Journal article

Insuring property under climate change

4 Nov 2017

Climate change will increasingly create severe risks for New Zealand’s coastal housing stock. Even a small amount of sea level rise will substantially exacerbate the costs of flooding and storm surges. Under the Intergovernmental Panel on Climate Change’s (IPCC) three mitigation scenarios, global average sea levels are likely to rise by between 28cm and 73cm by 2100 (above the 1986–2005 average). Under the IPCC’s high emissions scenario the sea level is likely to rise by between 52cm and 98cm by 2100. Only collapse of parts of the Antarctic ice sheet, if triggered, could cause the sea level to rise substantially above these ranges. Some regions in New Zealand (including the main urban centres) have high enough quality geographic data to infer the number of homes at risk. In those regions, there are over 43,000 homes within 1.5m of the present average spring high tide and over 8,000 within 50cm.

In the best of all possible worlds New Zealand would face far fewer risks from climate change. Sound science would communicate future risk, which would be understood by all decision makers. These decision makers would make socially optimal decisions and would coordinate across all levels and parts of government. Existing homeowners would take risk into account when making housing investment decisions. Home buyers would take risk into account when purchasing, and this would affect both what they purchase and how much they are willing to pay. Developers would take future and current climate risk into account in siting and designing developments. Insurers would pool the residual risk across individuals, and would obtain affordable reinsurance in international markets. Councils would credibly commit to an adaptive decision making approach for land use and building decisions and would continue to adjust this approach as the climate, and sea level, change. Alas, we do not live in this Panglossian dream.

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