Insurance boss wants creative solutions to fund managed retreat

An insurance boss is calling out for creative solutions to fund climate-related home relocations.

Tower Insurance chief executive Paul Johnston told Morning Report New Zealand needs to do more to protect communities from climate risks, and to fund the relocation of homes from vulnerable areas.

Spending on insurance has increased by about a third over the past five years.

Stats NZ figures show home insurance has gone up almost 60 percent in that time period - with a large hike after the Auckland Anniversary floods and Cyclone Gabrielle in 2023.

As climate change puts New Zealand under ever-increasing risks of extreme weather, adding to the existing earthquake risks, questions are growing about the availability and affordability of insurance.

Johnston said discussions about managed retreat should shift from who pays to how relocations could generate financial returns.

"There are creative solutions that I think that we can start thinking about now rather than just simply who pays," he said.

Johnston said insurance prices are being driven up by rising building and renovation costs, increasingly sophisticated vehicle technology and severe weather events.

"The cost of renovations and building in New Zealand has been increasing over the years and anybody, who's done a renovation can see that, will see that in their bills.

"And then the cost of technology in motor cars has been increasing as well. So what used to be replacing a simple windscreen piece of glass is now replacing a huge amount of technology in that windscreen as well.

"So those underlying costs have been going up significantly over the last few years."

Those are on top of the costs of covering recent weather events - notably Gabrielle and the Auckland floods, but also an increase in their frequency.

"This year, we've had large weather storms almost every second weekend."

Reducing costs - for some

However, Johnston said Tower has reduced its prices by about 5 percent over the past 18 months through new technology and efficiency gains.

"Tower is very focused on trying to help Kiwis here and so we've actually been bringing prices down over the last 18 months."

Asked if New Zealanders were becoming underinsured due to the costs involved, he said that "absolutely" was not the case.

"Our job as an insurance company is to sell as much insurance as we possibly can, and we're very focused on that. And so there are stats that New Zealand actually has insurance penetration of the mid-90 percents, which is one of the highest in the world."

The company has also introduced address-level risk pricing, mapping properties for earthquake, flood, sea surge and landslip risks.

Johnston said about 90 percent of its customers received a price reduction of around $70 when landslip and sea surge pricing was introduced last year, as they no longer had to cover the risks faced by the other 10 percent.

"And that's because we could be that much more granular about the risks at all their properties."

Tower's former chairperson Michael Stiassny has warned about a lack of leadership on climate change, saying there had been little moves to stop building on floodplains and vulnerable coastlines since Gabrielle and the Auckland floods.

Johnston said progress is being made on climate adaptation, citing Auckland Council's multimillion-dollar Making Space for Water programme as an example, but more action is needed.

"But we absolutely do need to be doing more as a country."

"Because we've got time, but we do need to start acting," he said.