Rural Insurer warns of growing risk from weather

Media Release
For immediate release
17 April 2007

Rural Insurer warns of growing risk from bad weather

More frequent and extreme weather events could see New Zealanders living in vulnerable coastal communities lose their insurance cover, the leading rural and provincial insurer warned today.

FMG chief executive Gordon Smith told a conference in Auckland that, despite booming prices for coastal properties, those communities faced real risks because of future bad weather, erosion, and sea damage caused by climate change.

He quoted Insurance Council chief executive Chris Ryan, saying that “while prices have been going through the roof in some places, the sea has been coming through the back door in others”. Homes have been damaged at Punakaiki on the West Coast and Haumoana in Hawkes Bay, as well as in Canterbury, the Kapiti Coast, Raglan, Oakura, Castlepoint, parts of Coromandel Peninsula, and Omaha, north of Auckland.

“Coastal specialists believe erosion will increase in coming years as sea levels continue to rise. But prices for low-lying coastal and beachfront property continue to increase.”

This had stark financial implications, for the insurance industry and the wider community, Mr Smith said, as the expected response from insurers to rising losses has been to raise premiums and even withdraw from high risk areas altogether.

“It is unlikely that insurance cover for people living in vulnerable areas will be completely removed. However, unless we get better at managing the risks and consequences of climate change, we may see insurers being selective about who or what they will insure especially on what terms and at what cost.”

He said FMG and the Insurance Council wanted to promote growth and development in New Zealand. “But we need this to happen in a sustainable way. Therefore we need a better understanding of the risks associated with a changing climate.”

Mr Smith also warned that under-insurance was an issue that authorities would need to deal with as weather events became worse.

He said this had been highlighted starkly in the Lower North Island floods in 2004. The insured losses from that storm were about $112 million, but the uninsured losses were estimated to be around $290m, suggesting that only about 30% of people were covered by insurance.

“Underinsurance is something we need to work with local and central government to address.

“Proposals such as implementing policy where people living in vulnerable areas are required to take a minimum level of insurance should be considered seriously.”

Mr Smith said New Zealanders continue to be under-insured and many suffer the devastating consequences of having no cover at their most critical time of need.

“The Insurance Council has been calling for increases in insurance levels in New Zealand, and one key element for improving these levels of insurance is increasing the affordability of that minimum insurance. The council continues to call for the removal of unnecessary taxes applied to insurance premiums, as additional government levies increase enormously the cost of insurance to the most vulnerable New Zealanders.”

Farmers’ Mutual Group, or FMG as they are known today, was originally set up in 1905 under an act of parliament, the Mutual Fire Insurance Act. FMG was formed by farmers, for farmers. Mr Smith said the company had a long proud history of working with those on the land, protecting farmers’ livelihoods, and maintaining the land on which those livelihoods depend.

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