Climate change and the withdrawal of insurance

Slow and sudden onset thresholds for private insurance retreat under climate change in New Zealand

Coastal hazards are escalating with climate change. In particular, coastal homeowners can expect both sea level rise and more frequent and intense coastal storms. However, we continue to see demand for housing through new coastal residential development and intensification of existing urban areas on the coast. This suggests that climate change related escalating coastal hazards are not yet fully reflected in home-owners decisions to purchase and renovate coastal property.

Lighthouse in a storm

Climate change increases risks for coastal homes. Even a small amount of sea-level rise will worsen the current impact and costs of coastal flooding and storm surges. Many coastal locations face more frequent disasters spurred by human-made climate change.

Under the four IPCC Representative Concentration Pathways (RCPs), Aotearoa New Zealand’s mean sea level will rise by at least 11cm by 2040. This may not seem like much, but even a centimetre of sea level rise has an impact on storm tide heights and an exponential effect on the frequency of coastal flooding. 10cm of sea-level rise can be enough to increase the probability of an event by five times. That is, an event that previously had a 1% probability of occurring each year now has a 5% annual probability.

In Aotearoa New Zealand the vast majority of home-owners are insured. Experts have indicated that this is because we have a packaged ‘all hazards, all perils’ approach that is rarely offered elsewhere in the world. There is significant risk-sharing across different locations.

Insurance companies work with Annual Exceedance Probabilities (AEP) to decide what to charge and when not to insure a property. A 1% AEP event is likely to occur once in 100 years, a 2% AEP event will occur probably once in 50 years, and a 5% AEP event is likely to occur approximately every 20 years.

Anecdotal evidence from those in the industry suggests that companies start pulling out of insuring properties at around 2% AEP and by 5% AEP insurance is completely unavailable.

It's not just sea level rise that is putting Aotearoa New Zealand properties at risk but our insistence on building in hazardous locations.

We expect New Zealand’s all hazards approach to insurance to change. Particular perils may be dropped first – so you may still have rain inundation insurance, but not insurance for damage connected to a storm surge. After that properties are likely to lose insurance for climate hazards quickly. Our prediction is that if you live in a 1% AEP storm surge zone (where an event that previously had a 1% probability of occurring each year becomes a 5% probability) you are unlikely to retain insurance for the next twenty years.

Finally, an event doesn’t have to happen in a specific country or locality for insurers to retreat from there. Experience elsewhere, including even in another country, may convince insurers of a change in risk profiles due to sea-level rise or other climatic changes.


Final research report: Released Wednesday 2 December


Your Questions Answered: House Insurance and Climate Change

Download this easy-to-read infosheet for homeowners, containing important FAQs about how insurance companies might respond to increasing climate hazards.


This project in the media:
Homes to start losing access to insurance within 15 years Stuff
Thousands of Kiwi homeowners risk soaring insurance bills, or no cover at all, if sea levels rise TVNZ Breakfast
Kiwis face insurance woes TVNZ 
Several thousand coastal properties expected to be uninsurable in 30 years' time Interest
Climate crisis: Thousands of NZ homes risk pulled insurance cover NZ Herald
Is the availability of insurance in New Zealand about to take a hit? Insurance Business NZ
Seaside residents concerned Otago Daily Times
Climate of fear: Thousands of homes facing insurance hikes Newstalk ZB
Just how safe from the rising sea level are our beach houses? Stuff
Climate report: 'Extreme risk' to people, buildings and water supplies, NZ Herald
Coastline concern: insurance costs, Afternoons with Jesse Mulligan, RNZ
Hamilton really might be the city of the future as seas rise, Stuff
Granity and Ngakawau get $3.6 million Government-funded seawall, Stuff
Kiwis can expect more premium increases in high-risk areas, Insurance Business NZ
World could lose half its sandy beaches by 2100 Afternoons with Jesse Mulligan, RNZ
Liquid Assets | Climate Change’s effect on coastal property The Project, TV3
The Final Meltdown NZ Geographic
Beach Road Stuff interactive
Storm damage: Should we re-think coastal living? Afternoons with Jesse Mulligan, RNZ
High price of coastal living Build
Climate change and what it means for your insurance bill Q+A Business Podcast with Tim Grafton
Coastal properties may lose insurance Afternoons with Jesse Mulligan, RNZ
The risks of living near the ocean Newsroom
How climate change could send your insurance costs soaring
What you need to know about the previously withheld climate report
Climate change and insurance: Expert reaction, Science Media Centre
Insurance: the canary in the coalmine of climate change? Idealog
How can NZ insure homes for climate change? NZ Herald
Sea level-prone homes set for insurance cutoff, RNZ
Heads in the sand, houses in the water, Newsroom
Breaking the ice, NIWA