Silica dust in the Esk Valley. Photo / Warren Buckland
Climate change is on longer a vague theoretical future problem. So far this year New Zealand has seen Cyclone Gabrielle, a damaging atmospheric river and a series of extreme weather events that could be harbingers of a new normal.
The impact on business has been significant and has torn up the rulebook when it comes to planning for and managing risk.
Insurance is all about managing risk. As climate change develops most experts believe insurers will move to increase premiums and, in cases, abandon providing cover altogether. New Zealand’s business leaders expressed their concerns about how this is already playing out in the 2023 Mood of the Boardroom survey.
When asked to rate a series of climate-related risks, respondents put the cost of insurance at the top of the list. On a scale of one to five, where five represents extreme risk and one is a minor risk, respondents rated the cost of insurance at an average of 3.6. This is closely followed by the availability of insurance which is rated at 3.4 on the same scale.
Kiwirail chief executive Peter Reidy has witnessed the changing insurance market first hand. He says: “Rail infrastructure is significantly impacted by water run-off from roads and physical structures. The insurance market is becoming restricted and uncompetitive”.
While the pain of insurance cost and availability is widespread, it is not shared evenly across the entire economy. Businesses in the utilities, energy and extraction are among the sectors who say they face the highest risk of increased insurance costs with retail and consumer durables following close behind.
Professional services, advertising, marketing, media, automotive and manufacturing face less risk.
The insurance industry places the highest risk on the availability of insurance. The sector rates it as an extreme risk with a score of five. Healthcare and pharma are not far behind with a rating of 4.5. At the other end of the scale, respondents in the advertising, media, marketing sector, where there are few physical assets, see the availability of insurance as a minor risk, a rating of one.
Risks associated with the possibility of shifting business operations from low lying areas are sector dependent. Across all sectors business leaders rate this at 2.5, less than halfway between minor risk at one and extreme risk at five. Yet those in government, healthcare and pharmaceuticals see higher levels of risk, while leaders in the airlines and aerospace sectors see little risk.
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A primary sector CEO says the nation needs to focus on adaptation as a priority. Erica Crawford of Loveblock Vintners spells out the challenge for her sector when. She says: “Changing weather patterns will force the wine industry to re-evaluate where it grows grapes, and what it grows in specific areas. It also affects disease management and infrastructure planning. We have been feeling its effects particularly in the past 10 years.”
Spark CEO Jolie Hodson leads a business disrupted by the cyclone. She says: “The interdependence of digital infrastructure on other forms of infrastructure — namely power and roading — was brought into the spotlight during Cyclone Gabrielle.
“This necessitates a cross-sector and whole of economy disaster response approach and investments into infrastructure resilience. If we want infrastructure that is more resilient this will need better collaboration and co-investment across the private and public sectors.”
Leaders are less concerned about the need to decommission high emissions operations or plants.
That scored 2.3 on a scale of one, minor risk, to five, extreme risk.
New Zealand businesses have been proactive when it comes to addressing climate risks. More than eight in ten (83 per cent) have implemented emission reduction initiatives and a further 11 per cent plan to do so in the next year.
Meanwhile 70 per cent have introduced new climate friendly products or processes with 11 per cent planning to do so over the next 12 months.
Freightways chair Mark Cairns says his businesses carbon emissions are largely transport related.
“We have made progress replacing one 737-400 aircraft with a 737-800 aircraft which is around 20 per cent more fuel efficient.
“Unfortunately, we cannot move to electric vans until suitable models (electric vans currently have a poor range of around 130km) and charging infrastructure are available in NZ.
“The latter is currently woefully inadequate.”
Franz Mascarenhas, managing director at Cordis Auckland says his business has a series of sustainability initiatives with Earthcheck, the international tourism benchmarking company and are currently in the organisation’s “Masters” category.
Six in 10 respondents say their businesses developed a data-driven, enterprise-level strategy for reducing emissions and mitigating climate risks. A quarter (24 per cent) are planning such a strategy.
Fewer (44 per cent) businesses have initiatives to protect physical assets, while another 25 per cent have an initiative in the pipeline.
It’s clear one of the biggest challenges we collectively face is the threat of climate change.
Carbon reduction is vital for managing climate impacts in the future, but we’ve got to think broader than this. We’ve got to create climate resilience for New Zealand.
This year’s cyclone and floods were a flashpoint for people.
But I don’t think most businesses have wrapped their heads around what this actually means — the cost of doing business is going to increase for most of us, and our customers’ needs are going to change. We’re going to have to innovate how we do business and what we offer.
For us, that means innovating insurance products, as well as improving accessibility through digital investments. We’re currently underway with trialling parametric insurance in the Pacific and are looking at how we can reshape what we offer New Zealand customers.
From an infrastructure perspective, having climate resilience is about better planning — we need to stop building in stupid places. We need to focus on mitigating the impacts of climate change with new and better infrastructure that protects both property and lives for the long term. We need spongy cities, not more concrete ones.
In the aftermath of the floods and cyclone, we received five years’ worth of claims in two weeks. From a volume perspective, it was simply unprecedented, but many are also highly complex claims.
This was a moment of truth for insurers.
Obviously, not everything went perfectly due to the scale of two consecutive events, but the fact we’re now most of the way through completing claims is a testament to what the Tower team has achieved.
Many business leaders rate the Opposition Finance Spokesperson highly.