Insuring Against Your Potential Losses From Natural Hazards And Disasters

2005 has been a year in which natural disasters have been very much in the news.  At the time of such a disaster, insurance is probably the last thing on an affected person’s mind. In due course however, it becomes a very important issue.  We look at these disasters from an insurance perspective.

Following on from the Boxing Day tsunami, New Zealand has experienced flooding and landslips in Tauranga and the Bay of Plenty.  More recently from the US, we see the shocking aftermath of Hurricane Katrina.  Events such as these focus the spotlight on legal liability, as many of those who have suffered the devastating effects seek compensation and monetary assistance to put their lives back on track.

It was distressing to see on our local news that some property owners do not carry private insurance, so for them, watching their house slip down a hill is literally watching a large part of their lives slip away.

Following a natural hazard there are often questions as to why it happened and whether it was solely the effects of nature. In some instances property owners seek to establish a link to Council policies that have failed to require the discharge of stormwater into proper drains or which allow dwellings to be built on infill land.

While repeated natural disasters in an area are evidence of unsustainable development and suggest the pattern of land use should be altered by the particular regional and district Council to better reflect its natural conditions, the reality is, the buck stops with the property owner.

When considering the purchase of property, the purchaser needs to factor in whether or not insurance is available, and if so the cost to insure, which includes cover against natural hazards.

Natural hazards include:

• Erosion
• Falling debris, including soil, rock, snow
• Subsidence
• Inundation, including flooding, tidal effects and ponding
• Slippage

Depending on the location of the property concerned, the cost of insurance may well affect the feasibility of buying the property.  It is possible in some areas that the property owner will not be able to obtain insurance.  For example, the repeated damage resulting from flooding in Matata, and from hurricanes in the Florida area, has meant a number of private insurers simply refuse to cover any people owning property or carrying on businesses in those areas.

For those who already own a property in such an area, the re-sale value will be significantly diminished so the owner will be stuck with a property they cannot insure, probably cannot sell at a price they are willing to accept, and are at the mercy of the next hazard to strike.  To date this has not occurred widely in New Zealand, but in the Wellington earthquake-prone region, several insurance companies elect not to carry 100% cover on commercial buildings so the risk of cover is spread amongst two or three companies to cap the risk for each respective company.

So what can purchasers do?

The greater the occurrence of hazards, the greater the cost of insurance will be and the less the likelihood that losses can be recovered from other parties, such as Local Authorities.  Many Councils now carry information on potential hazards for specific properties. We recommend that purchasers do the following BEFORE committing to a purchase:

• Make enquiries with your local Council about any known or potential hazards for the property.
• Ask the vendor if they know of any such hazards.
• Ask neighbours of the property if they know of any such hazards.

Contact your insurance company/broker to find out whether the property is insurable and if so, the cost of the insurance. Purchasers need to be aware that the insurance market in NZ is a relatively small market, and future restrictions such as those described overseas could be imposed here.  The above steps will at the very least help to soften the devastating effects should such an event befall you and your property.