EQC and Extreme Weather Events (Part 2): Measuring the Impact of Insurance on New Zealand Landslip, Storm and Flood Recovery Using Nightlights

Abstract

Climate change is predicted to make extreme weather events worse and more frequent in many places around the world. In New Zealand, the Earthquake Commission (EQC) was created to provide insurance for earthquakes. In some circumstances, however, homeowners affected by extreme weather events can also make claims to the EQC – for landslip, storm or flood events. In this paper, we explore the impact of this public natural hazard insurance on community recovery from weather-related events. We do this by using a proxy for short-term economic recovery: satellite imagery of average monthly night-time radiance. Linking these night-time light data to precipitation data records, we compare houses which experienced damage from extreme rainfall episodes to those that suffered no damage even though they experienced extreme rainfall. Using data from three recent intense storms, we find that households which experienced damage, and were paid in a timely manner by EQC, did not fare any worse than households that suffered no damage from these extreme events. This finding suggests that EQC insurance is serving its stated purpose by protecting households from the adverse impact of extreme weather events.

Keywords: climate change, extreme weather, public insurance, recovery, New Zealand

JEL Classification: Q15; Q10; Q17; Q02