Though a government report on managed retreat won’t directly help those affected by this year’s extreme-weather events, at least some principles are being developed for a future national response

Opinion: Last week the Ministry for the Environment published the Report of the Expert Working Group on Managed Retreat, dealing with the practical, legal, and financial aspects of enabling managed retreat.

The objective of the report was to develop detailed design options for an equitable and enduring managed retreat system as one part of the development of the Climate Change Adaptation Bill. I’d put it on my recommended reading list. It doesn’t make for light reading but it is, at least, encouraging to see the Government taking climate change seriously.

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In March with Cyclone Gabrielle and subsequent rainfall events then front of mind, I expressed deep concerns about the lack of principle in Parliament’s response to climate change-induced natural disasters, in which I listed the questions that needed to be debated, with urgency. This report lays out many of the questions I had about compensation.

Though the report is not law and won’t directly help those tragically affected by this year’s extreme-weather events, it is a relief to see some principles are being developed for a future national response. The report may even be persuasive in dealing with immediate thorny questions about buyouts.

It deals with the principle, set down by the Environment Ministry, that design solutions should be “as simple as possible”, but it grafts on to that the need for “certainty, at least to the extent possible while preserving flexibility”.

This acknowledgement of the need for certainty is crucial because ad hoc responses by ministers provide no certainty, except for those affected by the particular event and then only if the promise of taxpayer largesse is in specific terms and there’s no change of government.

Citizens must know what to expect and how to plan for the future. Certainty, within the structure of legislation, goes a long way to dilute what is known as charity hazard – the cognitive heuristic (shortcut) that precautionary behaviour isn’t necessary because the taxpayer will save the day.

The generous buyouts after the Canterbury earthquakes encourage present victims of Cyclone Gabrielle to look back at this precedent and claim their right to the same treatment. They have no such right, but the precedent encourages people to think they do. The report denies this precedent but, with respect, that is naïve. So, let’s have no more precedents which encourage charity hazard and are a deception on a public who, through no fault of its own, hasn’t informed itself fully of the legal detail.

A guiding objective set by the Education Ministry for the report was “to reduce hardship due to the impacts of climate change”. The definition of ‘hardship’ needed to be teased out though, leading to possibly the most contentious passage in the report: “… we do not view preserving people’s existing wealth as equivalent to preventing hardship and we do not view the preservation of accumulated wealth as an objective of this programme of support”.

Compulsory insurance is always problematic when the insurer of last resort is the taxpayer because the taxpayer will end up with all the bad risks that the insurance market doesn’t want

How the report interprets hardship strongly influences its recommendations about which property owners should receive taxpayer assistance and its amount. Historically, the Earthquake Commission covered a range of properties, commercial and residential, but this was reduced over time to residential buildings for most natural hazard risks apart from flooding, a reduction consequent on national wealth not being as great as it was in the early days of the Earthquake Commission.

Residential buildings have been the priority of the commission for most of its history and the report is consistent in its recognition of the importance of such properties along with the imperative that New Zealanders need to be housed, especially after a major catastrophe, and given the social problems caused by housing deprivation. The (sometimes inconsistent) principles of reducing hardship in an equitable way and the maintenance of housing stock are bound to be problematic.

The report, in the context of managed retreat, does not recommend compensation for second homes such as baches and holiday homes which aren’t principal places of residence, but would receive assistance for the removal, demolition and clean-up costs.

These factors are bound to raise the question of means testing though leaving the door open to it in certain circumstances, the report rejects extensive reliance on this. The reasons against are the “high administrative and compliance costs” and the difficulties in determining the wealth of many households – aspects of which are echoed in objections to a Capital Gains Tax. There is also the somewhat sinister, if unspoken, inference that the rich will have the resources to mobilise opposition, no doubt having frequent recourse to the courts. In view of the widening gap between rich and poor, this hot potato should have been grasped with greater courage by the authors of the report.

It is hard to argue against placing principal residences at the top of the hierarchy of need. The report, wisely, also deals with other categories of building, recognising that relocated communities need commercial services and that the security of residential renters is of great importance.

The report recommends assistance for these categories on a sliding scale for which there is some scope for means testing. For commercial property owners to receive assistance, they would be required to re-establish their businesses in situ or at the relocated place. Separate streams of assistance may be available for business owners.

The striking point about this report is that it is a step forward in recognising the dynamics of communities, which is a new approach to natural hazard response: the Earthquake Commission has always dealt on a one-to-one basis founded on a statutory right to compensation but not, importantly, a contractual right.

The insurance sector also deals on a one-on-one basis, but always operates under contract law. Dealing with communities and individuals rather than individuals only seems essential in managing and planning for managed retreat. Lessons may be learned from the United States National Flood Insurance Programme in the way it has been designed to share the risk of flood losses through insurance involving individuals and communities.

The report also draws attention to the incongruity that Māori buildings are not covered because, as is often the case, they are not residences; the nature and governance of the fund supporting natural hazard response and, to some extent, the way insurance will operate over properties that are slated for relocation or buyout.

In this last respect, compulsory insurance is recommended to preserve our existing high levels of insurance as a nation and to protect the Crown’s interest in properties that will eventually come under its ownership. Compulsory insurance is always problematic when the insurer of last resort is the taxpayer because the taxpayer will end up with all the bad risks that the insurance market doesn’t want. This aspect will have to be considered carefully.

The report has been well thought out for the most part, and let’s hope that our politicians will pause their tiresome point scoring that we’ve witnessed in the run-up to the election, read this carefully and take this seriously, debating the principles and recommendations in the report like grown-ups.

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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