IAG New Zealand Chief Executive Officer, Amanda Whiting:
The question I get asked most as an insurer is which parts of the country we won’t insure now and in the future. It’s a fair question to ask given people’s growing awareness and experience of natural disasters. However, I think we should focus on a different question: how do we keep the country well insured? And last week’s budget includes a small but important part of the answer.
New Zealand is blessed with beautiful and dramatic landscapes, but as the last few years have shown, it is also highly exposed to natural disasters. These can have large and long-lasting impacts, and because of our development choices and a changing climate, their cost is growing faster than our economy.
While we have an established and evolving approach to managing natural hazards, it favours response and recovery over risk reduction and resilience, and it is not keeping pace with the growing risk. As a result, our most hazard prone communities face an uncertain future.
We are a well insured country, and my aim is to ensure that we can have as many homes and businesses insured as possible. Of course, the reality is that not everything can or will be insured - that’s the case today and it will be the case in the future. It is also true that growing risk will lead to higher premiums that may be beyond the reach of some people – especially in hazard-prone communities. But we can do more to have as many people insured as possible.
That requires us to do a much better job at reducing natural hazard risk so that the communities who are exposed to their impacts can be safe and resilient. This will reduce the trauma and loss that comes with disaster and the wider economic and social harm they create. It will also keep the cost of insurance more affordable.
We must all contribute to this. Whether as an individual, a developer, scientist, engineer, banker, insurer or politician, our decisions can help to reduce the impacts of natural disasters. Critically, the Government has a vital leadership role and can take immediate steps to enable a sensible, targeted and orderly reduction in natural hazard risk.
The $200m allocated to flood protection in last week’s budget is a great start. And making it part of the Regional Infrastructure Fund recognises the importance of resilience in supporting and growing our regional economies. While this funding meets the immediate ask in the Te Uru Kahika report (Before the Deluge 2.0), it also represents just 8% of the co-investment needed from the Government over the next decade. We must find a way to put this level of funding on a more permanent basis.
Reducing risk is not just about funding for flood defences. We need to increase accountability for risk reduction, improve how we measure and target it, increase our investment in infrastructure, invest in the science to understand and act on our natural hazards and evolve how we build back after disaster strikes. We also need to see through important reforms in land-use planning, managed retreat and the building code so that we have safe buildings in safe locations.
Despite all our best efforts, we cannot and should not eliminate all risk. We will continue to experience floods, storms, earthquakes and other disasters. And we will continue to look to insurers to help people pick up the pieces and support a faster and more certain recovery.
So, we also need a strong insurance industry as a reliable backstop for when disasters occur - one with the financial strength to meet the needs of its customers and shareholders in the face of growing risk and more extreme events.
Given New Zealand’s volatile geography and weather, this requires insurers that can withstand the difficult years, of which there have been many, and offset them with the years that have fewer disasters.
It also requires insurers to have the support of reinsurers and shareholders that are confident that the risks being insured are well managed, carefully chosen and accurately priced. It is only with their ongoing support that insurers have the capital to pay claims when the inevitable disaster strikes.
If we are to keep people safe and support the economic and social wellbeing of our communities, we need to reduce the growing impact of natural hazards. I welcome the funding announced within the Regional Investment Fund, but it begs the question ‘what next?’ There is still much to do to keep the country safe and well insured.