New research from the New Zealand Infrastructure Commission Te Waihanga has revealed how insurance can help the country to manage natural hazard risks and how to prepare infrastructure for a changing climate.
The 53-page report Invest or insure? Preparing infrastructure for natural hazards based on the Commission’s research and published in February 2025 looks at how insurance can help decide if, when and by how much to invest in infrastructure adaptation or resilience.
It says that insurance prices rise as risks to assets, like the chance of flooding, and the cost to repair or rebuild go up. The report said investing to make infrastructure more resilient or adapt to changing risks can also bring down the cost of insurance. When infrastructure providers measure their risks and price them through insurance, they can make better risk management decisions by looking at whether the cost of resilience investments are matched by benefits from lower insurance premiums.
The Commission general manager of strategy Peter Nunns said, “New Zealand has experienced some significant natural events in recent years. In dollar terms alone, we have seen at least $10bn in infrastructure rebuilding costs from two large earthquakes and two storms since 2012. And that doesn’t of course include the impact of these events on people’s lives and businesses or the economy.”
Mr Nunns said not only is the likelihood and size of the catastrophic events such as storms expected to grow in coming years but the replacement cost of infrastructure is growing too.
“On an inflation-adjusted, per-person basis, public infrastructure is now worth 70% more that it was in 1990. So, the cost of replacing it after a natural disaster is rising at the same time as the likelihood of a disaster is rising. It’s more important than ever to make good decisions about when and how to reduce risks and minimise costs.”
According to the report the providers must also factor in other costs – such as risks to public safety or damage caused by the failure of their infrastructure. These economic and social consequences can also be added to the providers’ insurance and resilience appraisal.
Mr Nunns said the last time a review of insurance coverage for public assets was undertaken – over 10 years ago – it found that less than half of public assets were insured.
He said, “This is challenging, as our research shows that, in addition to helping to smooth out the costs of responding to natural hazards, insurance can also help infrastructure providers make better decisions about when and how to reduce risk and minimise costs.”
“Risks change over time. A risk management decision made yesterday might not be the best decision for tomorrow. It’s important that infrastructure providers consider this in their long-term asset management planning.”
The major findings of the report include the following:
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.