Update on follow-up of our 2013 discussion paper, Insuring public assets

1 July 2019: The purpose of this letter is to update the Finance and Expenditure Committee (the Committee) on our follow up work on our 2013 discussion paper, Insuring public assets.

28 June 2019

Michael Wood MP
Chairman, Finance and Expenditure Committee
Parliament Buildings

Tēnā koe Mr Wood


The purpose of this letter is to update the Finance and Expenditure Committee (the Committee) on our follow up work on our 2013 discussion paper, Insuring public assets. This letter summarises observations from our recent work; outlines the wider work on insurance and management of assets that we understand is being carried out by other agencies; and makes some suggestions for the Committee to consider to support continued improvement in this area.

A number of central government agencies are carrying out work to better understand the risks to government, particularly from disaster events, which will enable more informed decisions about the way government insures its assets. However, more progress is needed before we can assess the effectiveness of this work. We propose to check with agencies again before we finalise our 2020/21 work programme to see how much progress has been made.

Recent work has shown there are different levels of maturity in how councils manage risk. We are planning work to examine councils’ risk management practices as part of our 2019/20 and 2020/21 work programmes.


On 22 March 2017, we wrote to the Committee about our intention to carry out work in 2018/19 to follow up on our 2013 discussion paper. That discussion paper provided a high-level view of the extent to which public assets were insured and how this has changed since the first major Canterbury earthquake in 2010, which resulted in significant costs to New Zealand as a whole. Our findings were based on data collected in late 2012 from more than 400 of the largest public organisations.

We found that public organisations held assets of about $128 billion that had no insurance cover (although about a third of these assets is land, for which insurance is generally not offered). We noted that this is not necessarily a cause for concern because public organisations can choose ways other than insurance to manage or mitigate the risk of damage to, or loss of, assets.

We also published a review in 2014 that discussed insurance recoveries and the effect of the Canterbury earthquakes on local government insurers in Local Government: Results of the 2012/13 audits.1 Although insurance recoveries play an important part in the funding mix, they are just one part of the funding required to rebuild Christchurch and the surrounding region.

The Canterbury earthquakes highlighted the importance of good risk management for public organisations and the part insurance plays in that.

In our March 2017 letter to the Committee and in our Annual Plan 2018/19 we said we would:

  • carry out work to consider how well public organisations assess their asset risk, particularly risk from natural disasters, for the purposes of deciding how or whether to insure or otherwise mitigate that risk;
  • consider whether the Ministry of Business, Innovation and Employment (MBIE) and the Treasury's work has been effective in achieving better assessment of risk to assets; and
  • depending on whether the Local Government Risk Agency (LGRA) has been established, consider its effectiveness in improving councils' assessment of asset risk.

Observations from our recent work

Since the publication of our 2013 discussion paper, we have continued to look at asset risk management and insurance. In our report Commentary on He Tirohanga Mokopuna: 2016 Statement on the Long-Term Fiscal Position, we highlighted that long-term financial management and stewardship requires an outlook that considers future uncertainties and plausible scenarios. We emphasised that the financial consequences of further events (including natural disasters and climate change) needed to be considered and planned for.

In our 2019 report Matters arising from our audits of the 2018-28 long-term plans, we noted that, to support better planning, councils need to do more to gain better information about the condition of their assets, the likelihood of a natural hazard event occurring, and the potential effects of climate change.

In the last few months we have also spoken with MBIE, the Department of the Prime Minister and Cabinet (DPMC), Local Government New Zealand (LGNZ), and the Treasury about their work on insurance and management of risks. Our understanding of the status of their work is described briefly below.


The Risk Financing and Insurance Centre of Expertise team is part of the New Zealand Government Procurement team in MBIE. Since 2015, this team, in consultation with the Treasury, has been working on an Alternative Risk Financing (ARF) project. This is an all-of-government approach to reform how public organisations insure assets and liabilities, including against natural disaster. This work includes analysis and modelling of natural disasters and risk profiles.

The results of this work will be used to inform a business case for implementing an lternative risk-financing mechanism. This is expected to be completed at the end of 2019.


DPMC’s National Security Group, is currently working with risk-owning agencies to improve the management of national risks. Some agencies are responsible for managing more than one national risk. DPMC also liaises with a range of other support agencies involved in managing national risks. Agencies are assigned as risk owners based on their level of responsibility for the management of identified risks of national significance. DPMC works with risk owners to prepare risk assessments based on the international risk management standard (ISO 31000:2009). These risk assessments inform treatments or interventions that not only reduce the consequences of events, but might also reduce the likelihood of certain events occurring.


After the Canterbury earthquakes, LGNZ commissioned a review2 of the insurance market for councils to assess the insurance market in New Zealand3 and to analyse councils’ risk profiles and insurance needs. This review recommended setting up a council-owned agency (the LGRA) to replace the current council-owned insurers to provide expertise on risk profiling, risk management, and risk mitigation.

A business case for the formation of a LGRA was submitted to the Government in June 2016. However, no decision has been made to establish a LGRA.

The Treasury

While both the Treasury and DMPC look at national risks, they look at different aspects. DPMC’s work on the management of national risks is focused on risk reduction, resilience, response and recovery. They are concerned with the impact of threats and hazards, including disasters, on the country as a whole. The Treasury looks at the wider exposure of the Crown to risks that have a financial impact on its balance sheet. This informs ongoing fiscal policy advice on non-fixed levels of prudent debt.

The Treasury is also working with MBIE on the ARF project.

What we have learned

Our discussions with agencies have highlighted that the role of insurance as a tool for managing asset risk is changing. More emphasis is increasingly being placed on alternative approaches to risk financing, better management of risks, and building resilience.

We are also seeing changes in the insurance market. After the Canterbury and Kaikōura earthquakes, insurers have a much better understanding of seismic risk. Improved modelling is enabling more targeted and risk-based pricing on an asset by asset basis. This is already apparent in the housing market. For example, the Insurance Council of New Zealand has indicated that domestic house insurance premiums in some higher-risk areas of the country have increased by 15-20% and decreased in lower-risk areas of the country.

We note recent media reports suggest that people in some areas of the country are finding it increasingly difficult to obtain insurance as insurance cover is withdrawn or premiums become increasingly expensive.4

There is useful work under way that has potential to improve asset risk management in central government and agencies appear to be working together effectively. However, we consider the work would benefit from an overarching framework to ensure that there is sustained focus and it remains connected, aligned and mutually reinforcing.

This work needs to progress further before we can properly assess the extent to which it has been effective. We strongly encourage agencies to ensure that this work is given appropriate priority.

We are also aware of different levels of maturity in councils’ risk management practices. Some research5 suggests that, in the next 50 to 150 years, more than $13 billion of council infrastructure will be at risk from sea-level rise. The price and extent of insurance provision for councils is creating extra costs.

What we propose

In 2019/20, we are starting a multi-year programme of work to examine risk management in local government. The long-term effect we are seeking is improving risk management in local government, acknowledging the different maturity levels appropriate for different councils.

We intend to carry out a more comprehensive assessment of how councils approach risk management. We will examine information about councils’ understanding of risk, the approaches they use to manage risk, including the role of councils’ audit and risk committees, and how councils communicate risk to their communities. We expect to identify examples of good practice to share with all councils.

We will continue to follow progress in both central and local government, and consider further work to understand the effectiveness of initiatives once they have been implemented.

We suggest that the Committee seek a briefing from relevant agencies on the status of their work and encourage agencies to give this work appropriate priority. We also suggest that the Committee share this letter with the Environment Committee and the Government and Administration Committee to inform their work with relevant agencies.

Each of the Committees may also wish to ask asset-intensive public organisations directly about the long-term risk financing and insurance of their assets in the next annual review round at the end of 2019. We would be happy to brief the Committees on our relevant recent and proposed work.

We intend to publish this letter on our website, and will keep in regular contact with the Treasury, MBIE, DPMC, and LGNZ about their work on risk financing and insurance of public assets.

Nāku iti noa, nā

Signature - JR

John Ryan
Controller and Auditor-General

1: Part 5. Available at www.oag.govt.nz.

2: See Local government insurance market review, available at www.lgnz.co.nz.

3: This included discussions with local and major global insurance brokers and insurers/reinsurers who have had an interest in local authority insurance in New Zealand.

4: See Wellington City Council (April 2019). “Wellington Mayor calls for insurance forum”, wellington.govt.nz.

5: See Vulnerable: the quantum of local government infrastructure exposed to sea level rise, available at www.lgnz.co.nz.