Growing numbers of New Zealanders are abandoning traditional indemnity insurance due to rising costs, prompting climate experts to suggest that alternative insurance models could improve uptake.
Intergovernmental Panel on Climate Change Working Group II vice chair Adelle Thomas said specifically targeted forms of insurance, such as microinsurance and parametric insurance, could help address declining coverage.
According to Thomas, people often obtain insurance initially when they have a mortgage on their home, but once that mortgage is paid off to a certain point, many choose to opt out because it becomes too expensive. Thomas made the remarks during a panel discussion at the Adaptations Futures Conference 2025 in Christchurch last week.
Microinsurance involves people on lower incomes making regular premium payments proportionate to the likelihood of specific events and the cost of risks involved.
Parametric insurance pays a set amount based on the magnitude of an event rather than the size of the losses, unlike traditional indemnity policies, a report from Interest.co.nz noted.
Thomas, who has researched insurance uptake in the Caribbean, said smallholder farmers were more interested in insurance if they could be guaranteed automatic payment rather than waiting for claims adjusters to assess damages.
“That’s where parametric insurance comes in, because once a hurricane or something reaches a certain strength, you automatically get paid out,” Thomas said.
She said explaining these products in practical terms was essential so people could understand their benefits.
Thomas cited the example of an insurance company partnering with a local fishing organization to help fishermen understand that purchasing insurance could provide income support if a hurricane prevented them from fishing for weeks.
The insurance challenges extend beyond New Zealand. Thomas said less than 10% of private homes in The Bahamas were covered by insurance following Hurricane Dorian in 2019.
Insurance Council of New Zealand chief executive Kris Faafoi said New Zealand and the Pacific were starting to see parametric insurance emerge.
“I think it essentially works when there’s a type of event and a severity of event – it just triggers a payment, and there’s a certainty of the payment happening,” Faafoi said.
He said going through a settlement process was not what was needed in urgent situations.
Faafoi added that iwi were interested in having conversations with insurers about parametric cover, particularly in tribal areas where traditional insurance was not an option.
Thomas emphasized that insurance alone could not solve climate-related challenges.
“We can’t just rely on insurance to solve our problems,” Thomas said.
She outlined a risk management approach with four components: risk assessment, risk reduction through adaptation and mitigation, risk transfer through insurance, and risk retention.
Thomas noted these were four big pieces of a puzzle, and only focusing on insurance meant missing the whole picture.
She added that governments needed to support small island states with funding for adaptation measures that protect communities and make insurance affordable and feasible.
Te Herenga Waka - Victoria University of Wellington professor Rebecca Bednarek noted there was potential for expanding public pooling mechanisms and community-based insurance models.
How can insurers make alternative coverage models more accessible? Share your insights in the comments below.
