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New Zealand’s housing market is facing a new threat by way of climate change. As floods, erosion, and landslips escalate, insurers are red lining thousands of properties, leaving some homeowners with soaring premiums, or worst-case scenario, with no cover at all.
One such insurer, Tower Insurance has led a shift to risk based pricing, using advanced climate models to assess individual properties. For those properties which are considered to be in high risk zones, this change means that homeowners might face steep hikes in premiums, or exclusions such as flood cover from their insurance, or worst-case scenario outright denial of insurance cover. Added to this, risk-based pricing incorporates climate change impacts on an annual basis rather than long-term projections as has been the case in the past. So, while a property that may have been insurable in previous years, is no longer guaranteed to be insurable into the future.
For those that find themselves in the unfortunate position of being uninsurable, those homeowners risk breaching the terms of their mortgage lending agreement. This is because banks require properties with bank lending to remain insured for the term of the lending to protect the lender’s security interest in the property. We also mention that lenders have the right to request proof of house insurance and may ask to see a copy at any time to ensure ongoing compliance with that requirement.
For many buyers, particularly first-home buyers it’s easy to overlook the importance of insurance in a sale and purchase contract. The same risk applies to cash-unconditional buyers, or those competing in a heated vendor market. Insurance issues often only surface once an agreement is unconditional, or closer to settlement. At that stage, buyers are legally bound to complete settlement. With no insurance, lender’s will not release mortgage funds to settle, making this both a significant risk and a critical warning for buyers to be proactively inquiring into a property’s insurance status.
Buyers are therefore strongly encouraged to take an active role in checking and reviewing hazard maps to identify potential risks associated with a property, in addition to also checking the property’s LIM report. As updated flood maps and erosion studies are now commonly incorporated into LIM reports, there is also a flip side to this which is that those disclosures may also influence not just insurance outcomes, but also a property’s marketability, and in some cases the sale price achieved by a vendor.
For anyone wanting to assess whether a property could be affected from an insurance perspective, the NCH provides a Natural Hazards Portal with access to council resources and other GIS mapping tools. Buyers can also self-help and should as part of due diligence into a property ask the real estate agent holding the listing, direct questions about any known hazards, along with details about the current insurer and insurance premiums. Additionally, a prudent buyer should also consult an independent fire and general insurance broker, who can help provide guidance and highlight potential risks associated with a prospective property before committing to a sale and purchase contract.
Concerningly, a recent 2025 NIWA report has found that 411,000 buildings worth $135 billion are vulnerable to river flooding during extreme weather events, with another 50,000 at risk from coastal inundation. As a result, Climate Change Minister, Simon Watts has recently unveiled the National Adaptation Framework, aimed at giving communities clearer information about climate risks. The plan includes nationwide flood maps, with the first release due in 2027, along with new laws requiring local councils to deliver adaptation plans for the most vulnerable areas.
Buyers and sellers should remain mindful and cautious of recent risk-based pricing changes and carefully assess for themselves any known and possible risks of a property, not just from an insurance perspective, but also from a property remediation or resale perspective so they are fully informed ahead of time.
To help mitigate some of the insurance risk for buyers it is especially important to ensure that an insurance condition clause is included alongside the standard conditions of any sale and purchase agreement. This clause provides protection by releasing the purchaser from the legal obligation to complete settlement if insurance cannot be obtained. It also works in tandem with the finance condition, since finance cannot be secured without insurance.
In closing, it is highly likely that other insurers will follow Tower’s lead and adopt more risk-based pricing models in the very near future. For this reason, including an insurance condition clause helps provide valuable peace of mind in today’s ever shifting property insurance market.
If you have concerns about your current property, or if you are a buyer considering purchasing a property, feel free to get in touch with our property team who are able to provide advice and assistance in this area.
