By  Alexandra Cain

With the 2023 Auckland floods and Cyclone Gabrielle baked into the collective consciousness, Kiwi infrastructure managers and owners are increasingly integrating environmental considerations into their long-term insurance strategies.

Considering the environment in long-term strategies involves mitigating immediate risks, as well as devising comprehensive plans that align with sustainability goals and regulatory requirements.

With everything from roads and rail, to wharves, libraries, underground pump stations and regional parks in its remit, Auckland Council is responsible for a wide range of infrastructure assets that are exposed to the harsh realities of climate change. The council also looks after biodiversity and water quality, which is distinct from many other Kiwi councils that don’t routinely look after these areas.

Determining exactly how climate change could impact its diverse infrastructure assets has been a priority for Auckland Council for many years. Its insurance and risk management strategy begins with natural hazard and climate change modelling and research to underpin climate risk assessments. Council then uses this information to make decisions about future urban growth and infrastructure planning.

‘Climate information and our forecasts are constantly being updated. We regularly upgrade our models to ensure we are preparing the region and our infrastructure for a climate-changed future,’ says Auckland Council Lead Climate Resilience Advisor Petra Pearce.

‘Sometimes the impacts are acute, such as being damaged in a flood; and some of the impacts are harder to detect, such as faster deterioration of materials. All of these feed into our insurance approach and other investment decisions over time,’ says Pearce.

Council started ramping up its sophisticated modelling of the Auckland region’s risks and insurance requirements in about 2018.

‘Modelling suggests that our current insurance is sufficient to cover probable losses for insured assets from future natural events, such as floods and earthquakes,’ says Auckland Council Group Treasurer John Bishop.

‘We have a loss-modelling project currently underway that will help us better understand Auckland Council Group’s potential asset damage or loss from natural hazards and climate change into the future,’ says Bishop.

Auckland Council protects its infrastructure from climate risks using a combination of tools. It takes out insurance policies with external parties and has established a self‑insurance fund. A 60:40 cost-sharing arrangement with the central government, as well as spare balance sheet capacity, are also important risk-mitigation tools. The council’s plans also take into account a temperature rise of 3.5 degrees Celsius or more by 2110, versus the 1995 baseline temperature for Auckland.

‘Traditional insurance to cover climate-related risks is likely to become more expensive or less obtainable in the future. The self-insurance fund assists with insurance placements and would cover any insurance shortfalls. The balance of this fund is more than $60 million,’ says Bishop.

Auckland Council makes sure it has sufficient headroom in its balance sheet to deal with the consequences of large, uninsurable events and still maintain an AA/Aa2 credit rating.

‘We transfer significant risk to external insurance providers for above- and below-ground assets valued at more than $10 million, including water and wastewater infrastructure, machinery, stormwater, and buildings,’ says Bishop.

Assets such as roads and footpaths that are geographically spread throughout the Auckland region are self-insured. Any costs related to damage to these assets are funded through spare capacity within the balance sheet.

Insurers agree that as climate risks intensify, getting cover for high-risk infrastructure assets becomes more challenging.

‘Climate change is driving increased claims for weather-related damage, impacting insurers’ profitability and signalling the urgent need for preventive measures. Some insurers are increasing premiums or even refusing coverage in high-risk areas. This exposes business owners to considerable financial losses and operational disruptions,’ says Mike Hunneyball, Operations Chief Engineer with specialist corporate commercial property and business interruption insurer FM Global.

Climate change risk mitigation is key, and councils are actively looking at the adaptation options and strategies they can put in place, drawing on the data and information at hand.

‘We have to understand whether low-frequency events are going to increase in future due to the impacts of climate change and what that means for the balance sheet. Our  teams are looking at things like how many bridges will be expected to be taken out under the current scenario and future scenarios, what portion of the road corridor would have been reinstated, and the costs associated with that,’ says professional services firm WSP’s Service Line Leader, Risk and Resilience, Richard Woods.

Councils and governments with responsibility for maintaining public infrastructure must also take into consideration potential broader outages and business continuation risks associated with climate-induced severe weather when they put together their insurance strategies.

‘You need to look at what they mean in terms of road diversions. You have to think about what happens to co-located assets. Assets like major bridges across state highways, or even a local bridge, will probably have a fibre-optic internet cable. They may carry a major domestic, potable water pipe. And if you lose that bridge, you will not only lose the service of that piece of infrastructure, but potentially multiple pieces of infrastructure and then the interdependencies between those, as well,’ says Woods.

Access to accurate, consistent and accessible mapping data has to underpin both infrastructure owners’ and councils’ approach to climate change mitigation.

‘In New Zealand, unmapped rural areas present unknown risks, while evolving urban landscapes can alter flood patterns and risk profiles. To get ahead of this, maintaining accurate and up-to-date mapping is paramount, as well as moving towards standardised resources and metrics so that insurers can ensure more consistent risk assessments,’ says Hunneyball.

Another challenge for insurers is anticipating future risks like bushfires, which will become more frequent and severe due to the effects of climate change.

FM Global’s US Rhode Island Research Campus conducts real-life simulations to help businesses, including organisations in Aotearoa New Zealand, understand potential disasters and how they can be preparing and protecting their facilities in a safe, controlled environment.

‘As it is one of New Zealand’s biggest climate challenges, we’re also tackling flood risk head-on, developing standards, and testing FM Global–approved flood barriers and other protective equipment, pushing the industry towards developing more resilient and reliable flood defences,’ says Hunneyball.

Auckland Council has adaptation and resilience work programs underway to enable the council and communities to plan for climate disruption and to proactively adapt infrastructure to climate-related hazards, minimising costly damage.

For example, the Shoreline Adaptation Program is developing plans to better manage council land and assets around Auckland’s coastline. Once complete, these plans will be incorporated into the council’s coastal asset management program.

Looking ahead, Bishop acknowledges that responding to climate-related insurance risks will continue to be a difficult area for councils to work through.

‘It is essential to have an integrated planning approach, where the council, asset owners, land use planners, central government, communities, iwi and stakeholders such as insurance companies collaborate to determine the future path for places at risk from climate-related hazards,’ Bishop says.