Report questions NZ quake insurance system

Report questions NZ quake insurance system

New Zealand-based insurer Vero, part of Queensland, Australia-based financial services group Suncorp-Metway, has questioned whether the "dual insurance" model in New Zealand for earthquake claims is working as it should.

An independent report commissioned by Vero, completed by consultancy Deloitte, found that there were a number of factors that militated against the speedy settlement of claims.

After the Canterbury earthquakes in New Zealand of 2010 and 2011, a number of householders complained that compensation had been slow to arrive, with the private insurance sector placing the blame firmly at the door of the no-fault insurance system operated by the Earthquake Commission (EQC).

This administrative bottleneck led to a delay in the rebuilding of the city, as well as hurting the finances and mental health of many residences.

The current system permits any homeowner to claim up to NZD100,000 from the EQC following quake damage to their home. Any amount in excess of that needs to be claimed from the private insurer.

The New Zealand situation was also made more complicated by the fact that there were a series of earthquakes after the initial; shock in September 2010 (technically the Christchurch quake, which caused the most economic and insured damage, was an aftershock). This led to many homes having to be reassessed, with two assessments needed, by the EQC and by the private insurer. At the beginning the EQC was woefully understaffed, and it was some months before it had an efficient up-to-speed claims assessment operation in place. EQC was forced to hire an additional 2,000 staff.

Vero executive general manager of claims Jimmy Higgins said that "the current set-up does not always have customers at the centre, and there are lessons that have been learned which can be applied to getting better outcomes for New Zealanders", adding that "the question is whether having both an insurance company and EQC managing claims is the right approach".

Vero chief executive Gary Dransfield said that "we support a dual insurance model, but it is important to ensure that the primary aim is to get the best outcome for New Zealanders". Vero is calling for an open discussion among all affected parties to determine the best system going forward for New Zealand quake cover.

Although the dual insurance system came in for the report's main criticism of being systematically inefficient, Deloitte also found that the massive scale of the event, the sequence of quakes, the loss of Christchurch City Council's building accreditation, uncertainty around the plans of the Canterbury Earthquake Recovery Authority, and the rules relating to the Central Business District "red zone" (where ground liquefaction meant that all homes were classed as write-offs even though they might appear to have only a little external damage) all added to the complexity of the claims payment process. 

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