Avoidance of delay and duplication are among the main reasons for changes to be made to the EQC Act, according to the Insurance Council of New Zealand (ICNZ) which has published its submission to the Treasury today.
The submission responds to the Treasury’s discussion document New Zealand’s Future Natural Disaster Scheme
, which was released in July this year, outlining proposed changes to the Earthquake Commission Act 1993.
While ICNZ found many points it agreed on, there were also many it did not.
ICNZ said commercial best interests had been set aside in order to do ‘the right thing’ and put the needs of New Zealand and New Zealanders first.
“Our focus is to ensure people are re-housed as efficiently as possible after a natural disaster and to keep insurance cover affordable and available,” ICNZ CEO Tim Grafton said.
“It builds on the lessons from Canterbury and puts the needs of New Zealand and New Zealanders first.
“There were times when we could have put up a case that only served our commercial best interests, but that was not the right thing to do,” he said.
ICNZ said there were things they did not seek to change. With EQC picking up the first loss and private insurers covering the layer above, it meant New Zealand boasted a high insurance penetration of 98% residential cover for natural catastrophe.
However, Grafton said what had not served homeowners well was the legislative requirement that all claims be lodged and assessed by the EQC.
“This has resulted in homeowners and insurers being unaware of hundreds of over cap claims until years after the earthquakes,” he said.
Claims should therefore be lodged and assessed by insurers because one without the other does not solve the problem.
Since insurers’ core competency was the management of claims, legislation should make it clear that insurers and EQC should enter into contractual arrangements to that end before a new Act comes into effect.
“Insurers employ thousands of New Zealanders, operate 24/7 and manage over one million claims a year. When disaster strikes they are ready to respond whereas the EQC, which had 24 staff before the Canterbury earthquakes struck, cannot match that state of readiness,” Grafton said.
“A new Act must provide certainty about where responsibilities and obligations lie before catastrophe strikes.
“If adopted, this will eliminate factors that led to duplication of effort, inefficiencies, additional costs and delays with the residential recovery. This will result in a quicker recovery with associated economic and social benefits.”
To that end, ICNZ says the EQC cover should follow that of the insurer.
This would mean all assessments and repair standards are based on what homeowners took out their insurance cover for, so there is no bias in assessment whether the loss is under or over the EQC cap, which would settle many areas of dispute.
Grafton said: “We also believe there is a severe risk of under-insurance that could leave people without a home if The Treasury’s proposal to have a single building cover is adopted.
“This is because no homeowner nor anyone else has any idea what the land-foundation costs will be after a major event like an earthquake on hillside cities like Wellington.
“So we argue for a separate land-foundation works cover for the additional costs to provide a building platform after an event over and above what would be required today.”
KPMG, in its General Insurance Update 2015, released today, has also backed ICNZ's proposal to effectively become claims managers for the EQC's first loss exposure.
KPMG's head of insurance, Kay Baldock, said: "Under that model, the insurance company would have primary responsibility for managing claims and recovering amounts due from the EQC.
"The Canterbury earthquakes have shown that insurance companies are better equipped with the in-house expertise to manage large, complex events."
But speaking today at the annual ICNZ conference, EQC Minister Gerry Brownlee responded with caution to the proposal that future disaster claims be lodged with and assessed directly by insurers.
While he defended the response of EQC to the 2010 and 2011 Canterbury earthquakes, he said Treasury and the EQC team would be working closely with ICNZ to figure out the future direction on this matter.
"The key thing for me is let's not get too hung up on who does what, and when, at this early stage. "
He said it was important to develop a bill that created greater flexibility.
Read the full submission here