Victims of Floods Who Were Aware of the Risk Could Lose Compensation
A bipartisan NZ Select Committee report has emphasized that the government cannot continue to provide financial assistance to individuals who choose to reside in flood-prone areas.
Due to the Natural Hazards Commission (NHC) of New Zealand struggling to replenish its reserves following significant earthquakes, ministers have indicated that homeowners residing in known flood-prone zones may no longer be eligible for up to $300,000 (US$187,000) in post-disaster payouts.
New Zealand stands out as one of the few nations with government-funded residential land insurance. The fund originated in 1945 under the management of the Earthquake and War Damage Commission.
By 2010, the fund grew to over $6 billion, but after the Canterbury and Kaikōura earthquakes in 2010 and 2016 respectively, the entire fund was exhausted to settle earthquake-related claims.
Despite the NHC purchasing reinsurance for risk coverage, it still faces substantial payouts exceeding $2 billion per disaster event.
With an inactive economy and a current account deficit of $30.6 billion last year, Parliament raises concerns about sustaining the scheme.
Cancellation would result in soaring insurance premiums, evident from a 24.6% increase in the year leading up to March, causing significant public outrage.
Related Stories
Focus has shifted toward individuals residing in flood-prone regions, many of whom purchased properties before the area’s designation.
Huge Numbers at Risk
Research from NIWA and the University of Auckland in 2022 identified 441,384 buildings at risk of flooding, with a total value of $218 billion, constituting 12% of New Zealand’s housing value.
The Finance and Expenditure Committee, comprised of members from all Parliamentary parties, suggests that individuals should manage their natural hazard risks. They address that socializing costs for well-known risks diminishes as information becomes more available over time.
Committee chair National MP Stuart Smith stressed the government’s inability to sustainably support flood-impacted residents in recurring disaster events.
Projections indicate escalating costs from events like Cyclone Gabrielle and Hale, emphasizing the need for preventative actions.
Could Become Financially Unsustainable: Treasury
Insurers note increased claim payments, with a significant portion of damages left uninsured, shifting financial burdens to taxpayers or property owners. Treasury warns that continuous bailouts could become financially unviable without risk mitigation.
Smith emphasizes the need to fortify vulnerable areas and reconsider construction in unsuitable locations.
