Understanding Flood Insurance: New Zealand

This article is a part of a series on flood insurance options. Read the intro and meet Mr. Watersedge here.

The Insurance Council of New Zealand (ICNZ) was established in 1895 with the mandate of providing industry representation for the fire and general insurance industry. Given the increase in and impact of natural disasters in New Zealand since 1895, the ICNZ’s mandate expanded to include flood insurance. The ICNZ’s role is not to provide insurance to homeowners and businesses; rather it represents the overall insurance industry in New Zealand. Insurance companies who are members of the ICNZ are licensed under the Insurance Act 2010 and have signed the Fair Insurance Code binding them to ethical business practices[1]

How does the ICNZ work?

In the event of a flood, impacted individuals and businesses are encouraged to contact their insurance provider as soon as possible. This includes providing a list and photographs of all damaged property and contents before disposal, so an insurance assessment can be conducted. Generally flood damage to buildings, contents, and vehicles are covered and accepted by insurance providers because policies will cover the building, contents, and separate structures such as a garage, fence, garden wall, driveway, and patio[2]. This coverage is beneficial to Mr. Watersedge due to the building and content damage impacting his property. 

In New Zealand, flood insurance is a relatively straightforward and fair process. The ICNZ, regulators, and insurance companies are more focused on promoting flood mitigation and resiliency to prevent severe damage from otherwise manageable floods[3]. Mr. Watersedge is also interested in this approach because he does not want another 1 in 100 year flood to damage his property the way it did last spring. 

What are some short-comings in the ICNZ approach? 

In New Zealand, land titles are subject to section 74 notices that locate them within a floodplain. Homes and businesses that have land titles with the section 74 notice may not be eligible for flood insurance. If property does have a notice of this type then the landowner is obliged to disclose that information to their insurance provider, otherwise insurance claims will be denied[4]

Individuals or businesses looking to obtain flood insurance are also advised to closely review potential policies to understand whether or not flood damage is covered and to determine whether or not a specific provider is a member of the ICNZ. New Zealand’s policy would not be effective for Mr. Watersedge because his house is located within the floodplain making it ineligible for coverage. Furthermore, budget insurance providers would not be able to cover Mr. Watersedge’s coveted Star Trek memorabilia worth $250,000. 

What are the opportunities in using an ICNZ approach? 

The ICNZ often provides recommendations to the Government of New Zealand to update insurance regulations. In 2014, the ICNZ provided advice to the Government in the report Protecting New Zealand from Natural Hazards. This report was written in response to the growing occurrence of natural disasters, including flooding. Recommendations from the report include:

  • Strategic and legislative updates focusing on reducing the impact of natural disasters by planning more resilient communities and infrastructure. 
  • Developing a coordinated national strategy to address the risks of natural disasters. 
  • Consistent data and information across New Zealand to improve decision-making on natural disaster mitigation, and educate citizens of risks such as flooding. 
  • Increased funding to improve resilience to natural disasters such as flooding, and ensuring a commitment to pre and post-disaster costs. 

The ICNZ also recommended the New Zealand Government maintain affordable insurance for all citizens. For example, by improving disaster mitigation and resilience, levies could be removed from insurance premiums to improve affordability. As a result, a higher percentage of the population would purchase insurance for natural disasters such as flooding. 

 

Sources:

[1]  “About Us.” Insurance Council of New Zealand. http://www.icnz.org.nz/about-us/ 

[2] “Recovering from Flood Damage.” Insurance Council of New Zealand. http://www.icnz.org.nz/natural-disaster/recovering-from-flood-damage/

[3] Clement, Diana. “Flood can wreak havoc on properties.” New Zealand Herald. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10819468 

[4] Ibid.