National Adaptation Framework – Insurance Risk

Background

Changes are coming following New Zealand’s increased risk profile in the eyes of internationally based insurance companies, due to the rising frequency of natural disasters, climate change risks and related damages.

We are now seeing the flow-on effect with the Government’s new National Adaptation Framework (NAF) and is expected to roll out over the next two years.

The NAF has been adopted by way of an amendment to the Climate Change Response Act 2002 and is the Government’s effort to reduce New Zealand’s risk profile and outline the responsibilities of local and national Government in managing and responding to natural hazards.  

Impact

The major effect on homeowners and potential buyers is the Government’s withdrawal from its role as a safety net in the event of natural hazards and places the burden back on homeowners and potential buyers to arrange proper insurance and manage their own climate risks. The Government will no longer be buying out climate damaged homes, when insurers will not cover the damage. Only in cases of extreme hardship, may exceptions apply.

Although always important, the Government will expect any homeowner or prospective buyer to evaluate the risk profile of their property, particularly, a property’s flooding, storm and coastal risks using the Local Council’s new maps, which are expected to roll-out in 2026 to 2027.

Buyer’s will be expected to purchase high risk properties at their own risk and not rely on the Government as a final backstop.  

Practice

What does this mean in practice? Although speculatory, we can reasonably foresee that private insurers will be more analytical over properties they choose to insure.

There is no legal requirement for an insurer to offer cover, so this creates a buyer beware environment when evaluating a potential purchase and the ability for the property to be insured.

Buyers may now see it as a necessity to include an insurance condition within any sale and purchase agreement and this will be a pivotal part of the due diligence process. The expectation of insurance for any property at a reasonable premium may no longer be a given and the cost of the premium will become a deciding factor on whether a purchaser proceeds.

Your solicitor will aid you in identifying the key risks from the climate change factors and where they believe disclosures should be made to your insurance company. These will become evident in their review of the Land Information Memorandum and further review of Council documents, such as the new maps referenced previously.

In addition, existing homeowners living in areas that are classified as high risk can also expect their property’s to be reevaluated in the coming years and potentially have their premiums increase to account for the insurers risk.

If you need any help with purchasing a new property or navigating the upcoming insurance landscape, please contact a member of our property team.