Insurance hasn’t been much of a factor in house prices in the past, but that may be set to change.
Rising sea levels and more extreme weather events have meant some insurance companies are switching to apply more risk-based pricing of their dwelling covers.
As premiums increase, higher-risk homes will become more expensive to own and potentially less attractive to buyers.
Previously, New Zealand homes have had more community-based pricing: riskier homes were effectively subsidising less risky homes.
Now, more homes are being assessed on their individual risks. Is the property on a flood plain or at risk of a landslip? Is it barely above sea level?
The owners of the highest-risk houses across New Zealand can expect to see annual premium increases of $1,000 or more.
Dwelling insurance premiums rose 216% between 2008 and 2017 and as they rise further for certain properties, insurance costs could become a factor in the value of your home.
Some homes may be harder to sell: in Auckland, for instance, there are 137,000 properties at risk of flooding.
Areas with coastal erosion issues and at risk of earthquakes are also likely to see rising premiums and reduced saleability.
“Climate change is a game changer,” says Tim Grafton, Chief Executive of the Insurance Council. “It increases the frequency of extreme weather events, and in New Zealand the most common one is flooding. Areas that currently flood from time to time will be flooded more frequently in the future, unless action is taken to protect those areas. And sea level rises cannot stopped.”
When you’re looking to buy a new property, Grafton says finding out about hazards and checking how much insurance will cost should be part of your due diligence.
The Land Information Memorandum (LIM) will identify known hazards, the council will likely have flood maps, “and you should also ask the vendor or agent whether the house has flooded in the past.
If it has, find out how often and how badly.” While you’ll be able to get insurance on almost any house, a riskier home will cost you more to insure, may contain exclusions like flood damage, or your excess may be high.
“Buying a house at or slightly above sea level in a flood prone area? That would not be a wise choice to make,” says Grafton, “and never buy a house unless you’ve already secured insurance.”