International re-insurers are speaking out about the uncertainty caused by the Government's silence on the future of the Earthquake Commission (EQC).
Two of EQC's 55 re-insurers, Munich Re and Swiss Re, say the scale of the 2010-11 Canterbury earthquakes took them by surprise.
The loss they incurred was 50% more than they had estimated - the disaster ending up being the third largest quake loss the global insurance industry has ever experienced.
Speaking in Wellington yesterday both re-insurers admit they got their modelling wrong, in assessing the risk of a quake in Christchurch.
They under-estimated the extent of damage caused by liquefaction, and didn't have a sound understanding of the soil quality and old buildings' susceptibility to damage.
Munich Re regional manager, Martin Kreft, says covering a major disaster in New Zealand, where a large portion of the population have insurance, is also relatively more costly than covering a disaster in a country where fewer people have access to insurance.
The level of penetration is high as personal insurance is largely taken care of by EQC, and the perception that New Zealand is low risk previously resulted in low commercial rates.
Swiss Re managing director, Mike Mitchell, says while insurers paid for 80% of the economic loss of the quakes in New Zealand, they only covered 25% of the loss of the 2010 quake in Chile.
Four years on from the Canterbury quakes re-insurers' re-vamped models are incomplete and they're in limbo.
The industry's still waiting for Treasury to complete a review of the Earthquake Commission Act 1993, that was meant to lead to legislative changes in late 2013.
The review, which was launched in September 2012, focuses on the types of property EQC insures, the extent of cover, pricing, and the financial management of the Crown's risk exposure.
Mitchell says, "There are some fundamental challenges that we face in New Zealand that make it very very difficult for us in the existing environment to have certainty... that's around policy, EQC, the interaction between EQC and the commercial insurance sector."
He says there's been a lot of discussion within the industry around whether the model that EQC has is the most sustainable one long-term.
Furthermore, he says limiting all policies to sum insured will reduce some of the uncertainty, and "increase the security of the sustainability of capital to the marketplace through the pricing cycles of re-insurance".
Kreft has asked the Government whether it wants to adopt a 'social' or a 'capital protection' model when it comes to insurance.
By 'social' he means what we have at the moment where EQC can put everyone in an average house after an earthquake
By 'capital protection' he means EQC essentially becomes a re-insurer to protect the Government's funds.
"If your primary driver is a social model - social protection of society - then the response of EQC, the response of insurers and the response of re-insurers will be very different to if the pure objective is to protect the Government's balance sheet", Kreft says.
"We can respond either way, but it's not up to us to dictate to New Zealand which way it should go."
New Zealand Insurance Council chief executive, Tim Grafton, is urging the government to use its learnings from Canterbury to clarify its position immediately.
He says the Council provided a submission to Treasury's review in mid 2013, and hasn't heard a thing since.
He says the Government needs to look at the level of EQC's cap, which affects insurers' liabilities and the amount of re-insurance or capital they need.
Grafton questions whether it needs to change, saying you can barely build a half a garage for $100,000.
Earthquake Recovery Minister Gerry Brownlee reportedly said the review is almost completed with a report going to Cabinet within a couple of months, recommending only minor changes.