There are real problems in the short-term for Christchurch reinsurance, although the long-term prospect looks brighter, Minister for Earthquake Recovery Gerry Brownlee says.
Insurance companies and developers in Christchurch are waiting for the big international reinsurance companies to recommit to the city over the long-term in order for reconstruction work to get underway. Some people looking to buy houses in 'green-zoned' parts of the city are also in limbo, as some insurers are not willing to write new cover due to uncertainties over whether their reinsurers will stick with them and as they reasses the Christchurch market.
Prime Minister John Key yesterday said he knew of one private insurance company that was trying to reduce its Christchurch book by paying customers out. The issue of insurers not writing new business was a difficult one, as parties were waiting for seismic activity to die down, Key said.
The opposition Labour Party asked last week whether the government had considered setting itself up as an insurer of last resort in the interim until insurers were willing to commit to Christchurch business, to which the government indicated it was not in favour, although all options were still on the table.
'Waiting game'
Talking from a reinsurance conference in Monaco on Tuesday morning, Brownlee told Radio New Zealand the key message from reinsurers was they were waiting for seismic activity to die down before they recommitted to covering private insurers doing business in Christchurch. There was currently cover in place, with the issue being whether they expanded that cover, Brownlee said.
"Most of them have committed capital to New Zealand, one of them has committed even more capital than they have before into New Zealand," Brownlee said.
“The picture is far from bleak, but they are all very, very cautious about when they might start turning the tap on for the private insurers because they’re saying, ‘we still don’t know how this event is going to settle out,” he said.
The difficulty was knowing when the earthquakes would settle.
“Long-term I think we’re fine. I can see a real problem short-term, but it’s also worth noting that the general feeling is that the risk has been priced too light in New Zealand. This has been a very big earthquake event, and very, very expensive,” Brownlee said.
That would mean reinsurance premiums, which generally account for 20% of a homeowner's overall premium, would likely rise.
'It's about information'
The government had to make sure actuaries had all the information available to them – officials from GNS and the Department of Building and Housing were with Brownlee in Monaco.
“The reality is that there is cover in place at the moment, what’s not happening is expansion of the book that any particular insurer has," Brownlee said.
Some insurers might decide to reduce their exposure to Canterbury, he said.
Meanwhile, the Christchurch Council is currently without cover for NZ$3 billion of infrastructure assets and would just have to wait until the earthquakes stopped and reinsurers would return.
“The message that I can give them is, at some point they’ll be able to pick that insurance up...I can’t tell you when the earthquake sequence is going to stop, and that is part of our problem. We are very patiently working through with them the science around all this stuff,” Brownlee said.
(Updates with links to previous articles)
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