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.

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 explored how coastal housing markets impacted by climate change may respond to “insurance retreat” – if insurance becomes unavailable.

The project identified those locations most likely to lose access to insurance within the next few decades (as the probability of extreme events increases). We conducted 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 estimated 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 also developed a model to price future climate risk, using valuation methods from the real estate industry. Using this information, we were able to explore how to better inform coastal property owners’ decision-making with respect to climate change.

This project in the media: