For decades, climate change discussions have been dominated by what we can do to stop it, but there is a growing focus on how we live with its consequences.
In recent years the conversation about climate change has been growing larger and louder, with everyone from activist investors to right-leaning politicians joining in earnest. One of the most powerful voices is also one of society’s more conservative institutions: the insurance industry. Bryce Davies, head of corporate relations at IAG, the corporate parent of some of New Zealand’s biggest insurers, including NZI, AMI and State, says that a single word has propelled insurers to the political and economic frontline of climate change.
“Nothing focuses people’s minds more than when a bank or insurer says ‘no’,” said Davies. This is because insurance and banking act as a platform underpinning a vast amount of New Zealand’s economy, particularly our housing and business sectors. Anyone who buys a house or operates a business and needs a loan to do so is forced to interact with a bank for the debt, and an insurer so that the bank can be confident it will be repaid in the event of misfortune.
For decades, the main people who said no to those wanting to build things were local councils. But, as Davies said, we’re moving into an era when banks and insurers will take that role too. And not because they don’t believe in the customer’s ability to repay the loan – but because what is being proposed will be impacted by climate change.
Someone wanting to build a warehouse on land likely to be more frequently flooded will be told they are too risky for a mortgage. Another wanting to build a grand extension on their low-lying coastal property will be told that erosion makes their vision uninsurable (and therefore the bank won’t loan them the money either). It moves the front of climate change from the complex and theoretical realm of mitigation, to the hard and hyperlocal realities of adaptation.
The adaptation era
“This year is mitigation year,” said climate change minister James Shaw, speaking after Davies at the IAG event. “Next year will be adaptation year.” Mitigation and adaptation are the two planks of any serious response to climate change. Mitigation means doing what you can to decrease emissions and thereby minimise climate change. Adaptation means a clear-eyed forecast of what is likely to happen, and changing your behaviour and planning based on those forecasts.
“Adaptation hasn’t had as much attention on it yet as the mitigation side for obvious reasons,” Shaw said. For some years, any discussion of adaptation was politically dicey. Wrongly framed, it could have an air of fatalism – as if nothing could be done, so we may as well just hunker down and live with the consequences. By comparison, mitigation, with its emphasis on actions which could and should be done right now – by individuals, businesses and governments – to change their behaviour and thereby the future, was a far more attractive and urgent discussion.
Yet adaptation is having a moment, not least because, done in a grown-up and sober way, it has the ability to impact mitigation too.
Shaw and Davies were speaking in a conference room at the Park Hyatt, a new and very luxe five-star hotel in the Wynyard Quarter of downtown Auckland. Behind the speakers were floor-to-ceiling windows, with the Viaduct splayed out behind them. It served as a useful visual metaphor for Shaw’s point.
“This room, with its beautiful view of the waterfront right there,” Shaw said, gesturing behind him. “It gives a sense of scale just looking around at a place like this. What does 10 centimetres of sea-level rise look like? What does a metre of sea-level rise look like? Or 20 metres? I’m not going to have to worry about that for a while, but you need to start factoring that in for long-lived assets like cities and ports.”
The other thing about adaptation is that it explicitly acknowledges present reality. New Zealand’s average temperature has already risen by more than one degree over the last century. The consequences of climate change are clear locally, with 2020 the worst year on record for weather-related insurance claims, and internationally, in the horrific wildfires in Australia and California. Almost no nation is on the path to meet its Paris commitments, and thus we need to probabilistically estimate the likelihood of various scenarios occurring, and plan for life within the most likely limits of those outcomes. Insurance relies heavily on actuaries, who use statistical analysis to try and figure out how likely an event is to happen. Hence this industry being very well-placed to play a role in this discussion.
Who pays the bill?
As climate scientist James Renwick has explained, with what we know of likely future sea-level rise a “one-in-100-year coastal flood [would arrive] every few months”. This means “roads, properties and all kinds of built infrastructure within 200 metres of the current coastline would be vulnerable to inundation and damage”. As The Spinoff’s 100 Year Forecast series showed, currently 675,000 New Zealanders live in flood-prone areas, with Canterbury particularly exposed. Constant flooding could render many such areas largely uninhabitable within a timeframe measured in decades – with hundreds of billions of dollars in housing and other infrastructure in the flood zone.
The event Davies and Shaw spoke at was staged for the release of IAG’s annual Ipsos survey of public attitudes toward climate change. It revealed that four out of five of us expect to be personally impacted by climate change, the same number who believe the government to be responsible for taking the required action. Four in five of us also believe the government should build infrastructure and fund science which reduces the impact of climate change. Similar numbers showed desire for business to get to work on its responses to climate change too.
The survey essentially showed that among a very large majority of our population, there is no real debate about the reality of climate change, nor of the necessity of doing something about it. Mitigation and adaptation. The cost of that will inevitably tower over the tens of billions spent responding to Covid. And who pays that bill remains very much in dispute.
When asked whether insurance premiums should rise, or banks should refuse loans due to climate change, the number in favour plummeted from four in five to closer to two in five. When asked whether taxes should rise to pay for the response, even fewer were on board.
During questions from the crowd, an attendee from AA, a rival insurance company, summed up the big dichotomy at the heart of it all. “The poll shows that as a nation we are alive to the importance, impact, and implications of our changing climate, but not seeing the leadership or progress that we expect on such a critical issue. Also, that we are not ready to confront some of the realities that go to the heart of how we adapt, like who pays.”
Who pays really is the thorniest issue of all. Without strong, unmissable signals, people will continue to buy and build in areas which will soon (if they’re not already) be regularly flooded, or eroded by the sea. Whether their properties are raised up on stilts, or abandoned and new housing procured, there will be an enormous cost involved. The yawning gap between the four in five who want something done and the two in five willing to pay for it shows that as many of us still believe the bill should be paid by “someone else”.
This creates what’s known as a moral hazard, whereby risky behaviour (buying and building in flood-prone areas, say) is incentivised on the basis that it’s assumed that someone will bail out those who find themselves literally and figuratively under water.
It’s why pressure is building, not just from climate activists, but now from major financial institutions, for the government to more forcefully (and legislatively) express that anyone buying and building in areas exposed to climate hazard does so at their own risk, and to work with those already there on solutions to their looming reality. And why insurers, who ultimately wear the cost of calamity, are at the frontlines of conveying just how risky our current behaviour already is.
The missing voices
A strand of bleak humour ran through the speeches at IAG’s event. “Everyone can agree they want it somewhere else, no one can quite agree on where somewhere is,” said Shaw, a variation on the “who pays?” conundrum. The Climate Change Commission’s Stephen Walter noted that he had only recently started, and so was “just within the period of time where I’m able to use that as an excuse if any questions get too difficult”. The Ministry for the Environment’s Katherine Wilson reminisced about her time working on the emissions trading scheme a decade earlier, when she had the “joy to lead a team that had our 0.5 of an FTE [full-time employee] on adaptation”.
All speaking have been on this beat for at least a decade, if not longer. They’re used to the weight of knowing what’s coming, advocating for sensible responses and then finding a good-sized gap between our ambitions and actions.
They’re also somewhat insulated from the worst of the consequences. All who took the stage scanned as middle-class Pākehā (much like the person writing this story). IAG’s Davies acknowledged that its event was “particularly middle-aged and Pākehā”, and that the company had been talking internally about the need to “get the right people around the table”. Kera Sherwood-O’Regan from disability climate justice network SustainedAbility recently told RNZ that this was a problem which has long bedevilled climate-change circles. “While this climate movement has been predominantly Pākehā, our frontline communities have actually been doing the real work of systems change for decades.”
This is not just about having a broader and more inclusive debate. In 100 Year Forecast, one of the most resonant stories comes from Matatā, inundated by a ferocious flood in 2005. It devastated the town, damaging 87 of its 341 homes, 27 of them beyond repair. Yet its three marae were all untouched. As senior Māori studies lecturer Daniel Hikuroa explains, this was because a local pūrākau had it that a taniwha lived in the Waitepuru stream, and “you want to beware its flicking tail”.
“To me that’s absolutely no mistake, because they had created a disaster reduction mechanism – i.e. the taniwha – to say ‘look, don’t build there’,” says Hikuroa. Earlier this year, the Bay of Plenty regional council finally acknowledged this, banning human habitation in the stricken area. It’s a reminder that everyone involved, from big insurers to climate activists, stands to gain from having more voices around the climate-change table. On this, Davies agreed. “It’s only going to work if we shift the entire system. It’s not just insurers by themselves. It’s banks, local government, central government, iwi and the links that flow through.
“It’s how we bring all of those actors together, and work in unison.”
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