is undertaken.”
However, investing in new flood defences, rather than considering other options like managed relocation, could actually increase the danger in Westport, she said.
A stopbank was “effectively a long, skinny dam”, she said.
“Trying to hold back the Buller River, that delivers 27 million cubic metres per hour in full flood, I don’t think we’re considering this potential risk to life of this potential signal we’re getting from the insurers.
“If you build defences, people build new houses. We shouldn’t be building any new houses in Westport, fullstop.”
However, transparency around when and where insurers were withdrawing cover was crucial.
“I’m glad that they’re going public,” she said.
“But I would encourage the Reserve Bank to insist that that information is shared with [it]... It should be shared with the regulator, so that the regulator has a clear understanding of all the locations in New Zealand that this is being withdrawn, not just one area where the insurer is wanting to send a public signal.”
Lew said work on the stopbanks pre-dated AA Insurance’s decision, and was not the only part of the overall project.
“We know that it doesn’t matter how high we build the flood banks – there could always be a flood that’s bigger than that comes along and inundates the town.”
The councils had just completed a project to improve Westport’s emergency management plan, he said.
“We’ve also commissioned, with Earth Sciences New Zealand, a much more enhanced flood forecasting capability so that we’ve got plenty of flood warning in the town.”
Victoria University emeritus professor Jonathan Boston, who was part of a previous Government expert working group on climate adaptation, said AA Insurance’s decision was just the first of many to come.
“There will be more and more situations in which insurers, understandably, say the risks are too great to provide insurance, even with very large excesses, and will pull out.”
He also supported forcing transparency from insurers about areas they were retreating from – either by no longer issuing policies, or raising premiums to a point where they were unaffordable.
“I think there’s a very good case for transparency, because, among other things, it will provide the kind of information we need to understand the seriousness of the challenges we face,” he said.
That might not be popular with insurers or homeowners, he said.
“But that concern should not result in an approach in which we basically turn a blind eye to these problems and refuse to address them.
“On the contrary, it makes it all the more important that we have absolutely transparent processes and really robust policy settings to enable us to respond proactively, effectively and equitably.”
Not every community threatened by flooding and sea level rise had the same protection options as Westport, Boston said.
“With climate change ... there are going to be more and more communities, and more and more postcodes, where it will not be possible to provide protection, and where the only reasonable and effective risk-reduction strategy will be relocation.”
Last year, Climate Change Minister Simon Watts announced the Government’s national adaptation framework, which set out four areas of work.
That included developing new national hazard datasets, and a requirement for councils to develop adaptation plans for priority areas.
Watts told RNZ on on Wednesday that a requirement would be passed into law before the election in November, through an amendment to the Climate Change Response Act.
Two of the framework’s “pillars” are investment in risk reduction and cost-sharing pre- and post-natural hazard events.
There is some money available for resilience, through the $1.2 billion regional infrastructure fund, but only $200m of that has been ring-fenced for flood protection, for reinforcing existing stopbanks.
The framework requires councils to “weigh up the costs and benefits of adaptation options” but there is no firm guidance on whether costs will lie with central government, local government, or individual homeowners.
Watts, who spoke to RNZ before RNZ was aware of AA Insurance’s decision, said adaptation involved “a significant fiscal cost ... that will need to be shared across society over time”.
Asked again what the funding mechanism would be, he said local councils would need to come up with a plan that weighed all the adaptation options, “and then work with the other stakeholders, which includes central government, in terms of how we transition to that point”.
There was already significant money from the transport fund going into making roading infrastructure more resilient, he said.
Boston said there were still major unanswered questions.
“The framework, as announced, does not address the question of who’s going to pay for what, when, and how.”
“It doesn’t have clear principles of equity, and it doesn’t kind of provide councils with the confidence and resources that they will need in order to begin to take proactive steps to move people out of harm’s way as harms increase over time.”
Buller District Council growth and development manager Paul Zaanen said it had proven more difficult in general to get insurance in Westport since the 2021 flood.
RNZ attempted to get insurance quotes for a Westport address via several insurance company websites.
Tower did not offer cover for the address, while other major insurers’ websites said a phone call was needed to gather more information before a quote could be provided.
A Tower spokesperson said it took an address-level approach to providing cover.
“We continue to insure, and offer insurance, to lower risk properties within high-risk areas throughout the country, including Westport.”
Insurance Council chief executive Kris Faafoi said it was up to individual insurers to decide what cover they were prepared to offer, in Westport and elsewhere.
He had visited the West Coast in August last year “to give them support in their efforts to reduce risk there”.
“We do want them to make sure that that flood protection and risk reduction is there to protect the community.”
The council was keen to see high-risk areas around the country identified in a consistent manner.