Kerre Woodham: Who should be paying more for home insurance?

It's not really a huge shock, is it? The news that homeowners will have to pay even more for home insurance to help the Natural Hazards Commission (formerly known as the EQC), is to be expected. Insurers have been warning for years that premiums will rise and will continue to rise, that they may have to put some of the cost of risky properties back onto homeowners and in some cases, they'll be declining to insure homes altogether. And we've already started to see that.  

In 2017, a then-record $242 million in weather-related claims was paid out. Just six years later, climate related claims were more than $3.5 billion due to the Auckland anniversary floods and Cyclone Gabrielle. It's incredible when you see the insurers' charts, 20 odd years ago they'd say this is a record year or this is a once in 100 year, then the next year, or three years later it would treble in terms of the cost of the claims that had to be paid out. 

So there's a pattern, you'd be a fool to ignore it, and the government is not doing so. Nor is the insurance industry. The Natural Hazards Commission provides cover for capped portions of residential buildings and land damaged by earthquakes, landslides, volcanoes, hydrothermal activities, tsunamis, storms, and floods (land cover only). Leaving private insurers to cover the rest.  

The NHC has struggled to recover following the Canterbury earthquakes and faces huge future claims costs. The new modelling lifts the likelihood of a big earthquake, with construction costs soaring post-pandemic and the reinsurance market hardening. The NHC is so underfunded that there's only a 37% chance the levy income will meet the costs over the next five years, according to the Treasury. And the NHC must cover the first $2.1 billion of claims related to a natural disaster before it can tap into its reinsurance cover. So just like any insurance claim, you must pay your excess, and then it will chip in. It's just in this case, $2.1 billion is your excess.  

Given there's only $500 million in the kitty, if there was a big disaster today or tomorrow, the government would have to find more than $1.6 billion to cover the claim costs before reinsurance cover could kick in. Associate Finance Minister David Seymour says levies will almost certainly need to rise, Cabinet’s set to decide on the changes in the coming months. An insurance consultant told Ryan Bridge this morning it'll probably cost homeowners an extra $200 to $300 more a year. And if that sounds like a lot, well count yourself lucky, because there are some people who simply won't be able to get insurance for their homes.  

And it's not just people in the obvious places on cliffs or banks next to rivers who will be paying. Everyone is at risk. And those living up the top, who’s homes are built on traditional drainage areas or water soak areas are part of the problem. We're all in this together. So, what are your options? If you have a mortgage you have to be insured, but it might mean that people take the bare minimum because that's all they can afford, meaning they are left underinsured and depending on the kindness of strangers to recover after disaster strikes. Will Give A Little be the insurer of choice for people who can't afford to cover themselves?  

I assumed Hamilton might be the safest place to live, and I was right. Volcanologists say Hamilton is probably the safest place to live. It’s away from the coast which cancels out tsunamis. It’s a safe distance from known fault lines, although there is the caveat that one could be lurking. It's far enough away from Auckland's volcanic field to be considered safe, and even if the Waikato River flooded its much lower than the houses around it. In the North Island, there's no real escape so should the north be paying more? Do we start pointing the finger at other areas? Can the people of the Waikato say “Hey, not us. We are living in a really safe area. If you choose to live anywhere outside of Hamilton, it's on you.”  

Do we ban the rebuilding? Make them no go zones of any area that's been flooded 2, 3, 4 times in the past 100 years. It's all very well and good for those who have not been flooded or have not been affected or haven't seen their homes turned to smithereens to say just move. But for most people, their home is their castle. It is their most significant financial investment. If they can't sell their home, they can't move. They have to patch it up and make do.  

So I would be really interested to hear your thoughts on this one. Do we go in this as “we're all in this together?” We accept that we're living on the shaky aisles, that we are a natural hazard magnet and that's the price you pay for living in a bucolic paradise. Should some areas pay more than others? Do you get the insurance companies whose business it is to gauge risk to set cover across the country based on the riskiness of each region.? Do we ban the rebuilding on known flood areas? What do you think the answer might be as we struggle to come to terms with living within our environment?  We're not so far removed from early settlers really as we try to balance the advantages and disadvantages of living where we do.   

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