AA Insurance has gone the extra mile and stopped issuing new home insurance policies in places like Westport due to flood risk, and Woodend in North Canterbury due to seismic risk.
A 2024 Helen Clark Foundation report estimated 10,000 coastal properties in Dunedin, Christchurch, Wellington and Auckland could become uninsurable in the next 25 years.
Bernard Hickey, a journalist and publisher of The Kākā, told The Front Page that when insurers pull back from high-risk towns or suburbs, properties can become uninsurable and unbankable.
“The key thing to know here is that for most New Zealanders, the value of their home really is their financial futures. It’s not just a place to live. They rely on it to potentially sell once they’re empty nesters and downsize, then use any spare equity to help them in their retirement.
“So once a town is uninsurable, it’s also unbankable. And when something is unbankable, that means it’s pretty much worthless because you don’t have the same competition to buy the house from people who are able to borrow money,” he said.
Hickey said that some people only discover at the last minute that they can’t get insurance or finance, creating “neutron bomb” moments for household finances.
“There are some interesting problems here where often the owner of the house will have been told by the insurer that their insurance may not roll over or suddenly the pricing’s going to change and they can sell their house, but they know that whoever’s going to buy it is going to really struggle to get insurance.
“Literally, people are receiving letters in their mailboxes, which are a bit like neutron bombs for their personal finances. Suddenly, they realise not only are they going to struggle to get their own reinsurance, or it’s going to cost a lot more, but they’ll really struggle to sell their place,” he said.
Existing owners may be tempted to sell before disclosing these risks, Hickey said, taking a “I know nothing, I see nothing” approach.
“There’ll be a bunch of real estate agents and home owners who really don’t want to know. You get to a point where, if you suspect that your house may not be insurable, do you sell first and ask questions later? Because then you can’t be accused of knowing something and not telling it,” he said.
This means now more than ever, buyers need to do their research.
“Before you buy a house, you want to be absolutely sure that you can handle, for example, three degrees of warming. It’s clear now that we’re going to have probably two degrees of warming within 20 years or so, and we know from the climate scientists that means even more extreme and more frequent weather events like Cyclone Gabrielle.
“This is the issue here for people in New Zealand because we are so reliant on our houses for our financial futures, even more so than the likes of Australia or the US,” he said.
Listen to the full episode to hear more about:
Climate change and insuranceGovernment bailouts are off the table Possible policy changesA responsibility to educate.
The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5am. The podcast is presented by Chelsea Daniels, an Auckland-based journalist with a background in world news and crime/justice reporting who joined NZME in 2016.
You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify or wherever you get your podcasts.