Invest or insure?

Due to our geography, New Zealand faces a high level of risk from a range of hazards, including earthquakes, flooding, volcanic eruptions, and tsunami. Our populations and infrastructure are often clustered near hazards such as fault lines, rivers, and coastlines. This means that we are highly exposed to risks from natural hazards.

Natural hazard events are relatively low frequency, but high consequence, for both private property and public infrastructure. Collectively, the infrastructure rebuild costs associated with the four largest events since 2012 is at least $10 billion.

We need to be prepared, as if we aren’t there can be substantial consequences to infrastructure and services, or the risks can include public health impacts and reduced economic activity.

The research explores the choices we have on how to respond to proactively manage risks from natural hazards.

Key findings:

• There is no single best approach to managing natural hazard risk to infrastructure. Instead, the optimal approach will vary depending on many factors, including likelihood and consequence of the hazard, and the relative cost of different options in different situations.
• To manage risk well, infrastructure providers need to have a good understanding of their assets and the risks to which they are exposed. They will also need the capability to assess their options and optimise their response to risks from natural hazards. However, at a national level, we lack comprehensive and consistent hazard data for providers to use to assess their risk.
• Quantifying risk and/or pricing it through insurance premiums, can help clarify the optimal risk management approach for infrastructure assets. Optimal resilience investments should reduce risk management costs, compared to continuing to pay risk related insurance premiums. When resilience investments are more costly than insuring risk, they may not be warranted.
• The optimal level of resilience will depend on the relative cost of resilience investments compared to the expected cost of (and the benefits we get from) the assets being protected. We can increase the case for resilience investment by focusing on keeping infrastructure delivery costs down. Conversely, rising infrastructure delivery costs will erode the case for resilience investments.