Earlier this month, eight private insurers and the EQC announced a new partnership under which the insurers would manage and settle EQC claims, an arrangement that is open for other insurers too if they wish to join.
Much has been said over the years of the need for this, so customers’ interests are at the heart of a recovery. They have a single point of contact and accountability, their insurer, and it increases EQC’s capacity to respond by drawing on private insurers’ resources.
Previously, the design of the EQC scheme involving separate public first loss and private cover thereafter dictated the process of recovery entailing duplication and creating delay. By turning the scheme on its head and asking why we do what we do and for whom, we end up with a different approach.
The agreement also sees a transfer of data to EQC about which properties are insured. This provides not only up-to-date validation of EQC’s exposures, but it enables them to have better data to model those exposures and inform reinsurance markets.
Evolving New Zealand’s natural disaster response capability is critical as we are a high-risk country. We must have the best response scheme available. Implicitly, it recognises that when we face national risks collaboration between the public and private sector can produce better results for all.
By taking the first loss in a natural disaster on a community rated basis, the EQC scheme supports affordable private, risk-based private insurance cover, so we have one of the lowest protection gaps in the world for natural hazards. The arrangement needs to be carefully balanced to avoid concentrating risk in one entity or creating moral hazards.
COVID-19 this year has been another example on a grand scale how the Government and insurers alongside the rest of the financial sector have moved together to support vulnerable people and businesses through the crisis.
Of course, the private sector must be allowed to thrive. Through innovation, competition, and choice we deliver better products and services to meet customer needs. The public sector’s role should be as an enabler of those dynamics restricting its focus to consumer, or in our case policyholder, protection.
This will be particularly important as insurance evolves through greater use of digitalisation of data to enable it to become closer to individual customers with an acute understanding of their needs. There is every sign that COVID-19 has accelerated by several years the digital transition and brought with it new risks and product opportunities.
Climate change risk over the long-term presents significant risks that will make it extremely challenging for insurance to remain in place in the way it is today in higher risk areas. This, therefore, is another opportunity for public-private arrangements.
These should be based on the principle that insurance plays its role to signal risk through pricing and the need to reduce risk in a way that is fair to the customer. This will be one of the major challenges for the public and private sectors recognising both the large number of properties at risk and the fact that simply transferring the risk to insurance does not solve the underlying problem.
Again, it will likely call for novel ways of doing things which, as a sector, we must be open to guided by the interests of our customers who want to remain protected.