The Insurance Council of New Zealand (ICNZ) has questioned whether the public expectation of an “open-ended” commitment from insurers and the Government to cover disaster losses is sustainable.

Given its history of major disasters – a Lloyd’s study ranks New Zealand as the second-most exposed nation to natural catastrophe losses – the time may be ripe for a rethink.

“The expectation among New Zealanders is that they be returned to their pre-catastrophe state after an event and that it is either covered by the private market or the government,” ICNZ CEO Tim Grafton told insuranceNEWS.com.au.

“While we enjoy very high levels of insurance penetration, and a very low protection gap, which is a very good thing… there is no other country I know of where there is that guarantee in place.

“The question is how realistic is that, how sustainable is that, when we are going to be living in a world where there will be increased risk due to climate change, increased frequency of extreme weather event losses, as well as underlying seismic risk?”

Insurers and reinsurers shouldered about $NZ34 billion ($32.2 billion) of the Canterbury quakes’ overall economic losses of $NZ40 billion ($38 billion), ICNZ says, and that was possible due to high levels of property insurance coverage.

The industry has since recalibrated risk assessments for New Zealand after the quakes proved then models were inaccurate.

One model finalised in the past couple of years shows a 30% rise in projected annual average loss from earthquakes.

“When risks get higher, there are always predictable and prudent insurance responses – prudent because insurers need to be here for the long term and be able to meet the costs if the worst happens,” Mr Grafton writes in an editorial. “In an ideal world, we maintain that penetration and insurance remains affordable and available.”