How Climate Change Can Affect Your Property’s Insurance Coverage

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How Climate Change Can Affect Your Property’s Insurance Coverage

The webinar, “Wet Feet? Insurance Retreat” is a part of the Constant Change webinar series from the Deep South. This webinar takes you through the research of Belinda Storey on climate change and the likely retreat of insurance in New Zealand.

In the video below, Belinda presents the research she conducted with her colleagues, Sally Owen, Ilan Noy, and Christian Zammit.

Before delving into her research finding, Belinda first gave a simple definition of insurance retreat – “it is when the cost of ensuring a particular hazard gets so great that your insurer would rather stop insuring you then charge a break-even premium on that hazard.”

She talks about how climate change is causing sea level to rise and can alter the probability of other hazards. Their research shows when and where in New Zealand sea-level rise (SLR) is more likely to cause damage to properties.

Belinda explains the concept of insurance retreat thresholds, confidential information that insurers use to determine the cost of your insurance premium and whether they will still cover you based on the probability of hazard risks (from SLR, storm surges, and inundation) on your property.

Insurers based the insurance retreat thresholds on two factors – the annual exceedance probability (AEP) of an event – or the probability of a rare flood event occurring in any year, and the recurrence interval (R.I.) or a return period of an extreme event – for instance a 1 in 20 years storm, 1 in 50 years storm, and so forth are used by insurance to determine the risks and threats that they are willing to cover.

Changes in AEP that will make an extreme event happen more frequently than expected, for example, a storm with an R.I. of 100 years becomes 75, can result in property owners finding it more difficult to obtain coverage for their property, Belinda explains. Investigating how insurance retreat is practised in other countries, they have found out that in the U.K., private insurers are becoming “very reluctant” to ensure flood risk” at only 1.33% AEP or when an R.I. of a 1 in 100 flood events becomes 1 in 75.

Climate data and models are showing that climate hazard probabilities are shifting, making rare events to happen more frequently. AS a result, insurance thresholds will also shift, which can result in insurance retreat or higher premiums.

The webinar presents useful information for those who wanted to know more about the risk of SLR to their property as it relates to their insurance coverage and premiums.  

The Q & A at the end of the webinar answers important questions regarding the steps people need to take when their properties are exposed to the hazards of sea-level rise, how vulnerable communities can respond to these climate risks, possible managed retreat solutions, and even urging those at risk to know their insurance policies very well.

Watch the whole webinar below:

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