What will happen to house and contents insurance premiums in the future?

Saving a few thousand dollars a year by not renewing house and contents insurance – while hoping nothing bad happens to your home – may be a gamble some are forced to take.

It’s already something we’re beginning to see.

A Consumer survey found that of those without contents insurance, 17% didn’t renew in the past year because of cost. For those without house insurance, 7% have cancelled (or didn’t renew).

Our sentiment tracker has also seen financial concern about insurance rise from thirteenth to ninth place.

House and contents premiums have been rising steadily over the past ten years due to risk-based pricing by insurers – more severe weather events will only make it worse. Other factors include insurers’ reinsurance costs, inflation, and the rising cost of claims.

The more insurers have to pay out on claims, the more they’ll charge for the increased risk of insuring some homes – meaning bigger insurance bills will hit homeowners in the pocket.

While New Zealand households have good insurance coverage now, the worst case scenario is that more people and communities will find insurance unaffordable, leaving more households open to the risk of disasters like flooding.

Insurers may also stop insuring some areas, which could leave people with huge mortgages on uninsurable (and unsellable) homes. Insurers may even pack up and leave Aotearoa because there are just too many disasters to clean-up.

The flooding in Auckland is increasingly feeling like an event that’s triggering a wider conversation about how we see insurance during a climate emergency.

There are three main players in that conversation: local and central government along with insurers. What decisions are made between them will determine whether homeowners can still afford insurance in the future.

What has the Government done?

The Government has already tried to make house and contents insurance cheaper for those living in high-risk earthquake areas by increasing EQCover for natural disasters.

For policies issued (or renewed) from 1 October 2022, the amount that EQCover will pay out in the event of a natural disaster has doubled to $300,000 for your home.

This meant that the EQCover levy you pay as part of your insurance went up from $345 to $552, which added $207 to house insurance premiums.

Crucially, you need private insurance (with fire cover) to get EQCover.

Yet EQCover only cover damage to land from flood and storm damage (within certain boundaries and limitations) not your home. This means private insurers are carrying more risk from storms and floods because they’ll foot the bill for repairs. For other natural disasters – like earthquakes – EQCover provides cover for your home and residential land areas.

Last year, the Insurance Council of NZ (ICNZ) recorded ten severe weather events – seven of which were floods or storms. Claims from those events totalled more than $263 million.

Treasury is leading research into the possibility of a national flood insurance scheme, similar to what EQC offers for natural disasters.

Any final decisions are slated for the second half of this year.

IAG – New Zealand’s largest insurer which includes brands State and AMI – has been calling on the government to implement a three-step action plan to protect New Zealanders from the effects of climate change, particularly flooding.

It wants a joint effort between government and insurers to identify flood prone areas, a plan to stop development in those areas, and to establish a programme of investment in flood protection.

This is where local government comes in.

More support for local government

Now, it’s up to local councils and authorities to help communities prepare and adapt to the physical impacts of climate change. They do this by managing infrastructure, as well as planning and regulating where people can build.

Because risks vary from region to region, and local government bodies know their own communities and environment best, the Ministry for the Environment (MfE) believes its best for them to work with communities, iwi and hapū to plan for climate change.

Yet some local councils don’t feel like they have enough tools to be able to bring about the necessary changes in their communities. They want more support from government.

Support could be on the way with the reform of the Resource Management Act (RMA) which aims to regulate environmental management and land use. Proposed legislation is currently out for feedback.

Last November, it became a legal requirement for local government to consider the Government’s National Adaptation Plan and Emissions Reduction Plan when preparing policy statements, and regional and district plans.

There are also plans for legislation to help prepare for managed retreat for those living in flood prone areas.

For those ripping up carpet and having to find temporary accommodation after the Auckland floods, these plans and reports may feel like cold comfort. It could still be years before anything practical is put in place to protect communities.

In the meantime, consumers will be stuck in the middle, paying higher premiums, and hoping there’s not another flood.