Opinion: Climate change is here, and it’s not going away. At best we can stop it getting worse, which can only be done by reducing emissions and with mitigation proceeding alongside adaptation. It is tragic the need for mitigation lingers as a debate at all.

It is not since the Second World War that Aotearoa New Zealand has faced such a formidable enemy; the difference being that climate change is an enemy of our own making. The recent and continuing floods and landslides have caused immense damage. The cost of restoring property, services and lives to some normality will be crippling.

Horticulture and viticulture in critical areas have been devastated and, if logging in the fragile terrain of the East Cape is found to be unsustainable because slash cannot be contained, an industry of strategic importance may be at risk with loss of employment and inevitable social unrest. It is not an exaggeration to say the exacerbated gap between rich and poor, already unacceptable, may threaten our democracy.

It is common sense and well-documented by research that money spent in advance on a principled response to natural catastrophe – including clear qualifications for taxpayer assistance, a socially just funding mechanism and an appropriate governance structure – is many times more cost effective than discretionary government spending in the aftermath.

What we are facing now will not be solved by the market. Private insurance may still have a role if local insurance players were to step up, but there’s no sign of that. Central government must also step up by providing the market with fundamental information on which it can make informed decisions. For example, what are the criteria for red-zoning, what restrictions will the law place on new building, what is to be done with those dwellings built when flooding was not the threat it is now, and should distinctions be made between those who were aware of potential risk if they bought after a property had been or was likely to be affected by floods?

Risk-based insurance premiums would keep our homes safer
NZ’s fatally flawed climate change strategy
* NZ should lead the climate change fight, not just pay reparation

In 1944 our elected representatives made a plan and established the Earthquake and War Damage Commission. The act by which it was created was principled and debated constructively. There was none of the relentless negativity and tiresome point-scoring of the present Opposition. The 1944 plan was to create a compensation scheme for damage to property caused by events beyond the control of the owners. It was not particularly sophisticated, because it only dealt with war and seismic hazards, but its scope would have been clear to every citizen. Which is in stark contrast to its descendant the Natural Hazards Insurance Act 2023, which is a masterpiece of convolution.

We are at the point where managed retreat is redundant. It is more like a rout 

I’ve outlined below just some of the relevant questions calling for urgent debate; questions that need answering and established as fundamental principles:

* Should state compensation for climate-change-induced events be available? The Natural Hazards Insurance Act only covers flood damage to land.

If so, is the Natural Hazards Insurance Commission (NHIC) the proper governance structure to deal with climate-change-induced events? (Or, if not, will the government continue to distribute aid on an ad hoc basis and thereby continuing to induce moral hazard?)

The NHIC is funded by the Natural Disaster Fund built by levies paid by New Zealanders as part of their home insurance policies along with investment returns from the fund. If the NHIC is the appropriate structure to provide aid or compensation or both for climate-change-induced events, should it be able to invest part or all of the levy offshore to diversify risk? 

Should the state continue to guarantee the liability of the NHIC?

Should the fund accumulated by the NHIC be under its control? Historically, the fund has been dipped into by successive ministers of finance in exactly the way foreseen by one parliamentarian as long ago as 1944 when the Earthquake and War Damage Bill was debated.

If the NHIC is the appropriate structure and compensation is extended to include climate-change-induced events, will the levy reflect differing degrees of risk to property concerned and their differing values?

Should access to NHIC assistance be means tested?

Is it still appropriate for cover to depend on the existence of fire insurance (included in standard homeowners’ policies)? If so, will state or market aid or both be available to those who cannot afford fire insurance?

Is it appropriate for cover to extend to properties other than primary dwellings?

Should pā buildings that are not residential be covered pursuant to the Te Tiriti partnership principle?

Should cover extend to commercial property?

Should renters receive state assistance from the fund?

Should the NHIC stop offering cover directly but act as a reinsurer of primary insurers on the local market? What, if any, should the role of the primary insurance market be? If it has a role, how will adverse selection be averted or minimised – which in this context is where insurance market players are allowed to cherry pick the good risks. This leaves those left with the bad risks in a ‘spiral of death’; international evidence shows it is often taxpayer-funded entities that are left with the bad risks.

Climate change is playing out before our eyes, and while scientists have been warning us for decades, we are still dithering about how to prepare and survive in the age of extreme, destructive weather events – fiddling while Rome burns. We are at the point where managed retreat is redundant. It is more like a rout. The above and other questions must be discussed and addressed, or the beloved kiwi must be displaced by the ostrich as our national bird, better reflecting our national temperament.

Chris Nicoll, Department of Commercial Law, Faculty of Business and Economics, University of Auckland, is co-author of 'Colinvaux' Law of Insurance in NZ'.

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