The increasing frequency of severe weather events, predicted rising sea levels and climate change are expected to have significant impacts on insurance for property owners in the future.
Homeowners with property located in higher risk areas can expect changes to the price, coverage and availability of insurance in the years ahead. Most insurers currently provide cover for all perils including flooding and natural disaster but may need to review what they are able to offer following continued weather events and predicted changes. Responses could include significant increases in premiums and excess levels, restrictions in the cover provided such as not covering flood damage in a high-risk area and even not offering cover if the risk is deemed too high. Insurers also rely on reinsurance to cover their risk and will be guided by the availability of cover from their international reinsurers.
If insurance becomes too restrictive or expensive, some homeowners are likely to cancel cover, effectively self-insuring and taking all the risk themselves. This presents a significant financial risk to homeowners and their communities. If there is a bank loan secured against the property this will not be an option as the bank will require comprehensive insurance cover to be held. For banks to continue to provide loans against properties in higher risk areas where comprehensive insurance may not be available and for homeowners to be able to buy and sell these properties may require the Government to consider expansion of the EQC scheme coverage to absorb some of these risks.
A major issue for Marlborough properties arises from being situated in a higher risk earthquake zone. This means some insurers are already reluctant to offer cover in Marlborough even for existing clients. Those that are prepared to offer cover are likely to require additional underwriting information, have higher premiums and may impose conditions on the available cover.
Our advice?
We recommend buyers obtain approval for house insurance cover before making an offer on a property to avoid the situation where an offer has been accepted and they are then unable to insure the property. Those purchasing properties in higher risk areas - as examples; close to the sea, on the side of a hill, in a gully or near a river or stream are recommended to complete extra due diligence before purchasing and consider what could happen to the property following a period of climate change.
Please contact us if you have any questions regarding house insurance cover.