What New Zealand homeowners need to know about EQCover

What New Zealand homeowners need to know about EQCover | Insurance Business New Zealand

What New Zealand homeowners need to know about EQCover

Despite the name, the Earthquake Commission’s (EQC) scope goes beyond earthquakes. The Crown entity has been actively involved in natural disaster research, response, and recovery efforts since it was established in its current form by Earthquake Commission Act 1993. Recently, a bill that seeks to rename the commission to Toka Tū Ake – Natural Hazards Commission, reflecting these roles, has been introduced in Parliament.

Read more: New Zealand to overhaul natural disaster insurance programme

One of the EQC’s primary functions is to manage New Zealand’s natural disaster insurance scheme, called EQCover, to help families get their lives back on track after a catastrophe. Since 30 June 2021, the commission has been doing this task in partnership with insurance providers as a way to streamline the claims process.

Before that, policyholders needed to file two separate claims – one with the EQC and another with their insurers – if the cost of the damage exceeded $150,000 (+GST) to cover the balance. The changes, according to insurance companies, were designed to “make the process simpler… during [what already is] a stressful time” for the policyholders.

What is EQCover and what kind of protection does it provide?

EQCover is the EQC’s natural disaster insurance for residential properties and defined areas of land. Policyholders automatically have coverage if they have a valid private buildings policy that includes fire insurance.

EQCover protects against physical loss and damage resulting from earthquakes, natural landslips, volcanic eruptions, hydrothermal activities, and tsunamis. Damages from storms and flooding, however, are covered for residential land only. EQCover also insures fire caused by all mentioned events. If the property did not incur damage, but it is imminent as a direct result of these disasters, coverage may also apply.

For residential buildings, coverage includes:

  • The main dwelling
  • One or more homes in the same building
  • Separate buildings used by the occupiers of the home such as sheds or garage
  • Services owned by the policyholder – including water pipes and electrical cable – within 60 metres of the home

EQCover also insures some land structures that are:

  • Within the landholding
  • Under the home or outbuildings
  • Within eight metres of the home or outbuildings
  • Part of the supporting main access way up to 60 metres from the home
  • Bridges and culverts within the above areas
  • Retaining walls up to 60 metres from the home and outbuildings that are necessary to support or protect the home, outbuildings, or insured land

Read more: EQC looks back at New Zealand's deadliest natural disaster

The following, however, are excluded from the coverage but may be covered by a private insurance policy:

  • Intangible property such as information stored on a computer
  • Motor vehicles and their parts and accessories
  • Trailers and their parts and accessories
  • Boats, other vessels, and their parts and accessories
  • Aircraft and anything inside and on it
  • Bushes, forests, trees, plants, or lawns
  • Growing crops, including fruit trees and vines, or cut crops in the open fields
  • Explosives
  • Animals, including livestock and pets
  • Roads, streets, driveways, or paths
  • Tennis courts, whether inside or outside and regardless of the surface
  • Jetties, wharves, or landings
  • Pavings and other artificial surfaces
  • Drains, channels, tunnels, or cuttings*
  • Dams, breakwaters, fences, or poles*
  • Reservoirs, swimming pools, baths, spa pools, tanks, or water towers*

*These may be covered if they are part of the residential building

What are the cover limits?

Under EQCover, residential buildings are insured for a maximum amount of $150,000 (+ GST) or the lesser of the following options:

  • Any replacement sum for which the building is insured against fire by the private insurer
  • Any amount specified in the private insurance policy for which the building is insured under the Earthquake Commission Act

If there are multiple homes within a residential building that were disclosed to the insurer, the coverage is calculated by multiplying the maximum EQCover amount by the number of homes within the building.

Read more: EQC raises liability cap to $150,000

For land claims, the maximum limit, commonly referred to as the “land cap,” is calculated in two parts. First, the assessors find the market value at the site of damage, which is determined by the smallest of the following three areas:

  • The area of land that is actually lost or damaged
  • The minimum-sized site for a residential building allowed under the district plan in the area of residence
  • An area of land of 4,000 square metres, if applicable

Second, adjusters find the indemnity value of any insured bridges, culverts, or retaining walls that have been lost or damaged.

The maximum amount EQCover can pay for a residential land claim is the lesser of either the land cap or the cost to repair or reinstate the insured land and land structures that have been lost or damaged.

How much are the EQCover excesses?

Similar to private insurance policies, property owners need to contribute towards the amount payable for the EQCover claim. This amount is deducted when the EQCover claim is settled. The insurer might charge an additional excess for a residential building claim, which the policyholder will need to discuss directly with their provider when they make a claim.

The details of how EQCover excesses are calculated are set out below.

Properties containing one home

Coverage

Excess (% of amount payable)

Minimum excess

Maximum excess

Home

1%

$200

$1,725

Land

10%

$500

$5,000

Figures are GST inclusive

Source: Earthquake Commission

Properties containing more than one home

Coverage

Excess (% of amount claim)

Minimum excess

Maximum excess

Land

10%

$500 x number

of homes

$1,725

Figures are GST inclusive

Source: Earthquake Commission

If the property can be repaired or replaced for less than the amount of the EQCover excess, no EQCover claim payment will be made. The policyholder is expected to shoulder the cost to repair the damage.

How can homeowners make an EQCover claim?

The EQC website provides a step-by-step guide on how the EQCover claims process go. In general, homeowners are required to:

1. Contact their private insurer

In most cases, EQCover claims will be managed by the private insurer. To lodge a claim, homeowners need to contact their insurance provider directly. For policyholders who worked with a broker in arranging coverage, the broker will help them file an EQCover claim with the insurer.

Damages to the home and land should be lodged in one claim. If a new event has caused further damage, this should be filed under a separate claim.

Homeowners are also encouraged to lodge their claim within three months. If an EQCover claim is filed beyond this period, it will be subject to additional consideration, which may result in the claim being declined. The reason is that the longer it takes for policyholders to file a claim, the more difficult it is to confirm if the damage is related to the disaster.

Read more: EQC encourages flood-affected homeowners to lodge a claim

2. Document the damage

It is crucial for policyholders to provide proof of damage to support an EQCover claim. Homeowners are advised to capture as much evidence as possible by taking photos or videos, especially before making emergency repairs, or moving or disposing of anything. Images should show the extent of the damage.

Here is a list of what photos or videos can be taken, according to the EQC:

  • The homeowner’s mailbox to confirm the location of the damage
  • The front, sides, and back of the home and outbuildings
  • Any damaged land, including damaged retaining walls, bridges, and culverts
  • Several views and angles of each room that sustained damage
  • Wide shots as well as shots that zoom in on specific details

If possible, the EQC advises property owners to use a tape measure to show the size of the item or damaged area. The commission also suggests that users of digital cameras turn the date stamp function on, which could help assessors match the images with the specific natural disaster.

3. Assess the damage

A key part of an EQCover claim is understanding the extent of the damage. The claim manager will discuss with the policyholder how to best assess the damage to the property. Depending on the nature of the damage, a further assessment from an engineer or other specialists may be needed. In the case of land claims, it is likely that an assessment from a registered valuer will also be required. The assessor will also arrange for a costing of the repair of the damaged property.

Read more: New Zealand's costliest natural disasters in the past decade

4. Prepare for settlement

When the EQCover claim is ready to be settled, the claim manager will contact the policyholder to explain the following:

  • The outcome of the assessment for natural disaster damage
  • The total settlement amount
  • Where the settlement will be paid
  • The excess that has been deducted

Before making the EQCover claim payment, the claim manager sends supporting settlement documents for the homeowner’s records. The EQC reminds property owners that the payment must be used for “the purpose of repair or replacement of damaged property.”  The commission warns that a policyholder’s future entitlements for EQCover may be affected if the payment is not used for this purpose.