More than 112,000 claims were lodged in relation to the twin natural disasters.
From today, the Natural Hazards Insurance Act 2023 takes effect, which modernises and replaces the Earthquake Commission Act 1994.
Tina Mitchell is the chief executive of the Natural Hazards Commission (formerly EQC).
OPINION
Climate change is placing pressure on insurance systems across the globe. The Natural Hazards Commission (formerly EQC) has been our natural hazards insurance scheme for 80 years. Tina Mitchell explains how it helps to buffer us from some of those global trends, but notes we also need to think about our individual situations.
Over recent years, the impacts of climate change have become increasingly evident, not only through dramatic events such as hurricanes, wildfires and rising sea levels, but also in more subtle ways that affect our everyday lives.
One of the less visible, yet significant, impacts is on the availability and affordability of insurance globally.
Insurance has traditionally served as a vital tool for sharing and managing risk. By pooling resources, individuals and businesses can protect themselves against some of the financial devastation that unexpected events can cause.
However, new risks present new challenges. Insurers and reinsurers have faced unprecedented levels of claims in recent years due to the impacts of climate-related disasters. Increased claims lead to increased costs that are ultimately passed down to policyholders.
In some countries, insurers are pulling out of natural hazard cover altogether when they deem the risks to be too high, leaving homeowners and businesses without protection.
The implications of this trend are significant. When insurance becomes unaffordable or unavailable, homeowners, businesses and communities are at greater financial risk, and it impacts the economic recovery for the country at large.
This is where insurance pool schemes like ours can provide an important intervention. By spreading risk across a larger base, pool schemes can make insurance cover more accessible for everyone.
New Zealand’s scheme is one of the longest-running natural hazard insurance pool schemes in the world. All insured homeowners pay a levy set by the Government based on world-class research and modelling of possible risks and costs. The levies are then “pooled” in the Natural Hazard Fund, which is used to pay out on claims for residential damage, up to a cap determined by legislation.
By absorbing the first layer of risk for initial losses, the scheme helps distribute the financial burden around the country and ensures New Zealand has a stable and readily available private insurance market for covering losses beyond that initial contribution. As a result, we are one of the most insured (and therefore most protected) countries in the OECD.
The commission also uses some of the levy fund to invest in science and research so we continue to increase our understanding of risk as a country. That knowledge then informs the way we build, the standards we build to and planning regarding where communities can safely live.
"We can prepare ourselves by understanding where insurance starts and finishes and what we can do to fortify our properties to reduce the risks." Photos / Dean Purcell
How are you covered?
The Natural Hazards scheme provides cover for up to the first $300,000 of damage caused to homes by earthquakes, tsunamis, landslides, volcanic and hydrothermal activity. Damage above $300,000 is covered by private insurance policies.
The scheme also provides cover for damage to residential land, but it is limited to certain areas on a property and is capped at the value of the land or the value of the repairs, whichever is the lower amount. Private policies do not generally extend to land.
What else can you do to manage your risk?
The storms we saw last year will not be the last; it is important we all understand our individual risk and what we can do to manage it.
Firstly, understand what is covered. By familiarising ourselves with the limits of the cover we have through our private insurance policies and Natural Hazards scheme, we can see where there might be any financial gaps to think about.
Secondly, we can assess our risk by identifying the natural hazards that could affect our properties, such as earthquakes, floods or landslides. Tools such as the Natural Hazards Portal enable us to see if our current or prospective property has had previous natural hazards claims.
We can also mitigate our risk by taking proactive steps to protect our homes. This might include improving drainage around our properties and reinforcing retaining walls to prevent landslips, securing items to reduce damage during a quake, or rebuilding with earthquake-resilient materials when we renovate.
Lastly, we should know who to call if our home is damaged by a natural hazard. Private insurers now manage all natural hazards insurance claims for you. And if for any reason you want to connect with us, we are still here, just using our new name: the Natural Hazards Commission.
In the increasingly risky world we live in, it isn’t always possible to pass on all of our risk to someone else.
But we can prepare ourselves by understanding where insurance starts and finishes, what we can do to fortify our properties to reduce the risks, and where we need to incorporate natural hazards risk in our own financial planning.
