Home insurance customers of New Zealand’s Tower will receive a low, medium or high-risk rating for their property, reflecting the potential risk of a flood and the estimated cost of replacing or repairing damage caused by flooding.

Tower has invested in detailed modelling showing the risk of flooding from rivers and rain for residential addresses across New Zealand and is using the data to better match flood premiums to risk. The model allows Tower to predict the impact of flood on an individual property based on how it is constructed, height, number of floors, materials and flow of the water.

Almost 90% of customers will receive a reduction in the flood-risk portion of their premium, at an average of about $NZ25 ($24) each, Tower says, while around 10% will experience an increase, mostly less than $NZ50 ($48) a year.

Tower CEO Blair Turnbull says it isn’t easy for homeowners to understand the risk and perils linked to their home, including flood and earthquake, and the insurer wants to help change that. The new rating model has been implemented effectively in countries such as the UK and is similar to motor insurance, he says.

“We want to share this information with customers about their properties so they can make informed decisions, and understand their insurance needs and premiums better,” he said.

Lloyd's rates New Zealand as the second riskiest country after Bangladesh for natural disasters.

“As a Kiwi insurer, we are acutely aware of the climate risks faced by New Zealand," Mr Turnbull said.

"The launch of this model is aligned with Tower’s commitment to a sustainable future and being more open and transparent around insurance and risks associated with climate change. We believe that risk-based pricing is a fairer way to structure insurance to ensure that customers don’t pay for risks they don’t have."

The model, developed by Risk Management Solutions (RMS), is based on data from the National Institute of Water and Atmospheric Research, Land Information New Zealand, local and regional councils and the Insurance Council of New Zealand. Neighbouring properties can have very different ratings, depending on their land, whether they have a flood wall and other factors.

For existing customers, any changes to pricing will begin at renewal.