LawNews staff
The government’s failure to make difficult policy decisions on key climate change issues – particularly the thorny question of who foots the bill when disaster strikes – has left insurers uncertain about how to manage climate-related risk and homeowners expecting taxpayer-funded bailouts to cover damage from extreme weather, industry experts say.
LawNews reported last year on insurers quietly retreating from high-risk areas, leaving homeowners and lawyers in the dark about which properties could soon become uninsurable. In 2026, the problem persists, and government policy still leaves critical questions unresolved.
This lack of clarity on climate policy, combined with opaque messages from insurers. Is driving a moral hazard in which homeowners who buy in climate-affected zones underestimate the risk of loss and overestimate the likelihood of government buyouts.
Policy gaps leave homeowners and lawyers with incomplete hazard data, unclear rules on managed retreat, and uncertainty over who pays.
Layers of climate adaptation
New Zealand’s climate adaptation system is slowly taking shape through a mix of policy and legislative changes. Key updates include the National Adaptation Framework, the government’s overarching strategy for managing climate change risks, which follows the 2022 National Adaptation Plan, the National Policy Statement for Natural Hazards 2025, and Resource Management Act amendments that allow councils to refuse consent for high-risk developments.
The Framework, released in October, has four pillars: (i) information sharing, (ii) roles and responsibilities, (iii) risk reduction, and (iv) cost-sharing pre- and post-event.
It’s a step forward after lengthy delays, and the government has announced 16 initial actions, some of which will help mitigate risk for home buyers. They include improving access to consistent national hazard data and developing a national flood map [landslip currently excluded]. The goal is to unify regional and national flood data into a single source that the public can access.
Moral hazard
However, the elephant in the room is the pillar iv cost sharing pre- and post-event, which includes buyouts. Lawyers for Climate Action executive director Jessica Palareit told LawNews that the government has deferred action on this crucial issue: “Who pays, when, and how? That’s arguably the hardest and most important question, particularly as we’re increasingly entering the situation where insurers are not insuring certain postcodes due to flood exposure risks.”
Not addressing that question delays the entire climate mitigation programme and can leave people with unrealistic expectations if catastrophe strikes. Somewhere in the back of their minds, many people believe their homes will be bought out by council or government. Past ad hoc buyouts, however, prompted the Independent Reference Group that contributed to the National Adaptation Plan to recommend phasing out future buyouts.
Joanna Pidgeon
The expectation of a buyout is a moral hazard, Joanna Pidgeon of Pidgeon Judd told LawNews. “Bailouts can encourage people to build in or stay in dangerous locations.”
Kris Faafoi
Insurers also need clarity on managed retreat. Kris Faafoi, chief executive of the Insurance Council of New Zealand, said clearer government policy on adaptation and managed retreat is essential for the insurance market. “Insurers need certainty about how risk will be managed over time so they can continue to provide cover where it is viable.”
Insurance retreat: the hidden risk
LawNews asked the country’s leading insurers if they had at any point in the past two years restricted or paused issuing new home or landlord insurance policies anywhere in New Zealand for climate hazards. We also asked whether for existing policies in these areas, they had made any changes to coverage terms, premiums, or renewal conditions as a result of risk reassessment.
The answers largely skirted the questions. AA Insurance sent a fact sheet from its recent release on pausing cover. IAG said it had not introduced any blanket exclusions or withdrawn insurance for properties, but it was offering more granular underwriting, pricing at-risk properties according to their risk. Tower said, “Looking ahead, climate and natural hazard risks are evolving, and this is likely to result in increasing differentiation of risk and pricing at a property level across New Zealand.”
Politically unpalatable
Preparedness is very expensive, which no government likes. And no government wants to tell homeowners who have just suffered a catastrophic event that they aren’t getting a buyout.
Increasingly frequent climate events make this question of who pays all the more urgent. “Property owners will ultimately bear the cost if there are no other mechanisms to assist,” said Pidgeon.
LawNews put the question to Labour climate change spokesperson Deborah Russell.
Deborah Russell
She pointed to the Independent Reference Group recommendation to phase out the government acting as insurer of last resort via buyouts. Russell said the government had a responsibility to house people, but that responsibility may be limited, much like social housing.
She said past ad hoc buyouts following extreme events highlighted the need for a more principled approach:
“Perhaps we will need some subsidies from government, but they may well be very modest.” She questioned huge payouts for people in expensive homes compared to modest homes in flood-prone areas as an equity issue.
When should Kiwis become climate aware?
Russell suggested a line should be drawn in the sand after which homebuyers must be climate aware. “There’s a real conundrum here because there are people who bought properties in good faith 20 or 30 years ago in what we now know are disaster-prone areas. They may now find their property unsaleable, and yet they did not make any bad decisions.”
Minister of Climate Change Simon Watts refused an interview, but in a written response said Cabinet had agreed a high-level direction on buyouts.
Simon Watts
“This means moving away from a default reliance on buyouts after major events for homeowners facing high and growing risk. This approach blunts incentives for people to manage and reduce their risks to natural hazards and climate change.” However, the government retained discretion to provide support for genuine hardship, including considering buyouts.
“Further decisions on how New Zealand moves towards this future state will be worked through in the next term of government. The recommendations of the Independent Reference Group and the cross-party adaptation inquiry will continue to be considered.”
‘We’re unable to offer cover’
Not all developments are government-led. Climate change itself is accelerating. As a Spinoff headline put it: Goodbye, classic Kiwi summer. Hello, classic Kiwi climate change shitter. “We’ve had eight fatalities in New Zealand this year due to extreme weather events worsened by climate change,” Palareit said.
Another development came in the form of a press release from AA Insurance. It announced a “temporary postcode pause” on new policies in Westport and other areas, amounting to 0.7% of postcodes nationwide. Existing customers were not affected. The announcement was small in scope but significant in setting a precedent and signalling to the public that not all homes will be insurable going forward.
Limiting risk is a normal part of how insurers operate. Tower has quietly stopped offering cover to many of the highest-risk homes. Buyers in flood zones only get as far as entering their address in Tower’s website before receiving the message:: “We’re sorry. The details you’ve given mean that we’re currently unable to offer you cover.” Tower said it still offers cover for lower-risk properties in high-risk areas.
Faafoi said insurers are using better hazard data and modelling. “That means premiums and availability will increasingly reflect the specific risk of a property.”
Ripple effects
“The ripple effects of this are massive,” said Palareit. “When insurance becomes unavailable, banks restrict or withdraw lending, property values fall. Over 65% of New Zealand’s population and major infrastructure sits within five kilometres of the coast. We’re talking about significant numbers of people and property values likely to be affected by climate change.”
Palareit said there needs to be discussion about requiring insurers to be transparent when they retreat from areas, whether by refusing policies or hiking premiums. “That may need a law change, so we have a full picture of all areas where insurance is being restricted or withdrawn.” Watts told LawNews this was not being considered.
Faafoi opposed publicly disclosing this information, citing commercial decisions by individual insurers. He added that their views on individual properties can evolve as the data does.
The lawyer’s role
Lawyers can include insurance clauses in sale-and-purchase agreements. This does not guarantee a home will remain insurable for the next 25 to 30 years.
Vendors and agents have disclosure obligations, and lawyers should search the Natural Hazards Register [formerly EQC] to identify historic settled claims, Pidgeon said.
Changes in the Local Government Official Information and Meetings Amendment Act 2023 require LIMs to include comprehensive information on all known natural hazards, potential hazards, and climate impacts, Pidgeon told LawNews.
However, council information is not always up to date, and plans can be outdated. Pidgeon highlighted a news article from last month where a young West Auckland family couldn’t sell their Kūmeu home because the LIM showed the property was on a floodplain even though the council knew the issue had been fixed and the data used in the LIM was a decade old.
Not just adaptation – mitigation matters
The final word goes to Palareit: “It’s really important when we talk about adaptation not to take our eye off the mitigation as well. Recent government decisions, weakening methane targets, reducing Climate Change Commission oversight, and investing $2.7 billion in an LNG import facility instead of renewables, show backtracking. Otherwise, we’re just funding the ambulance at the bottom of the cliff.”
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