Climate Change Impacts Weather and Insurance Losses in NZ

In 2023, New Zealand was impacted by two major extreme events—the Auckland Anniversary Day floods and Cyclone Gabrielle. The insurance claims resulting from these events were more than ten times greater than the typical insured losses.

While climate-related hazards in New Zealand have historically been considered secondary to the country’s significant earthquake risks and their associated insurance claims, weather events’ losses are increasing.

A study titled “Climate Change Impacts to Extreme Weather Events Associated with Insured Losses in New Zealand: A Review,” published in the Environmental Research: Climate journal on 10 January 2025, provides a thorough overview of current research on the projected changes in the frequency and severity of extreme weather events in New Zealand. These events are likely to lead to substantial property-related insurance losses in the future. The review also identifies knowledge gaps regarding these hazards, calling for further research.

New Zealand’s National Climate Change Risk Assessment (MfE 2020) identifies risks to the financial system from the instability due to extreme weather events linked to climate change.  Extreme events, including droughts, wildfires, intense rainfall, and ongoing sea level rise, pose significant and urgent risks to the built environment.

As of 2024, mandatory climate reporting introduced by the Reserve Bank of New Zealand and the Financial Markets Authority will require financial services to understand better and quantify climate-related trends and risks. However, established catastrophe models are unavailable for various perils in New Zealand.

Despite these gaps in knowledge, this review of available literature indicates a clear trend: insurers in New Zealand face growing weather-related climate risks. More frequent and intense heavy rainfall could lead to more frequent and severe catastrophic events, particularly from Atmospheric Rivers and ex-tropical cyclones, combined with coastal flooding and groundwater rise exacerbated by ongoing sea level rise.

This, in turn, will likely drive up reinsurance costs for insurers and increase household insurance premiums. The growing intensity and variability of natural climate cycles, such as El Niño and La Niña, mean that multiple loss events within a single season, as seen in 2023, are likely to become more common.

The study’s findings have significant implications, particularly regarding the challenge of quantifying extreme weather risks and managing the resulting affordability pressures. The review emphasises the need for risk reduction measures to help mitigate these challenges.  It identifies opportunities for collaboration among communities, governments, and insurers to reduce the future exposure and vulnerability of the built environment. Key opportunities for risk reduction include:

• Updating land-use planning and community mitigation plans to account for flood and fire hazards in new and existing developments, incorporating climate change considerations. Insurers can reflect these mitigation measures in premium pricing.
• Upgrading infrastructure to manage increased water flow, such as flood defences, creating more space for rivers and streams, and enhancing firefighting capacity. Insurers can also factor these improvements into their pricing.
• Revising wind-loading building codes to address the increasing risks from ex-tropical cyclones or mid-latitude storms. Insurers can offer lower premiums for buildings with reduced vulnerability, like those constructed with modern earthquake-resilient standards.
• Ensuring building design and consent processes incorporate future climate projections, as recommended in the recent guidance to local governments (MBIE 2023).

These steps, if implemented, could help better prepare New Zealand for the escalating risks posed by climate change while supporting both the resilience of communities and the stability of the insurance market.

Read the study: Climate change impacts to extreme weather events associated with insured losses in New Zealand: a review