Insurers pay record $305 million for extreme weather claims in 2021

Wednesday, 22 December 2021

Fire & Emergency NZ incident controller Wipari Henwood explains the latest on the fire near Kaimaumau on Monday.

The insurance industry paid a record $305 million as a result of weather-related claims this year.

That was an increase from the $274m of weather-related claims last year, according to the Insurance Council of New Zealand Te Kāhui Inihua o Aotearoa (ICNZ).

The true cost of damage from extreme weather would be much higher because some damage was not covered by insurance, said Tim Grafton, chief executive of ICNZ.

“Taking under-insured and uninsured losses into account, total economic losses may be twice this level,” he said.

* Insurers get $43.8 million of flood claims from Cantabrian homeowners, farmers and businesses

* 2020: Worst-ever year for weather-related claims, insurers say

Marcus Shenker's home in Westport was flooded in July.

“Total climate-related combined losses for this year and 2020 likely exceed $1 billion,” Grafton said.

Uninsured losses, including insurance excesses and damage to things that could not be insured, were bourne by individuals, local councils, and government agencies, he said.

July’s great storm, which swept up the country between July 16 and 19, resulted in a rare red weather warning from Metservice, and more than 5200 insurance claims for over $120m.

Insurers have experienced a rising tide of weather-related claims.

“Our average losses for the last five years are around $250m a year for insured losses,” Grafton said.

“In the five years previously, it’s a tad over $100m on average a year.

“It's a developing pattern. Climate change, and a greater frequency of extreme weather events will see costs increase unless we start to think more smartly about how to decrease the risk of that occurring,” he said.

Fixin, and replacing damaged homes and cars has also been getting more costly thanks as construction costs, and the prices of second hand cars have risen.

In November, Tower reported that its cost to rebuild a damaged home rose 12 per cent during the 12 months to the end of September.

“While taking out insurance helps consumers both price and manage their own risks, doing so does nothing to actually reduce the risk of being impacted by an extreme weather event,” Grafton said.

“To do that, Aotearoa New Zealand must invest in making itself more resilient.”

This included investing in better flood defences.

“In some cases, honest conversations will have to be held around managed retreat and where homes, businesses and community assets, such as roads and three waters infrastructure, are built and maintained,” Grafton said.

“Society needs to take a long view to climate risks. Householders, community groups, Iwi, businesses, farmers and insurers all have a role to play.”

“However, much of this mahi, and cost, will fall to central and local government to ensure there is the right legal framework and investment in place to manage these risks over the decades ahead. This will be a multi-decade, multi-billion dollar process,” Grafton said.

Major weather-related claims events this year included late May’s Canterbury flooding ($46m); June’s South Auckland tornado ($32m); July’s flooding event affecting the upper South Island and lower North Island, including Westport and Wellington, (collectively $140m); August’s Auckland flooding ($62m); and September’s South Island windstorm ($20m).

The total cost of weather-related claims could yet rise further as final claims costs had yet to be determined in some cases.

Some owners of flood-prone properties face increases in insurance premiums as Tower insurance had begun risk-rating individual homes based on the risk of them flooding.

The Reserve Bank of New Zealand Te Pūtea Matua warned other insurers would follow Tower’s lead.