Insurance boss: Flood cover won't continue being universally available

IAG's CEO said insurance was still available for the flood-ravaged West Coast, albeit at a high price. "But in 10 years' time, who knows?" Photo / George Heard

The woman at the helm of the country's largest insurer is warning flood cover won't keep being available to all property owners.

Speaking to the Herald, IAG chief executive Amanda Whiting said 96 per cent of residential buildings in New Zealand were insured, with owners of the remaining 4 per cent likely self-insuring.

"Right now, we're providing flood cover for everyone," Whiting said.

She said insurance was still available for the flood-ravaged West Coast, albeit at a high price.

"But in 10 years' time, who knows?"

IAG trades under the AMI, State, NZI, NAC, Lumley and Lantern brands, and sells products sold by ASB, BNZ, Westpac and The Co-operative Bank.

Whiting said IAG would keep going down the path of pricing all types of risk in a more granular way.

"It's a real balancing act for us," she said. "We want insurance to be available and affordable for all New Zealanders.

"But at some point, we are going to put more risk-based pricing in... to encourage the right risk behaviours and to get ourselves to a situation where people in low-risk areas are not paying for others in high-risk areas.

"I can't put a timeline on it, but it's not in the next couple of years."

Whiting's comments on flood risk come as insurers have been applying more risk-based pricing to earthquake risk.

This partly contributed to the Government doubling (to $300,000) the amount of Earthquake Commission cover available for residential property damaged by earthquakes, natural slips, volcanoes, tsunamis and hydrothermal activity.

That change takes effect from October 1.

Whiting maintained it would be unnecessary, at this point, for a Crown entity like the Earthquake Commission to cover flood risk.

The Treasury is investigating if a state flood insurer should be established. It will report back to the Government by the end of the year.

"It might be the best idea in the world, but right now I don't think we need it," Whiting said, noting insurance remained available and affordable.

She feared a state insurer could create a moral hazard by removing the incentive for people to retreat from high-risk areas, knowing a state insurer would bail them out in the event of a flood.

IAG CEO Amanda Whiting. Photo / Supplied

Whiting urged the Government to focus on at-risk homeowners, invest in infrastructure to prevent damage, and direct councils to stop allowing building in flood-prone areas.

She said 10 major floods over the past two years had cost insurers $400 million.

"We're all talking about climate change and how we can reduce carbon and all those kinds of things, when actually, we have a problem right now," Whiting said.

"We need to put plans in now. We can't wait until another event."

IAG has put forward a three-point plan to address climate risk.

Firstly, it suggests Government agencies like the Treasury and Department of Internal Affairs enable more data-sharing on flood risk.

"This can be done through a formal project between central and local government, and other stakeholders to identify and prioritise flood-prone locations," IAG said.

The project should consider factors including current exposure, flood protection quality, council finances and community deprivation and resilience.

Pressed on how forthcoming IAG would be in sharing its data, including on insurance pricing, Whiting said insurers had a "really important role to play" and would share data on availability and affordability of insurance, including flood mapping.

Secondly, IAG suggested: "We need to stop building in flood-prone locations, so the problem doesn't get worse."

Whiting said the Ministry for the Environment should work with councils to avoid new development, or intensification of existing development, in locations exposed to flooding more frequent than once in 50 years.

Whiting said a national statement would help local councils, which are sometimes like the "meat in the sandwich".

"They've got developers pushing to develop land and so they're wanting to deliver on that. But actually, continuing to build in those high-risk areas is really putting people in harm's way and we just need to stop doing it."

Thirdly, IAG wants the Infrastructure Commission, local government and other stakeholders to develop a work programme to protect infrastructure in flood-prone areas.

Whiting didn't wade into the debate over how the cost of supporting this infrastructure should be spread across taxpayers, ratepayers, or insurance policyholders.

But she added: "New Zealanders pay for this regardless in some way."