Flood risk has to be factored into premiums for coastal homes - insurer

Coastal Wellington
Do your research before buying a coastal property Photo credit: Getty

Having a sea view might be the Kiwi dream, but climate change poses a real threat to coastal property, and buyers must understand the risks before they purchase their dream house. 

Sacha Cowlrick, consumer insurance at Vero, confirmed that as a result of climate change, low-lying coastal areas are already experiencing issues from 'coastal inundation', where houses and land may be flooded by the sea, particularly during storms. 

"We have strict underwriting and price criteria in place to ensure that if we're providing insurance to these properties, the premiums [price] reflects the increased risk."

As the reason for taking out insurance is to have the option to make a claim if the unexpected happens, insurers must continually assess the possible physical and financial impacts of climate change, with the option to decline cover if the risk is too great.

"We encourage anyone [considering buying] in a coastal area to make sure that they understand the risk of flood or sea water damage, what work is being done by their council to mitigate it and to explore their insurance options before committing themselves to buying," Cowlrick said.

Chris Chainey, chief financial officer at Earthquake Commission (EQC), said that all insurance that includes fire cover for residential property includes a levy for earthquake cover, protecting the property for a range of natural disasters.

"Earthquake cover is the EQC's natural disaster insurance scheme which insures [a] residential building against physical loss or damage from an earthquake, [as well as] natural landslip, volcanic eruption, hydrothermal activity and tsunami."

Additionally, earthquake cover insures the land against storm and flood damage.

"The EQC levy is calculated at a standard rate and is the same throughout New Zealand," Chainey added. 

The Insurance Council of New Zealand confirmed that wind and flooding in the West Coast in March cost the industry $4.09m, including 67 house and contents insurance claims under which $398,776 was paid.

Over the last two years, the largest cost was the severe weather and tornadoes in April 2018, costing $74.3m, including 12,503 house and contents insurance claims totalling $46.2m.

Following the Canterbury earthquakes, most residential insurers, including Vero moved to a capped sum insured, making homeowners responsible for ensuring that the cost to rebuild the home is accurately reflected in the insurance amount.   

For buyers looking at coastal property, given the increased risk and the move towards risk-based pricing, it's well worth understanding the risks - and talking to an insurer - before committing to paper.