Insuring property under climate change

Abstract

Climate change will increasingly create severe risks for New Zealand’s coastal housing stock. Even a small amount of sea level rise will substantially exacerbate the costs of flooding and storm surges (Parliamentary Commissioner for the Environment, 2015). Under the Intergovernmental Panel on Climate Change’s (IPCC) three mitigation scenarios, global average sea levels are likely to rise by between 28cm and 73cm by 2100 (above the 1986–2005 average). Under the IPCC’s high emissions scenario the sea level is likely to rise by between 52cm and 98cm by 2100 (IPCC, 2013). Only collapse of parts of the Antarctic ice sheet, if triggered, could cause the sea level to rise substantially above these ranges. Some regions in New Zealand (including the main urban centres) have high enough quality geographic data to infer the number of homes at risk. In those regions, there are over 43,000 homes within 1.5m of the present average spring high tide and over 8,000 within 50cm.

Who Cares? Future Sea Level Rise and House Prices

“…The evidence from elsewhere suggests that people do consistently ignore these types of risks until they became salient through some external event. Storey and Noy (2017) suggest that such an external event might be a strong storm surge-a disaster-that destroys a significant number of properties somewhere (maybe elsewhere in New Zealand) or a coordinated decision by private insurance companies or the government to stop insuring this erosion/storm-surge hazard. Whether, or when, that actually happens is, of course, impossible to predict.…”

A framework for complex climate change risk assessment

“…37 This risk can cascade to risk of stranded assets as customers have to choose to either pay higher deductibles to reduce increased premiums, if they can afford to do so, or not hold insurance coverage. 37,118 As a result, they may stay put, abandon assets and move, or rely on disaster relief and recovery funds from the government (taxpayer) as an insurer of last resort. For policy holders, this can create inequities and business risks.…”

EQC and Extreme Weather Events (Part 2): Measuring the Impact of Insurance on New Zealand Landslip, Storm and Flood Recovery Using Nightlights

“…As in the current scheme, the public insurance is conditional on the purchase of a private insurance policy, this may in the future leads to an increase in the number of uninsured properties in the highest risk locations. Our evidence suggests that these properties will find it more difficult to recover, but a better understanding of the implications of such insurance retreat are clearly necessary (Storey & Noy, 2017).…”