Cedric Stephens | Fusing risk-management models

The Insurance Council of New Zealand, ICNZ, welcomed the New Zealand government’s recent commitment to introduce legislation in parliament in 2025 on a climate adaptation framework.

A climate adaptation framework is a structured approach to help communities, businesses, and governments prepare for and respond to the impacts of climate change. It involves developing strategies, policies, and measures to reduce vulnerability and increase resilience to climate-related risks.

Frameworks are tailored to the specific needs and contexts of different regions and communities, ensuring that the most vulnerable are protected and supported.

The Insurance Association of Jamaica (IAJ) is this industry’s umbrella organisation. It is the ICNZ’s equivalent. I have neither heard nor seen the former’s opinions about the impact of climate change. Experts say it ‘poses existential risk to our ways of life, our livelihoods, and the very ground beneath our feet’.

A recent report said that “January 2025 was notably warm, setting a record for the highest average global temperature for that month. The global average surface air temperature was 13.23° Centigrade (or 55.81° Fahrenheit), which is 0.79°C (1.42°F) above the January 1991-2020 average. This makes it 1.75°C (or 3.15°F) above the pre-industrial level”. This trend is largely attributed to climate change and the increasing concentration of greenhouse gases in the atmosphere.

I wrote about the impact of climate change a few weeks ago – Economic Losses Mounting from Climate Impact – but I am forced to return to the subject given the new facts. Also, are there lessons that insurers and others in Jamaica and the rest of the Caribbean can learn from counterparts in New Zealand about addressing the threats?

New Zealand, like Jamaica, is an island country. It is in the southwestern Pacific Ocean and consists of two main islands – the North and South – and some smaller islands. They cover a total area of 268,021 square kilometres and are about 25 times the size of Jamaica. Their population of 5.2 million people as compared to Jamaica’s 2.8 million. Both countries are vulnerable to similar types of natural catastrophes and climate change risks.

Earthquake risk

North and South islands are in a seismically active region. They are therefore prone to earthquakes. They sit on the boundary of the Pacific and Australian tectonic plates, and, as a result, experience frequent seismic activity. Here are six key points about New Zealand’s earthquake risk:

• The Alpine Fault: This is one of the most significant fault lines in New Zealand. It runs along the South Island and has a high probability of producing a major earthquake (Magnitude 8 or higher) every 300 years.

• North Island Faults: The North Island also has several active faults, including the Wellington Fault and the Hikurangi Subduction Zone.

• New Zealand has experienced several major earthquakes during the last 15 years. These include the Christchurch earthquakes in 2010-2011 and the magnitude 7.8 Kaikoura in South Island in 2016.

• The country has developed an earthquake measuring tool, The National Seismic Hazard Model. It estimates of the likelihood and strength of earthquakes in different parts of New Zealand. The government, industry, and insurers use it to inform building standards, infrastructure planning, and emergency response.

• New Zealand has developed stringent building codes that are designed to withstand seismic activity.

• There are ongoing efforts to educate the public about earthquake preparedness and response.

Tropical cyclone risk

The islands are not vulnerable to typhoons or hurricanes, but it can experience tropical cyclones with winds up to 74 miles per hour. These events usually occur between November and April and are associated with heavy rains, and flooding.

While the country is not often affected, northern New Zealand can experience normal to higher-than-normal risk during the cyclone season. Cyclone Gabrielle in February 2023 caused significant damage and flooding led to the declaration of a national state of emergency.

Cross-party approach

The head of the insurance lobby stated that New Zealanders need certainty about the way natural hazard risks from climate change are going to be managed. Government leadership in this critical area is welcome.

The government’s commitment is in response to the finance and expenditure select committee’s inquiry into climate adaptation released in October 2024. Further, that government has acknowledged that a significant proportion of New Zealanders live in areas susceptible to increasing natural hazard risk and that the prospect of more frequent and severe weather events may impact the stability of our housing, finance, and insurance markets.

He also said that the ‘insurance industry is keen to continue to contribute to the policy formulation to keep protecting communities and customers. As the government has noted, an implementation plan will be required that all sectors can buy into and is achievable.

New Zealand is a risky country, and we are committed to finding solutions that reduce exposure to natural hazard risks by avoiding building in dumb places and by investing in infrastructure that protects communities as well as better preparing for recovery from future natural disasters.

“We also support the government’s goal of a cross-party solution to ensure New Zealand’s approach is enduring. Adapting to climate change requires a long-term political commitment as reinsurers and insurers need long-term policy and investment certainty for some of the likely actions and investments required to safeguard Kiwis and minimise the insurance protection gap. The country needs to work “with haste” on this issue to keep all of New Zealand protected from the worst effects of future events. Research shows every dollar invested in adaptation brings substantial economic benefits. By addressing these risks now, New Zealand can avoid the higher costs associated with future climate-related disasters,” he said.

New Zealand is labelled a ‘first-world country’. This term refers to nations that have advanced economies, high standards of living, and well-developed infrastructure. New Zealand meets these criteria with its strong economy, robust healthcare and education systems, high quality of life, and well-maintained infrastructure.

Like Jamaica, it is a member of the commonwealth. What are the obstacles in adopting some of this country’s strategies in mitigating against the threats of natural disasters and climate-change risks?

Reggae music is quite popular in New Zealand. The genre has a strong presence in the country’s music scene, with many successful bands and artistes. New Zealand reggae often incorporates elements of Pacific Island music and Māori culture, creating a unique fusion of sounds. Is the time now ripe for the fusion of NZ risk-management practices with the Jamaican RM model?

Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com or business@gleanerjm.com