New Zealand's insurance crisis: the decade of critical risk and who should pay

New Zealand's insurance sector is grappling with a problem too large for insurers or government to solve alone: a decade of critical natural hazard risk that is already reshaping what property owners pay to protect their homes and businesses.

Speaking at the Insurance Council of New Zealand conference in Auckland, Insurance Council of Australia general manager Alix Pearce said New Zealand and Australia were behind other markets when it came to investing in resilience against natural hazards. Having visited six countries and spoken with 120 decision makers, she said three themes emerged repeatedly.

"Other markets are way ahead of the curve in comparison to New Zealand and Australia," Pearce said. "We absolutely can find new ways of spreading risk, and some of those ways are really effective and some offer cautionary tales."

The third theme was blunt: stop building in places that will flood, burn, or face other foreseeable hazards. Land-use planning was identified as the single most impactful policy lever available to governments.

Gisborne Mayor Rehette Stoltz, also on the panel, said local councils were operating with funding mechanisms that were not fit for purpose. "We all know that," she said. "The discussions need to be had. There is a clear distinction: who pays for what and who is responsible for what, especially in smaller communities where there is a small rating base."

The levy question

ICNZ chief executive Kris Faafoi said the industry was proposing to replace the current Fire and Emergency levy — a narrow charge on insured properties — with a broader Community Protection Levy. According to ICNZ, FENZ currently raises around $800 million annually through the levy, and the proposal would redirect $600–700 million a year into resilience and risk reduction while allowing FENZ to move to Crown funding. The intent is to fund a wider range of resilience and mitigation projects beyond fire response alone, including flood defences, earthquake strengthening, and other community-scale infrastructure.

"The main issue is that we need to start answering that question," Faafoi said. "Everyone seems to be ignoring that question. Politicians might come and rubbish the levy proposal, but okay, then what is the alternative? Because that is the conversation that actually needs to happen for the long-term interests of communities."

The current Fire and Emergency levy raises a relatively modest amount compared with the scale of investment needed. The proposed Community Protection Levy would spread costs more broadly across property owners and potentially other parties with exposure to natural hazard risk.

Why it matters for property owners

For individual homeowners, the stakes are direct. Insurers globally are becoming more selective about which properties they will cover and at what price. When a community invests in resilience — better flood management, firebreaks, seismic strengthening — insurance penetration increases and costs tend to fall. When that investment does not happen, the burden falls on individual property owners, either through higher premiums or, in extreme cases, the withdrawal of cover altogether.

Pearce noted that in global markets, every percentage point of increase in insurance penetration correlated with faster economic recovery after natural disasters. Insured communities rebuild faster because households and businesses have the capital to do so. Uninsured or underinsured communities rely on government relief, which is slower and less predictable.

The insurance levy debate is ultimately a question about who bears the cost of known, manageable risk — individual property owners, insurers, local councils, or the Crown. All have a stake. None currently has a complete answer.

This article is for general information only and is not personalised financial advice. Seek advice from a licensed financial adviser (registered on the FSPR) for guidance specific to your situation.