Increasing natural hazard risks are reshaping the insurance landscape in New Zealand, with some insurers now declining coverage in high-risk areas. It is evident that both prospective purchasers and current homeowners will face challenges in the years to come.
Increasing Financial Burden
New Zealand’s house insurance premiums (premiums) have already risen dramatically over the past 25 years, and are likely to continue rising. According to the Consumer’s Insurance Report 2025, premiums have increased by 916% since 2000. Insurance companies have paid out billions in claims as a result of major natural hazard events, such as the 2011 Christchurch Earthquake and Cyclone Gabrielle and have increased premiums to reflect that.
Recently, AA Insurance (AA) announced that, due to high flood risk, it will not accept new policy requests in Westport until acceptable flood mitigation works are undertaken. Soon after, AA made a similar announcement about homes in Woodend in North Canterbury because it had temporarily reached its maximum seismic risk capacity.
Other Insurers may follow suit or increase premiums as natural hazards increase. As such, the majority of New Zealanders will feel the effects with more discussions around risk-based assessments being used as the main tool to determine each household’s premiums.
What is risk-based assessment? Insurers assess how a particular property may be affected taking into account factors such as natural hazards, location, site characteristics and construction type, rather than using a generic regional average which insurers used previously. A risk-based assessment is intended to ensure that each homeowner’s premiums reflect the actual risk of insuring their particular property.
Challenges for Property Purchasers
The Government has announced that by 2027, more national and local natural hazard data will made accessible to New Zealanders through their territorial authority (council). This will place a greater responsibility on purchasers to assess the property’s risk profile.
Property purchasers will have to conduct thorough due diligence which may include the following:
As a purchaser, you may find that the property is uninsurable during the conditional period of the Sale and Purchase Agreement. This will create major implications with your finance as the bank will not approve your loan until suitable insurance is in place.
For this reason, purchasers should include an insurance condition when entering into an Agreement for Sale and Purchase to ensure that they can obtain insurance at a reasonable premium for the property.
Challenges for Current Property Owners
Those who currently own property in higher risk areas can expect their insurance premiums to increase or changes to their coverage terms.
This may impact on any future saleability as banks will not approve finance without insurance. Prospective purchasers may not have the ability to purchase properties in these areas if they cannot obtain insurance, or if premiums become unaffordable.
Moving Forward
It is likely that more New Zealanders will begin feeling the effects of insurers changing their premiums and policies across the nation. If insurance is unavailable, properties may become more difficult to on-sell.
Whether you are a prospective purchaser or have questions as a property owner, you can take proactive steps to avoid costly surprises later down the line. These steps include:
If you have concerns about how this issue may impact you, please contact Ariana Kim, Solicitor ([email protected]/03 925 7956) or Emma Jackson, Principal ([email protected]/03 925 7952).
