Flood insurance presents challenges for New Zealanders

The availability of insurance to cover flooding is a growing concern. The Government and local councils have recently introduced land zoning for areas affected by the 2023 flooding events, with significant implications for homeowners in flood-prone zones.

Most insurers are now refusing to consider new cover for homeowners located in the highest risk categories.

While insurers may look at renewing existing policies, these customers can expect more stringent underwriting and restrictive policy terms and conditions.

Insurers are also considering risk-based pricing for commercial businesses. This means that an insurer will examine each risk on its own merit and consider factors such as past loss experience and susceptibility to future floods.

Varying flood definitions

For those with higher flood risks, insurers are imposing special terms on material damage and business interruption policies. These generally relate to:

• A higher excess for flood claims
• A sub-limit for the amount of flood cover available
• A blanket exclusion for flood cover

There are generally two main types of flood: pluvial, where flooding results from an accumulation or run-off of surface water from rain and fluvial, where flooding results from water escaping from a river, lake, reservoir or other natural watercourse.

There is currently no standard definition of 'flood' across insurers in New Zealand. Some insurers refer only to fluvial, some to both fluvial and pluvial and we have seen some examples where sea surge or escape from drainage systems is included in the definition.

What this means for our clients

If special conditions are included in a flood-related policy, it is important to understand the implications of the flood definitions that apply.

The Insurance Council of New Zealand is understood to be working with insurers to develop a consistent definition.

In the meantime, your broker is best placed to explain the implications of any special terms that may apply to your policy.