Research Project

Climate change and the withdrawal of insurance

Slow and sudden onset thresholds for private insurance retreat under climate change in New Zealand

Coastal hazards are escalating with climate change. In particular, coastal homeowners can expect both sea level rise and more frequent and intense coastal storms. However, we continue to see demand for housing through new coastal residential development and intensification of existing urban areas on the coast. This suggests that climate change related escalating coastal hazards are not yet fully reflected in home-owners decisions to purchase and renovate coastal property.

Climate change and the withdrawal of insurance Deep South Challenge

Consequently, climate risk may not currently be incorporated into the price of residential coastal property.

Evidence from overseas suggests that high insurance premiums and the unavailability of insurance has a stronger impact on private decision making than the uncertain risk of extreme events. Drawing on this, this project will explore how coastal housing markets impacted by climate change may respond to “insurance retreat” – if insurance becomes unavailable.

The project will identify those locations most likely to lose access to insurance within the next few decades (as the probability of extreme events increases). For this, we are conducting extreme sea-level analysis for the Auckland region and Tauranga coastlines, and extreme rainfall analysis for the Coromandel coastline, followed by coastal flood inundation mapping for these regions.

The project will estimate the direct economic losses on residential property of an extreme coastal storm making landfall in Tauranga City, to determine whether this size event could trigger reinsurance retreat (the withdrawal of the international insurers, who insure our local insurance companies) from other coastal locations in New Zealand. We are also developing a model to price future climate risk, using valuation methods from the real estate industry. Using this information, we can explore how to better inform coastal property owners’ decision-making with respect to climate change.

This project in the media:

PROJECT TEAM

  • Belinda Storey

    Climate Sigma
  • Sally Owen

    Motu Economic and Public Policy Research
  • Jacob Pastor-Paz

    Motu Economic and Public Policy Research
  • Ilan Noy

    Motu Economic and Public Policy Research
  • Ryan Paulick

    NIWA
  • Scott Stephens

    NIWA