New Zealand insurance professionals are watching the government’s replacement of the Resource Management Act 1991 (RMA) as IAG New Zealand signals that current drafting on natural hazard management could influence whether future developments are insurable and at what cost.
The insurer has told Parliament that ambiguity in the Planning Bill’s treatment of “proportionate” and risk-based planning may affect how risk is assessed in land-use decisions, with potential consequences for underwriting appetite, pricing structures, and the operation of insurance and lending markets.
Appearing before Parliament’s Environment Committee, IAG New Zealand executive manager of corporate relations Bryce Davies said parts of the Planning Bill’s goal-setting provisions require clearer connection to risk-based decision-making if the framework is to align with long-term insurability. “The consequence of getting that wrong is development that can’t be insured,” Davies told MPs, as reported by Interest.co.nz. Davies was joined at the hearing by government relations manager Andrew Saunders as the insurer outlined its submission on the reform package.
IAG NZ’s submission centres on a goal in the Planning Bill that aims “to safeguard communities from the effects of natural hazards through proportionate and risk-based planning.” Saunders told the committee that, as drafted, the word “proportionate” appears to stand apart from the concept of risk-based planning rather than being explicitly tied to the level of hazard. “We think it is supposed to be ‘proportionate to the risk,’ but it doesn’t quite necessarily say that,” Saunders said. He said IAG had recommended alternative wording to better reflect that linkage. “Really, it’s just the idea that it needs to be proportionate to the risk,” he said.
Davies told MPs that while the bill contains a range of provisions relevant to planning for hazards, it does not expressly require decision-makers to reach risk outcomes that remain compatible with ongoing insurability. He also stressed that the insurer is not advocating for the removal of all exposure to natural hazards. “We’re not sitting here saying we should be aiming to eliminate all risk. That’s a fool’s errand. We’re never going to achieve that but there are sensible, rational, economically wise choices that we can make and want councils to make in a consistent way across this country to … kind of bend the curve … on natural hazard risk. As we grow, we create more risk, right? It’s inevitable but what we should be doing is proportionally creating less risk over time. We should be making better decisions over time and we believe that needs a lot more kind of much more intentional approach and that intentionality needs to be part of this bill,” Davies said.
Committee chair and National MP Catherine Wedd asked how the current wording around “proportionate” and “risk-based planning” might translate into outcomes on the ground. Davies said that if expectations for managing hazard risk are unclear, developments may proceed in locations or forms that insurers are unwilling to cover, or where premiums place pressure on households and businesses. “The consequence of getting that wrong is development that can’t be insured. Or it becomes really expensive and it interrupts people’s ability to service their lives,” Davies said. He referred to “all the classic cascading impacts of expensive insurance and insurance that is not available … flows through into banking and flows through into people’s economic wellbeing.”
Davies said that while individual-site decisions are one concern, the greater risk arises if planning settings allow higher levels of exposure to accumulate at a community or regional scale. “If you start to get that wrong at an area-wide level for whole communities, that has a very profound effect and a cascading effect over the long term. Especially when we’re making choices here under this act that are going to last for a very, very long time,” he said. These developments could influence risk appetite, management of accumulation across portfolios, capital deployment, and the treatment of locations with elevated exposure to flooding, coastal processes, or other natural perils.
Davies said the performance of the new resource management framework in relation to natural hazard exposure, and its interaction with insurance markets, will depend on a set of system-wide design features. He said the bill’s success requires “clear system goals, clear national direction about what is an acceptable level of risk, consistent high quality hazard data and models, and sufficient capability to be able to implement all of them.”
The government’s reform programme will replace the RMA with two statutes: the Planning Bill, which will establish the framework for land-use planning, development and associated regulation; and the Natural Environment Bill, which will set the framework for the use, protection, and enhancement of natural resources. Under the proposed system, central and local government will set binding environmental limits, use national instruments to guide decision-making, and develop combined regional plans that integrate spatial planning, land use, and natural environment management.
Government statements indicate objectives that include enabling additional infrastructure and housing, providing for primary production and maintaining key environmental outcomes, alongside process changes intended to speed up and standardise consenting. The final wording around “proportionate” responses, risk-based planning, and acceptable levels of natural hazard risk will be central to how new development is assessed, priced, and underwritten, and to whether overall exposure is reduced or embedded as the new planning framework is implemented across New Zealand’s regions.
