GOLDEN RULES:
ANALYSIS: IAG chief executive Nick Hawkins is using the flooding of homes to hammer home the message that New Zealand has to invest in becoming more resistant to extreme weather events.
IAG is an Australian insurer which owns the State, AMI and NZI insurance brands.
It has had more than 24,300 claims on house, contents, car and business insurance policies in the aftermath of the late January floods and Cyclone Gabrielle.
The widespread flooding in Auckland was predominantly caused by poor infrastructure with inadequate stormwater infrastructure being overwhelmed, Hawkins says.
We need a national vision for the future, including taking hard decisions about where we allow homes to be built.
These big questions are ones Hawkins is happy to address.
He’s less keen to address the questions from people who own homes that have been flooded: What’s going to happen to my premiums? Will I still be able to
Climate change must now be factored into home buying
Pay attention to flood risk when buying homes
Shop around for insurance.
get flood cover? Will I ever be able to sell my house?
On February 13, Hawkins signalled double-digit premium increases for policyholders were on the way, but told investment analysts that the insurer was not seeing people cancelling their insurance because they could no longer afford it.
He had much fewer direct responses to questions on what might happen to the cost, and availability, of insurance for flood-prone homes.
Clues for possible futures are shown both here and overseas. Greater risk-based pricing Insurance is a system of riskpooling, but as Tower has shown, an insurer can decide to individually risk-rate homes for things like floods, and increase the premiums paid by owners of flood-prone homes more than those of people with homes that are not flood-prone.
Tower uses very detailed data on homes to do this, and two houses in the same street can end up being quoted very different prices for their cover depending on their flood risk.
Flood maps for Auckland closely correlated with the worsthit streets. Aucklanders will be able to identify with that, having seen some houses in some streets inundated in late January, while others with better drainage, or on slightly higher ground, spared.
IAG says only a small portion of its premiums are based on individual homes’ flood risk.
Will that change? Not necessarily.
IAG says it is committed to the widespread availability of insurance, but Tower has shown there is another, more divisive way. Tower has also shown that the majority of policyholders in homes that are not prone to a particular risk are happy to pay less, and let those with riskier homes pay more.
Flood cover becomes optional Australians who own flood-prone homes have to take care.
Not all house insurance in Australia covers flood, unless homeowners opt to pay for add-on flood cover.
There are predictions in that in Australia, as many as half a million homes may be virtually uninsurable by 2030 thanks to climate change.
Either insurers will refuse to cover them, or the price of cover would become so high, homeowners will not be able to afford it, independent climate lobby group The Climate Council says.
Banks require homeowners with mortgages to keep their homes insured. Homes that are hard, or costly to insure, may be less desirable to future homebuyers.
Government steps in
In the United Kingdom, about one in six homes is at risk of flooding.
After serious flooding in 2000, the government set up Flood Re, a reinsurance company designed to underwrite private insurers so that house insurance for floodprone homes remained affordable.
There are some parallels with the EQC here, and both are funded by levies on insurance, though there are also big differences.
Homes built after Flood Re was set up are not covered by the scheme to send a signal to developers and homebuyers. Flood Re is a stop-gap solution Flood Re says the scheme will run for 25 years, at which point insurers should be offering policies based on actual risk to property.
Ultimately, the British government expects homeowners to foot the bill for their own flood risk.