Homes Will Become Uninsurable

When the Reserve Bank issues a warning about the threat that climate change and sea level rise poses to the New Zealand economy, and that homes and businesses will become uninsurable – surely it is time for real estate agents, coastal property developers and owners, and councils to take notice.

In its quarterly Financial Stability report issued last week, the Reserve Bank (RBNZ) highlighted the potential impacts on property owners, including homeowners, whose properties could become more expensive to insure, or have their resale value drastically cut, if they become uninsurable.

“Property insurance contracts are negotiated annually, allowing insurers to reassess risk and adjust policy terms each year,” RBNZ.

Already Tower has moved to risk-based pricing for natural disaster cover for homes, and the two largest insurers IAG and Vero have said they will follow suit.

It’s meant some homeowners have already been experiencing large increases in the cost of insuring their homes.

Price changes, or removal of insurance entirely, would impact the price property owners could sell their places for, the RBNZ said.

It could also change the way banks lend on increasingly climate-threatened properties, if they were willing to lend on them at all.

One possible result might be banks choosing to lend much less on risk-prone homes.

“Coastal property is likely to be the most affected, as rising sea levels may result in some properties being lost to the sea entirely.”

Government Response

Next year a nationwide risk assessment will be undertaken to get a sophisticated data set around what the country will be exposed to and over what period of time, and it will look at how this is dealt with financially.

Climate Change Minister James Shaw said the assessment would have to develop a way of sharing the risk between the property owner, local and central government, the insurance industry and the banks.

He said it needed to be handled so that it does not create a moral hazard, where people just carry on in exposed homes on the assumption that they will receive a bail-out at some point in the future.

Even Landlords are Worried

Landlords Association:

“Sceptical about climate change? If you own coastal property it would pay not to be, both the Reserve Bank and the Insurance Council are warning.

Make no mistake – rising sea levels and more frequent extreme weather events could affect coastal property values and lead to higher insurance claims.”

Overstepping the Mark

A few months back I wrote an article in the Informer warning of the risk of coastal property values reducing because of insurance retreat, and banks refusing to lend.  I was accused of “overstepping the mark” for having the temerity to raise the issue.  Maybe now that the Reserve Bank has issued its warning, and mainstream media are openly talking about the issue, people will begin to wake up and abandon the rush to own “beachfront”.

Watch climate change and insurance researcher Belinda Storey explaining the risks of insurance retreat on “the Project” recently