Insurance now a risky business in Wellington
Shakes, slips, storm surges and flooding – Wellington has it all. Nikki Macdonald investigates the insurance issues facing the capital’s hazardous homes.
Ainsley Renouf was “a toddler with house keys”. The 1925 bungalow perched on a Wellington hill was everything she’d hoped for in a first home. “This is like my dream cottage.”
But six months after she and her partner moved into their Northland home, that dream crumbled around her.
It was the wildly wet winter of 2022, which caused a record 1143 landslides in the capital. They’d just gone to bed, about 11pm. Rocks skittered down the steep bank behind, but they thought it was the cat. Then, “woomph”, the land gave way with such force it flipped the neighbour’s 40-year-strong timber retaining wall.
“We went and looked out the back window. You couldn’t see out, because it was covered in dirt. We were buried,” explains the 28-year-old.
But that was only the beginning of the trauma. For the next year, they were buried in paperwork.
When the couple bought the property they knew the owner had received $8000 from EQC for a 2018 slip, but hadn’t used it to stabilise the bank.
(The neighbour understands that’s because the repair was costed at hundreds of thousands of dollars, and the previous owner couldn’t afford it.)
Renouf didn’t know there had been an earlier slip and an EQC claim in 2002, the LIM report said nothing about land instability, and they had no trouble getting insurance, so they figured they were OK.
“If we’d known there had been two slips in the same place, and there was a high risk of it happening again – if it was in the LIM report – we would not have signed on the dotted line.”
But when they claimed for the damage to the land and house, they got a nasty shock.
“Your EQCover claim has been declined,” read the March 2023 letter’s big blue headline. They were turned down because the two previous payouts weren’t spent on significant repairs.
EQC says if claim money isn’t invested in repairs, that can affect future claims, even if the house has since sold. It’s a buyer’s responsibility to check for natural-hazard risk and previous EQC claims (there’s now an online tool mapping 360,000 claims since 1997). But the tool doesn’t say how much was paid out, or how it was spent.
It’s not clear if EQC would still have declined Renouf’s claim had the previous owner built a cheaper alternative debris fence, which engineers say would not have prevented the 2022 damage. EQC says any steps taken to address prior damage are taken into account.
All up, the couple got about $30,000 from their insurer, including to cover rent for the six months they were evacuated. This leaves them with a bill of some $200,000 for their half of a new, engineered, 12-metre sprayed concrete retaining wall to hold the bank at bay.
“Six months in to being a homeowner for the very first time, feeling like a child who’s been handed a set of keys, and then having to go through this. It’s like, ‘what the f... do I do?’
“I had to take a lot of time off work, having to deal with the admin, and also for the mental health side. If we move, we probably won’t be buying another house in Wellington ... We’ve been scared off.”
Risk and reward
Caught in a web of fault lines, homes in the capital have always prompted insurers to delve into their shaky history, says DUX Financial Services adviser Alan Borthwick. “They used to ask ‘Have there been earthquake claims?’ Then it was earthquakes and landslides. Now it’s earthquakes, landslides and floods.”
And while insurers used to assess natural-hazard risk by suburb or even region, several companies now use geopricing, or letterbox pricing, based on sophisticated modelling of an individual property’s vulnerability.
Tower was first up, introducing an online quote tool in 2021 that shows letterbox-level flood and earthquake risk. It plans to add landslide and coastal erosion/storm surge risk later this year. Major insurers IAG and Suncorp are following suit.
The worry for homeowners is that insurance companies will eventually refuse to cover high-risk properties, in the face of more frequent damaging events like floods and sea level rise. That’s called insurance retreat.
By now, New Zealand was supposed to have a legal framework for managed retreat – proactively moving people from areas at high risk of natural hazards. (Similar to the red-zoning and buyout of Cyclone Gabrielle-destroyed properties, but before disaster hits.)
That was one of the 2022-24 “critical action” points for New Zealand’s first National Adaptation Plan.
But no-one can agree who should pay for pre-disaster buyouts.
So commentators have warned that that vacuum risks being filled by insurance retreat.
“Ideally, we need to move people out of harm’s way before they get flooded multiple times,” says Victoria University emeritus professor of public policy Jonathan Boston.
“Without a proper climate adaptation framework, and a clear set of funding tools, then the likelihood is the insurance industry will become, in effect, the new consenting authorities.
“If people can’t get insurance, they won’t be able to build. If people can’t continue to get insurance, they’re going to be left in an invidious position. Their homes and probably their most valuable assets will be rendered less valuable, if not worthless.”
Insurers have already refused to cover red-zoned Auckland and Hawke’s Bay properties. But are they also quietly pulling out of covering some Wellington homes?
Are insurers already beating a retreat?
The Post picked five random Petone properties for sale and ran them through the Tower online quote tool. Four came out as uninsurable.
Tower says it doesn’t exclude whole areas from insurance and is still covering Petone homes. A decision to refuse cover
might stem from the house’s age and condition, the sum insured, whether it’s part of a body corporate and whether it’s at risk of flood, earthquake or landslips. Or a combination of those things. Which means houses in the same street may or may not be covered, for different reasons.
Petone’s Buick St, which runs inland from the foreshore, illustrates Tower’s point. An anonymous commenter on the Petone Facebook page was considering buying no 2 Buick St, but was “shocked” when Trade Me’s online insurance tool quoted $6182 a year.
They wondered whether that was typical of the area, or because the property was so close to the sea and flood-prone.
Based on its online tool, Tower won’t insure 2 Buick St, but will cover number 3 opposite. Of the street’s first 25 properties, the company will insure only 12 of them – again, based on the tool.
But around the coast at Lowry Bay, it’s a different story. The Post entered that bay’s 25 waterfront homes into Tower’s tool. Every one was excluded from cover. The reasons are not stated and the flood and earthquake-risk ratings are not shown.
While Lowry Bay’s foreshore is sometimes awash in storms, previously wave-damaged homes on Wellington’s south coast still come up as insurable.
Asked what risk justifies the exclusion of the whole street, Tower simply reiterated that assessments are individualised and factor in risk-reduction efforts, such as retaining walls against landslides, or flood walls or house-raising against floods.
“If a number of homes on the same street face the same risks, we may make similar decisions around insuring those homes,” says Tower chief underwriting officer Ron Mudaliar. “However, our advanced modelling means that decisions about insuring a property are ultimately based on each home’s individual risk.”
David Miller’s home in Lowry Bay also shows as excluded from Tower’s tool, although it’s a few houses back from the waterfront.
That’s news to the former residents’ association president, as he is fully insured. He surmises the issue must be tsunami risk, which he isn’t overly worried about. It’s “pretty poor’’ if the company has excluded a whole street without letting anyone know, he says.
“That’s critical – they should explain the origins of the perceived risk. What’s the basis of the information they’re acting upon?”
Asked whether Tower has a process to tell owners or communities that their properties are being excluded, and whether – for fairness and transparency – its pricing tool should state the grounds for exclusion, Tower did not answer.
Mudaliar says owners who want more information about insurance for their property can call the company.
Tower makes up about 10% of the personal insurance market, so a ‘No’ from it doesn’t mean a property is uninsurable. But other insurers also seem cautious.
Every random Wellington property entered into AMI and State’s online quote tools (both owned by the country’s biggest insurer, IAG) triggered a “call us with more information” message. AA Insurance’s quote tool produced similar results.
IAG refused to say whether it offers online quotes for any Wellington properties, citing commercial sensitivity.
However, the insurer says it still covers homes in the capital. “While there may be some very rare occasions where insurance is not offered, there are no blanket exclusions or withdrawal of insurance for Wellington properties.”
AA Insurance head of pricing Chris Taylor says it has introduced more detailed risk-based pricing, but hasn’t withdrawn home and contents insurance anywhere in New Zealand. However, customers in high quake-risk areas such as Wellington and Christchurch, and some high-flood-risk areas in Hawke’s Bay, may have to work with underwriters to get a quote.
Suncorp opts not to cover a small number of Wellington properties because of natural-hazard risks. That’s based on modelling, desktop research, past claims and the likelihood of hazards intersecting.
Borthwick hasn’t yet encountered a
Wellington home he can’t insure. But he sometimes has to shop around. Situations such as Renouf’s – where an EQC claim has been paid but no work was done – are a common headache.
Borthwick says insurers assessing homes in Kāpiti’s flood zone increasingly want evidence of work done to reduce risk. There’s also a “general vibe” that coastal properties in places like Eastbourne and Petone could start to get vetoed out.
And even if you can get cover, detailed risk pricing can sting, he says. One client wanted to increase their sum insured by $50,000, which triggered a change from suburb-level pricing to a letterboxlevel risk assessment. That would have increased their premium by 150%, because, while their suburb was considered safe, the hillside the house sat on was not.
Letterbox pricing should be a win for owners of safe properties, as they stop subsidising higher-risk homes. Trouble is, as Boston concedes, nowhere in Wellington is really safe.
That’s also a problem if you want to move people out of harm’s way. With the ongoing earthquake risk, coupled with climate change-amplified flood risks from rain, rivers and coastal storm surge and landslips, the capital’s long-term future promises to be precarious, Boston says.
“Wellington is going to be in an incredibly challenged position, which may raise questions about whether the capital remains here. As a city, it’s going to be hammered from all directions.”
Mind the gap
Back in the hilly suburb of Northland, the kitchen windows of Renouf’s neighbour Gill Parnham remain boarded up, 19 months after her bank collapsed, as she fights for a better insurance settlement.
At 57, she’s had to take out a second mortgage and empty her KiwiSaver to pay the $290,000 cost of her half of the new retaining wall.
While she did get EQC cover, like all things insurance, it’s complicated.
While EQC covers land damage, it can choose to pay the land value, or the cost to repair it. In Parnham’s case, she was paid about $27,000 for land that cost $290,000 to stabilise.
She also discovered her insurance policy’s $80,000 retaining wall cover was next to worthless. She gets only like-forlike replacement of the 40-year-old timber wall – costed at $15,200 – and EQC covers most of that.
Parnham argues the $47,700 house-repair estimate is also “woefully inadequate”. She says a registered builder quoted $130,000.
So Parnham got about $85,000 from EQC to cover the retaining wall, the lost land and the house damage. But she’s still in dispute with Vero.
Vero failed to explain why it would not pay the $80,000 maximum retaining wall cover and the basis for its house-repair costing.
Instead, it says it thoroughly reviewed Parnham’s claim and upped the retainingwall offer by $2766.50. It is satisfied she has received all her EQC and Vero entitlements.
Parnham’s lawyer, Emma Gabor, says the gap between EQC payouts for lost land and the actual cost of repairs is an emerging issue in claims from Cyclone Gabrielle and the 2023 Auckland Anniversary floods.
One client who lost about 30 vertical metres in a slip got a valuation of $100,000 for the lost land, but quotes of $500,000 to $1,000,000 to stabilise it. That was never going to be affordable, but the insurer then quoted for house repairs as if the land would be returned to normal.
Luckily, the council ruled the property unliveable, so the insurer eventually paid the full house value.
One Lower Hutt family are in “a very desperate situation”, Gabor says, after a 2022 landslip. EQC paid about $100,000 for the lost land value, but repairing the difficult site was costed at at least $400,000.
The bank wouldn’t lend the family the money, so they spent the $100,000 and $50,000 in savings doing what they could, only for it to wash away in another landslide.
Gabor says it seems unfair that the family don’t have the same access to a buyout as red-zoned homeowners in Auckland and Hawke’s Bay. “It’s an inequality of resource. Same loss, same grief for the families, same situation, but just different location.”
Gabor has also had issues with a cheap debris catch fence being suggested as a land repair, as opposed to a proper retaining wall. And house repairs being estimated by loss adjusters without the expertise to assess structural damage from landslips.
She wants the Canterbury Earthquakes Insurance Tribunal expanded to cover all natural disaster claims nationwide, to allow quicker and cheaper dispute resolution.
Parnham says the disaster fallout’s mental and financial stress has been constant. “We kept bursting into tears, just randomly.
“Insurance is a massive story,” she says. “People need to know that they are not nearly as covered as they think.”
The affordability problem
“The unpalatable truth is that not everyone is – or will be – able to afford to insure their home in the way they do now,’’ wrote Tower chairman Michael Stiassny in the company’s 2023 annual report.
Borthwick recently had clients with
no mortgage decline house insurance at $3500-$4000 a year, as they felt it was unaffordable. They’re among 8% of Kiwis opting out because of affordability, according to a recent Consumer NZ survey.
With some properties last year facing 30-35% premium rises, homeowners are maxing out excesses or cutting contents insurance just to pay the bills, he says.
He reckons New Zealand’s high rates of comprehensive insurance, covering all hazards, will take a hit. “I think we’re all going to be on geopricing. We will be lucky to have insurance, the way we have it now.”
Higher excess options, of $5000 or $10,000, could make cover more affordable, he says.
Stiassny predicts Kiwis will be able “to choose the risks they want – and can afford – to cover”. Such as fire-only policies in flood-prone areas.
But public policy professor Boston says that’s bad for property owners and bad for post-disaster recovery. “I’m very concerned where it’s going. We’re faced with escalating premiums, coupled with reduced coverage and increased underinsurance.”
Possible solutions include meanstested insurance subsidies or requiring EQC to insure high-risk properties that private insurers won’t cover, Boston says. But neither is likely to appeal to a cashstrapped
Government.
Insurance Council boss Tim Grafton says with claims from Cyclone Gabrielle and the Auckland floods costing $3.7 billion – more than 10 times the previous record year –something has to change.
“From a central government and insurance perspective, you cannot just carry on, either bailing out to the level that occurred last year, or not increasing premiums to reflect the risk. And obviously that is going to create affordability problems and nobody wants to see that happen.”
The go-to suggestion is often Britain’s Flood Re scheme, which the Treasury has investigated. Set up by insurers, it pools risk, to subsidise high-risk properties.
But Grafton warns against trying to transplant international schemes into New Zealand. The quid pro quo for Flood Re was that the UK Government was supposed to increase flood protection, so the subsidies were no longer needed by 2039. That looks unlikely, Grafton says.
“Unless you are fundamentally reducing the risk, any form of subsidisation is a Band-Aid. You really need to have a concerted, long-term commitment to reducing risk ... because you can’t just magic away, through insurance subsidies, what mother nature is doing.”
So what’s the solution?
Reducing risk starts with preventing further development in high-hazard areas, says Grafton. “Stop making the situation worse. Stop building in dumb places.”
He also wants more investment in flood defences. After the Christchurch earthquakes sank the land at Flockton Basin, making it flood-prone, homeowners faced high premiums and excesses of up to $10,000 for flood insurance. But council investment in flood protection reduced the risk, and premiums dropped.
But the problem with that is there will always be a massive storm or wave surge that exceeds the level for which defences are designed. And because flood protection encourages more development in behind, failures can be catastrophic, such as the breached floodbanks at Pākōwhai in Hastings.
“There’s no easy solution here, that’s the point,” says Boston. “As a global community we are creating, to be blunt, a hell of a mess for future generations.”
But a climate adaptation framework would at least be a start.
Climate Change Minister Simon Watts says the Government has identified insurance affordability and accessibility as an issue and is committed to producing an adaptation framework. Work on its scope and potential legislation is under way.
The Treasury continues to investigate “emerging insurance challenges” and expects to deliver advice to ministers in the next few weeks.
But Watts concedes that the question of who should pay for any preventive managed retreat remains a significant challenge, and central and local governments, banks, insurers and communities need to come together to establish costsharing principles.
He says no decisions have been made about extending the flood red-zone buyout model, or any future subsidy schemes, but an adaptation framework will help.
After 10 years of talking about insurance and natural hazards, Grafton says everyone now agrees action is needed. “The problem is that climate change is a wicked problem. And wicked problems don’t lend themselves to a single, silver-bullet solution.”
The uninsured business
When Higher Taste Hare Krishna restaurant first moved into Wellington’s Old Bank Arcade, the contents insurance excess was about $350. After the second flood, it rocketed up to $2000.
“Insurance companies were refusing to accept insurance, and excess was increased to the level where it was practically not making any sense to even have a policy,”
says restaurant manager Jagdish Prasad.
The restaurant moved out in February 2023, eventually setting up in Lambton Quay. But the water followed. A leaking pipe; failed pumps. “It looks like flooding is not leaving us,” Prasad jokes.
Fortunately, the landlord paid those losses. But any other natural disaster will be no joke, as the combo of unaffordable insurance and a Covid revenue hit means the business is no longer covered.
“When we wanted to insure again, because of that flooding over the years, the premium had gone up. And then because we were not able to pay regularly, that gave us a bad name. So at the moment, we don’t have any insurance.”
It’s the same story at 105 Newlands Rd, which houses staff from the Newlands branch of the restaurant. They suffered two major floods in two months in 2021, which Prasad blames on poor stormwater management by Wellington City Council. (The council says road runoff is not the cause.)
He estimates the floods cost $3000 each to clean up, but there was no cash to strip out wet walls. So they just ripped up the carpet and dried as best they could.
“We can’t afford to do anything, so we’re not doing anything.”
The uninsured apartment building
When Geoff Wylde bought the imposing six-apartment building on Brooklyn hill in 2021, he knew it was earthquake-prone.
No matter, because he planned to strengthen it to 80% of New Building Standard (NBS). But by the time he’d finalised a design, the insurance market was going haywire and he couldn’t find anyone to commit to insuring it once completed.
Even their current insurer couldn’t guarantee cover, but if they did take it on, it would cost $60,000 to $70,000 a year. That’s 2½ times the cost for a new building.
The problem isn’t the 1927 building’s reinforced concrete construction, but its age. The insurance industry treats pre1935 buildings differently, even if they’re strengthened.
So all Wylde can do now is wait until the earthquake-prone notice expires in 2030.
“Our only option is to demolish the building. Because without the guarantee of finance, we can’t raise capital. So that means we’re sitting on the building, waiting till 2030, and then we’ll have to put a bulldozer through it.”
The building was insured when Wylde bought it, but that lapsed after a year and couldn’t be renewed. That’s understandable, given the risk, says Wylde. What makes no sense is the pre-1935 rule which he calls “the most ridiculous thing”.
Insurance Council boss Grafton says the classification is based on the fact building rules changed in 1935, as a response to the Napier earthquake.
Wylde argues that might be fair for buildings with no detailed assessment, but should be irrelevant for NBS-rated buildings. Grafton counters that NBS ratings don’t predict repairability after a quake.
Tips for home buyers and owners
■ Before buying, check EQC’s online tool for previous claims. If there’s been a claim, make sure remedial work was done.
■ If a house has a retaining wall, check it’s fully consented.
■ Check insurance policies carefully, don’t just take the cheapest quote.
■ If you’re an existing homeowner, check your sum insured reflects today’s replacement cost, and review annually.
■ After a disaster, record all dealings with your insurance company, and get everything in writing.
■ Get qualified experts such as registered building surveyors or quantity surveyors to assess house damage.
■ Get free help from the Claims Resolution Service.
■ If you get an EQC payout, don’t just pocket it. Spend it trying to fix the problem, even if you can’t afford a full repair. Keep all receipts.
Sources: Gill Parnham, Alan Borthwick, Emma Gabor
“The problem is that climate change is a wicked problem. And wicked problems don’t lend themselves to a single, silver-bullet solution.”
Simon Watts Climate Change Minister