New Zealand’s growing uninsurable-home problem: what it means for homeowners and how insurance could adapt
A changing reality for home insurance
New Zealand’s experience with natural disasters has intensified the national conversation about whether every home can realistically remain insurable. After a succession of major events—ranging from the Canterbury earthquakes to Cyclone Gabrielle—some homeowners have begun to face a difficult new reality: insurance may be unavailable, offered only on restrictive terms, or priced beyond what feels workable.
At the heart of the issue is a shift in how risk is perceived and managed. When insurers decide that the probability or scale of future losses is too high, continuing to offer cover in certain locations can stop being financially viable. The result is a growing number of properties that are effectively “hard to insure,” and in some cases uninsurable, at least through standard products.
This trend does not only affect those currently seeking a new policy. It also affects people renewing existing cover, buyers attempting to secure insurance before purchasing, and communities where insurance availability influences property values and lending decisions. As the risk environment changes, the question is no longer theoretical: how can insurers keep offering policies while managing the escalating exposure associated with natural hazards?
Insurance is not automatically guaranteed
One reason this problem is so confronting is that many people assume home insurance is a basic service that will always be available. In New Zealand, however, there is no general requirement that insurers must cover any particular home. Likewise, there is no general legal requirement that a home must be insured.
There are important exceptions that shape real-world outcomes:
Body corporates must insure the units they manage, which creates a baseline obligation in multi-unit settings.
Mortgage lenders can require borrowers to take out home insurance as a condition of lending, making cover functionally essential for many owner-occupiers.
These dynamics mean that even if insurance is not legally mandatory for every home, it can still be practically necessary—especially for those who need bank finance. When cover becomes difficult to obtain, it can therefore become harder to buy, sell, or refinance property in affected areas.
The role of public natural-hazard cover
New Zealand’s insurance system includes a significant public component for certain natural-hazard losses. When homeowners purchase home insurance, the risk of certain losses from natural disasters is automatically covered by the Natural Hazards Commission (previously known as the Earthquake Commission).
There are two features of this arrangement that matter for homeowners trying to understand what is happening in the market:
The cover is treated as included by law. Even if a home insurance policy were to contain wording that appears to exclude this public natural-disaster cover, the law would treat the cover as included.
Insurers manage payouts, but do not finance them. In other words, payments may be administered through insurers, but the underlying funding is not coming from the insurers themselves.
This public layer is a distinctive element of the New Zealand landscape. It can help maintain a baseline of protection for certain hazards, but it does not remove the broader challenge: private insurers still must decide how to price and offer cover for the parts of risk that sit outside the public scheme, and how to remain solvent and sustainable when severe events occur.
Why insurers are pulling back from high-risk areas
The scale of past losses offers a clear illustration of why insurers are increasingly cautious. The Canterbury earthquakes cost insurers NZ$21 billion, and the Natural Hazards Commission $10 billion. These figures underscore how a single sequence of events can generate enormous claims costs across both private and public systems.
As the risk of natural disasters becomes more prominent in underwriting decisions, insurers have been increasingly pulling out of areas they consider “high risk.” For homeowners, this can show up in several ways:
difficulty obtaining any offer of cover;
higher premiums that feel disconnected from household budgets;
policy terms that include tighter limits, higher excesses, or narrower definitions of what is covered.
From an insurer’s perspective, these changes are part of managing risk so that the business can continue to pay claims. From a homeowner’s perspective, they can feel like a sudden withdrawal of security—especially when the home is the largest asset a household will ever own.
A regulatory shift: “treat consumers fairly”
While underwriting decisions remain central, the regulatory environment is also evolving. From mid-2025, insurers will have a general duty to “treat consumers fairly.” The Financial Markets Authority, which enforces financial-markets law, may potentially regard refusing home insurance to any consumer as a breach of that duty.
If that interpretation emerges in practice, it could reshape the market. The implication is that the Financial Markets Authority may end up forcing insurers to cover most of the country’s homes. That would not remove risk—but it could change how insurers respond to it, pushing the industry toward alternative models that allow cover to remain available while still controlling exposure.
This is where the conversation moves from whether insurers will insure, to how they might do so in a sustainable way.
Innovation in policy design: rewarding resilience and managing exposure
One pathway is to change how policies are structured, linking premiums and payouts more closely to household decisions and property-level resilience. Insurers may decrease premiums as an incentive for homeowners to “disaster-proof” their homes. Conversely, if homeowners do not take steps to reduce risk, insurers may increase premiums and limit payouts through tools such as individualised excesses or caps.
These approaches effectively attempt to do two things at once:
Encourage risk reduction by making resilience financially worthwhile.
Constrain insurer exposure so that coverage remains viable even in challenging areas.
For consumers, this could mean that insurance becomes more tailored. Instead of a largely standard product, cover may increasingly reflect property-specific features and household choices. The trade-off is that tailoring can bring complexity—yet it may also be a route to keeping some form of cover available where blanket underwriting no longer works.
Parametric insurance: faster payouts, different trade-offs
Another option is “parametric” insurance. This type of cover pays out less than traditional insurance, but faster. The key difference is that payment is triggered by a measurable event rather than by an assessment of the actual damage.
Consider an example described in the context of earthquakes: a policy could cover any earthquake with an epicentre within 500 kilometres of a home, measuring magnitude six or higher. Under a traditional policy, the payout would be based on how much loss was caused, typically assessed by a loss adjuster. Under a parametric policy, the payout would be a small, pre-agreed sum based on the fact the earthquake occurred at all.
In practical terms, parametric insurance would not require a homeowner to prove the extent of physical loss beyond being affected by the disaster zone. That feature can make it efficient, especially when rapid liquidity is valuable to households dealing with disruption.
Parametric insurance is relatively new worldwide, but it is presented as an efficient solution for managing the risk of natural-disaster damage. For homeowners, the key is understanding the trade-off: speed and certainty of a defined payout, in exchange for the possibility that the payout does not match the actual cost of repairs.
Spreading risk: reinsurance and co-insurance
Insurance markets rarely carry risk in a single place. When losses can be large, insurers often spread exposure through other arrangements.
One standard mechanism is transferring risk to one or more other insurance businesses, such as a reinsurer. If an insurer has to make a payout to a customer for a claim, the reinsurer then makes a payout to the insurer for a portion of it. This helps insurers manage the financial shock of major events and can support their ability to keep writing policies.
Another approach is co-insurance. Co-insurance is where two or more insurers cover different portions of the same risk. If a home is co-insured, the homeowner will have two or more insurers, each responsible for a portion of any claim.
For consumers, co-insurance could become more visible if single insurers become less willing to carry full exposure in higher-risk locations. It may also mean more complexity at claim time, since multiple insurers can be involved in paying different parts of a loss. Even so, co-insurance can be a practical way to keep coverage available by dividing the risk into smaller pieces.
Catastrophe bonds: bringing in non-insurance capital
Beyond the traditional insurance ecosystem, there is also the possibility of transferring insured risk to entities that are not insurance businesses. In some countries—such as Bermuda, the Cayman Islands and Ireland—insurers can turn risk into a “catastrophe bond” (also known as a “cat bond”).
Under a cat bond, an insurer arranges for expert investors to lend it capital in return for interest on the loans. The insurer eventually repays the capital unless a specific natural disaster occurs. If that disaster occurs, the insurer keeps the capital, enabling it to pay out to affected customers.
This structure can be used not only as a backstop for claims, but also, potentially, to create what has been described as a “virtuous cycle.” In that model, the insurer may reinvest the capital in a project that reduces or prevents loss from the insured climate-related risk, such as flooding. The intent is to link financing more directly to risk reduction, rather than only to recovery after damage is done.
Why public–private coordination matters
Even the most creative insurance product cannot solve the underlying problem alone. Future-proofing home insurance options will depend on the public and private sectors working together. The goal is not only to pay for damage after an event, but also to make climate-related disasters less frequent and less serious when they occur—and to reduce the risk of natural-disaster damage more generally, including earthquakes.
The United Nations’ Intergovernmental Panel on Climate Change has advised on how sectors could minimise climate-related risk. The broader point is that reducing risk requires coordinated action: insurers can price risk and design incentives, but planning, building standards, infrastructure decisions and community-level resilience also shape the scale of losses.
In this context, improving the situation involves two parallel efforts:
Reducing hazard and exposure where possible, so that the same event causes less damage.
Ensuring financial mechanisms remain functional, so households can recover without insurance becoming unattainable.
Building resilience into homes
One of the most direct levers is the quality and resilience of housing itself. It is important to build homes that are better disaster-proofed. While the details of what that looks like can vary by hazard, the underlying principle is consistent: stronger, better-prepared homes can reduce losses, which in turn can help keep insurance more affordable and more widely available.
Insurers’ use of premium discounts to encourage disaster-proofing reflects the same logic. If risk can be reduced at the property level, insurers may be more willing to offer cover—or to offer it on better terms—because expected losses are lower.
The housing-cost connection
The discussion also intersects with a challenge that is not always framed as an insurance issue: the cost of housing. When households must invest a large share of their money into buying a home, the financial consequences of damage can be more severe. If New Zealanders wishing to own their homes did not have to invest as much of their money in housing as they do, the risk of damage to housing might be of less concern. In that scenario, a natural disaster would not have to mean financial disaster as much as it does today.
This does not remove the need for insurance, but it highlights why insurance stress can be felt so sharply. For many households, there is little spare capacity to absorb unexpected costs, higher premiums, or large excesses. That financial pressure can turn changes in insurance availability into broader social and economic strain.
What the future may look like
As natural-disaster risk becomes harder to ignore, the home insurance market may evolve in several directions at once. Some changes may be driven by insurers’ risk appetite and capital constraints; others may be influenced by regulation, including the duty to treat consumers fairly from mid-2025. At the same time, public natural-hazard arrangements remain a foundational part of the landscape, even as private insurers reconsider where and how they can operate sustainably.
For homeowners, the likely path forward is not a single fix but a mix of approaches:
more incentives for household-level resilience, paired with more tailored premiums and limits;
greater use of alternative products such as parametric insurance, where speed and certainty are prioritised over full indemnity;
more risk-sharing behind the scenes through reinsurance and co-insurance;
potentially, the use of catastrophe bonds to bring in additional capital and, in some structures, to support risk-reduction projects.
In the meantime, innovative insurance options will become more and more necessary. The central challenge is to maintain meaningful protection for households while ensuring insurers can continue to operate in a country where natural hazards are a persistent reality. The decisions made now—by insurers, regulators, and the public sector—will shape whether “uninsurable” becomes a wider feature of the housing landscape, or a problem that can be managed through adaptation and collaboration.