By Gareth Vaughan
The insurance industry had no idea the Christchurch earthquake scenario would be as complex as it ultimately turned out to be, AA Insurance CEO Chris Curtin says. He also says insurers must make sure insurance remains available and affordable, suggesting more initiatives like the move to sum insured from full replacement cover are needed.
Curtin told interest.co.nz in a Double Shot interview the insurance industry had learnt a lot after being caught by surprise by the series of Christchurch earthquakes, starting in September 2010 and including the February 22, 2011 one that tragically killed 185 people.
What made things complex, Curtin said, was having a series of big quakes one after the other, how the Earthquake Commission (EQC) related to the insurance industry, how land repair work has been conducted, and how zoning has panned out.
"All of those complexities were really not thought about upfront," said Curtin.
"And I think if we had have thought about those things, and the possibility of such a complex thing happening, we would have been in a better position - I think - to be upfront with customers, explain to them what the timelines were likely to be, talk to them about what they can expect next, and to try and get in a position where we can settle those claims a lot quicker."
"If we had our time over again I think what we would have done is to have developed deep relationships with the other parties involved so central (and) local government, the EQC.
But really the truth is we had no idea it was going to be that complex even to the extend of how our own policies were going to respond to our customers when you're talking about multiple events in a short timeframe and how that would work with the EQC,"Curtin added.
Risk & responsibility
Since the Christchurch quakes AA Insurance has led the way in a significant shift in home insurance to "sum insured" from full replacement cover. This means home owners must now calculate their own rebuild cost. Asked whether this had shifted risk to customers from insurers, Curtin said it had shifted responsibility to customers but argued they're the best people placed to know about their own home.
"In a sum insured environment where customers are working out how much it costs to replace upfront, before the event, (this) is a much more effective way of doing things," said Curtin. "And I think in a sum insured environment if we had another Canterbury situation, god forbid, we'd be in a position to be much quicker in terms of settling those claims, particularly those people that wanted to take a cash settlement."
He said it was important for New Zealand to remain a highly insured country because the fewer people who take out insurance, the higher the costs for those who do.
"The key to that is that we (insurers and reinsurers) work together to make sure that insurance remains available and affordable by looking for opportunities like the sum insured situation that we've put in place. We need to find more solutions like that," Curtin added.
Suzanne Wolton, AA Insurance's head of distribution and customer relations, told interest.co.nz last December the move to sum insured was coming after reinsurers reassessed their view of New Zealand realising the risk is greater than they previously thought.
'Open ended replacement completely unsustainable'
Curtin said Christchurch has shown "open ended replacement" was "completely unsustainable."
"Because the reinsurers didn't have a really good view about what their risk exposure was. So when it comes to sum insured I think this will be more helpful."
One of the surprising things about the Canterbury quakes was issues thrown up about the types of homes insured.
"For example, we had very limited information about a customer's home. We might have had the year it was built and the size. But when you put two homes together that are approximately the same size, clearly House A and House B may be completely different."
"So House A may have been built on a flat section, it may have been a pretty standard spec home. Whereas House B might have been a kauri villa, marble floors in the bathroom, a plumped in barbecue situation out the back. Now clearly those two homes are completely different," said Curtin.
"So what we're doing is we're asking the customer to take responsibility for establishing what the sum insured is up front rather than after the event. And I think that's a good thing.
So are we shifting the responsibility to the customers? I think the answer is to a certain extent we are. We have worked really hard to put calculators in place for people to be able to do that, and of course customers can go and get a valuation."
"But when you think about it there's no one better than the customer in terms of knowing about their own home. So it does make sense that the customer does know more about their own home and should be able to establish their sum insured upfront," Curtin said.
He said AA Insurance had sorted out about 67% of customers' home claims stemming from the Canterbury quakes, and had finished all its content claims. Overall there were about 1,400 claims still outstanding.
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