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Private insurers finally get their way, as EQC enables them to handle claims on its behalf; Public Inquiry was inconclusive on the matter

Private insurers finally get their way, as EQC enables them to handle claims on its behalf; Public Inquiry was inconclusive on the matter

The Earthquake Commission (EQC) has agreed to enable private insurers to handle claims on its behalf.

Anyone with home insurance whose home or land is damaged in a natural disaster will now only need to lodge one claim with their private insurer.

Their insurer will assess, manage and settle the claim. The first $150,000 of damage will still be paid for by EQC.

This model was used after the Kaikōura earthquake, and more recently in responding to the Northland floods.

Under the partnership, insurers will also provide data to EQC about where insured homes are located, so EQC can better model its exposure to natural hazards.

EQC CEO Sid Miller said: “The response to the Canterbury earthquakes highlighted that New Zealand’s dual insurance system meant customers had to make two claims – one to EQC up to a capped level of the damage and the other to their private insurer for top-up cover losses. This was inefficient and frustrating for our customers.”

Insurance Council of New Zealand CEO Tim Grafton said: “This will ensure a more effective and efficient response, delivering simplicity and certainty for customers during a very stressful time.”

Grafton has for a number of years advocated for private insurers to deal with claims on the behalf of EQC.

However handing claims management to private insurers was not something recommended by the Public Inquiry into the EQC, concluded earlier this year.

Silvia Cartwritght, who led the review, recommended the government, “Build significantly improved cooperative relationships with private insurers operating in New Zealand, including ensuring sharing of data that is critical for EQC’s work following a natural disaster.”

However she said she had a “number of concerns that require more careful evaluation and planning” when it comes to enabling private insurers to oversee the whole claims management process.

Miller said: “This agreement is not only in response to the Public Inquiry but is a continuation of the improvements EQC are making to give our customers certainty more quickly in the event of another natural disaster.

“Kaikoura was another step in that development and we have been working with insurers on this agreement since Kaikoura.”

Here’s a snippet from Cartwright’s report on the issue of private insurers handling EQC claims:

EQC commissioned two reviews of the Kaikōura model - an operational review (by Acuo in 2017) 226 and a strategic review (by PwC in 2018)227—as it worked to evaluate its advantages and disadvantages. The results indicated that the agency model had worked relatively well and that, economically and operationally, it was a sensible approach to apply following future natural disasters.

The external evaluations commissioned by EQC pointed to a number of potential risks that, in general, related to the conflict between an industry that is commonly motivated by commercial factors and an agency such as EQC, which has a public interest imperative. Possible issues might arise if EQC effectively places control of settlement of natural disaster damage into the hands of an entity over which it has little jurisdiction. Prospective qualms include: insurers settling claims more generously than is justified to increase their appeal in a competitive insurance environment; insurers shifting costs among multiple events to maximise the proportion of coverage borne by EQC; and insurers using EQC information for their own commercial purposes, such as in the area of underwriting or in interactions with claimants.

The Insurance Council considers the Kaikōura model worked well because private insurers already hold information on homes so they are a logical first point for contact, the approach avoids duplication of efforts and the industry has greater access to loss adjusters and more capacity to scale up.

While there have been mixed views of the Kaikōura model, there were certainly advantages for the affected public. They saw their claims settled in cash more quickly than greater Christchurch claimants, whose many problems were well known beyond that city. At first sight, the Kaikōura model was advantageous both to EQC and to the private insurers involved. EQC was relieved of the onerous responsibility of managing a repair programme and greater commercial certainty was achieved more quickly than the two-tier approach taken for assessment and then repair, in Canterbury.

There are, however, a number of concerns that require more careful evaluation and planning. The Kaikōura model was a much more limited trial than the Canterbury Home Repair Programme. Although a very large earthquake by usual standards, the affected housing stock in the Kaikōura and Hurunui districts was relatively small, making it too early to judge whether this model may be effectively used in larger and more complex events.

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12 Comments

Interesting. “EQC, which has a public interest imperative” that in itself is a double edged sword if there ever was one. It seems that the public interest under National, lead by Treasury, promoted by Brownlee was that the public interest was the dampening down and reduction of liability by all means possible. That lead to the foul and punitive practices that were inflicted on Canterbury EQ claimants far and wide by some EQC personnel who had an agenda written in hell. Many people had their homes and lives destroyed by these invidious actions, more so than the actual EQs. The thing is once those pathfinders had done their job, the insurers were only to happy follow suit. Getting to deal with just one nasty bovver boy is better than two, but some effective disciplines still need to be enacted to prevent these dire circumstances ever arising in our country again

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Well said.
Its worth noting that when those "foul and punitive practices" were being inflicted on claimants, they were publicly called out in real time by many people, and yet it did little to deflect EQC and Brownlee from their abuse. There is little revealed in the new arrangement to see how bad behaviour by insurers could be corrected in a timely way.

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FG. Sadly, 'foul and punitive' are not exaggerations. There are numerous credible accounts of EQC and insurer dirty tactics in CHCH. A difference between them was the culture among some at EQC of 'we don't much care what you think because our revenue and existence is not at risk'. You also saw a bit of that at southern response from time to time. While you came across similar approaches including the god complexes here and there among some of the private insurers, their commercial reputational driver acted as a modifier. You could usually appeal to those higher up the food chain and fairly easily get a review and case manager change to someone else. The game of course changed when insurers outsourced a claim to external lawyers and cold blooded vultures took possession of the carcass.

Kaikoura is cited by many, including Dame Cartwright, as a potential exemplar of how private insurers leading damage assessments is a game changer. But it’s not that simple. Yes the claims process operated far more efficiently but as Cartwright notes, the event was so minor in scale in respect of property damage that it tells us little about insurer capacity to deal with a big one. The most you can say is that the Aussie insurers have the strongest capacity to scale up and have their future business and brand at risk so thus are the best option. But I'm pleasantly surprised the comrades resisted their socialist urges to keep the claims process within the EQC bureaucracy.

A fundamental issue that the media has not yet closely examined remains however and that is the process to establish how/when a claim goes over cap. There are differences in claim outcomes between the EQC act wording and wider private insurer policies that on the surface appear inconsequential but in larger claims proved major. Unless these differences are resolved by having the EQC act aligned with insurer policy wordings (at a potentially significant increase in cost for EQC), there will need to be separate parallel assessments carried out based on both organisations cover wordings and the same old under/over cap arguments and CHCH style widespread misery will remain. Who holds the power to decide the cap status is critical to the outcome in future wide scale events. There is no public word yet on how this will play out but you can bet that in the behind the scenes horse trading EQC will have argued it should be them.

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MM good morning. Aye and there has just been another step forward with the high court decision over the IAG’s ultimate responsibility for a stuffed up repair. Also noted some months back a successful appeal (Moore/IAG CA356/2019) where a claimant has been awarded damage costs for each sequence, which candidly I don’t quite understand? Anyway amongst all the dust and debris we certainly can agree that this has been a very sorry exposure of certain unsavoury aspects of society in NZ. By that I mean not only those that were involved in being and conducted themselves as the brow beaters and bullies of EQC & insurers, and who seemed to revel in the opportunity to inflict damage on their fellow countrymen, but just as odious were the opportunists and scavengers that soon arrived on the scene supposedly to assist those claimants unable to defend themselves. Some of that is before the courts too. Quite honestly it has been an unwelcome surprise to discover such repellent individuals are kicking around in our everyday life.

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FG. 'damage costs for each sequence' refers to the damage occurring in the shaking sequence that is declared to be an 'event' under the insurance contract. Policies usually specify and limit the number of hours that define 'the event' and after this period has expired any further damage caused by, say, following aftershocks will be declared as having occurred under a new and following event(s). Cover is reinstated after each event and damage occurring subsequently is accommodated under 'new' claims. Policy holders can in some cases actually receive more than they (under)insured the building for where damage was caused progressively by sequential EQ 'events'. Where a building is physically totally destroyed in the first event however, this 'reinstatement of cover' clause has no effect; all they will receive is the total sum insured. It really only applied in CHCH to commercial contracts as most house policies were 'open ended' ie they had no sum insured limit. Very different story for commercial properties which were mostly subject to a maximum sum insured. Fierce battles were fought over how much damage was caused by each sequence for this reason. Dig a little deeper on some claims where owners are in the media claiming 'problems with insurers' and this never anticipated windfall opportunity will sometimes be the motivation. Under insured dungers that progressively degraded could deliver an excellent return on investment. At the macro level insurers scrapped with reinsurers over the amounts to be allocated to each event with those who ran out of RI cover somewhat early more keenly invested in the outcome. Similar disputes between EQC and insurers over the ppn payable for each event made lawyers wealthy. Some of these involving eye watering sums are yet to be resolved.

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What tosh. Many, many Canterbury EQ claimants far and wide, and likely the vast majority, chose to insure with a woefully under-resourced insurer whom quickly went bust when an earthquake occurred.
Presumably but for the Treasury, at National's request, anyone foolish enough to be insured with AMI would be without any cover at all. I think much of Canterbury owes a very big thank you to National for keeping the dirt cheap cover they purchased from AMI in play as part of Southern Response.

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First of all AMI cover was competitive, that’s all. AMI enjoyed a loyalty that hung over from the old SIMU original mutual insurer. Secondly regardless of whatever government, the fact that both AMI, and almost Tower, were allowed to be so exposed with inadequate re-insurance is a regulatory failure, not a policy holder failure. Thirdly the government chose to bail out in no more grand fashion than 2008 the like of SCF et al, but having done that there is no excuse whatsoever for the despicable and punitive treatment of claimants by agents of the government at the hands of, Southern Response that has now been exposed alongside that of EQC. Fourthly, and fairly bloody obviously, this thread is actually about EQC, not all claimants and certainly not the vast majority, were insured with AMI, so what about them then? Fifthly, if you had been on the receiving end of such malevolence by either EQC or Southern Response, you would not have written what you did.

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Potato. 'anyone foolish enough to be insured with AMI' - given govt did not back then regulate insurer solvency ratio nor reinsurance coverage adequacy I'd be interested to learn how you at the time would have avoided the ranks of the foolish by establishing AMI was so exposed to insolvency ?

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Given this particular identity has been registered here for less than twelve hours, and pleaseforgive the dreadful pun, I suspect he or she might be a plant.

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All common taters are welcome on int.co but probably should keep a wary eye out for regular contributor masher.

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The reference to eqc and floods. Since when have they been involved or responsible for flood damage or have I missed something?

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For flood and storm damage, EQC covers land only, not structures. They do cover landslip damage to buildings which is often associated with heavy weather events.

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