Tower chair Michael Stiassny says the Government "must legislate" to put a time limit on insurance claims for the Canterbury earthquake.
"This is critical, to provide certainty for all parties and to bring about closure to an event that happened nearly 15 years ago," Stiassny said on Tuesday.
"It’s also about putting a stop to the peripheral industry that has created a self-perpetuating gravy train."
Stiassny's comments came as insurer Tower reported an after-tax profit of $49.7 million for the half-year to March, up from $36 million for the same period a year ago.
However, despite a strong performance, the company's profit was affected by a $6.2 million after tax Canterbury-related charge in the half year, with the company receiving a further 15 new or reopened claims.
"I did not think that almost 15 years later we would still be making provisions for the Canterbury earthquakes," Stiassny said.
Not only is the "never-ending tail of Canterbury earthquake claims" imposing huge costs on the Government and insurers, customers are getting a raw deal, he said.
Stiassny said Tower has a positive relationship with the National Hazards Commission, formerly the EQC. The current operating model whereby private insurers manage the claim end-to-end is working well for customers. Claims relating to the Kaikoura earthquake and the 2023 catastrophe events were settled quickly and with relatively few complaints.
"But the Canterbury earthquakes remain an albatross, as the EQC Act did not set a time limit for reopening historic claims, and claims continue to be reopened. There is no knowing how long a claim will take to be managed by NHC which is responsible for paying the first $100,000 of each Canterbury earthquakes claim, before it becomes a private insurers’ responsibility," he said.
"To put it in perspective, as it stands, a Canterbury earthquake claim transferred from the NHC today could still have years to run before the final costs are known."
More importantly, Stiassny said the current situation may also prevent NHC from restoring capital levels, leaving it more vulnerable to the next big event.
"From a customer perspective, this is an intergenerational equity issue where today’s policyholders are continuing to pay for Canterbury earthquake claim costs."
In terms of the "self-perpetuating gravy train", Stiassny cited lawyers and advocates prolonging disputes, while contractors actively seek to find damage in the hope of pinning it to the earthquake and getting more work.
"This practice is egregious. The Government - and ultimately the taxpayer – bears a substantial financial burden and these additional costs put unnecessary pressure on premiums to the detriment of customers," he said
"As a society, this will require us to have some difficult conversations. No one – least of all me – wishes further harm to those who were affected by these tragic earthquakes and continue to discover damage or are faced with shoddy repairs.
"It won’t be easy, but as a nation, we need to find a way to balance the ongoing needs of those with historical claims with the needs of future claimants."
As the recent Reserve Bank (RBNZ) insurance industry stress-test report highlighted, the Government, via NHC is already paying a high proportion of New Zealand’s natural hazard costs, "which it can ill-afford", Stiassny said.
"Therefore, Tower is actively encouraging the Government to reconsider Treasury’s proposed increase to the NHC cap to avoid the Government taking on even more of New Zealand’s natural hazard risk and other unintended consequences.
"Because the levy is applied uniformly, an increased NHC cap would lead to higher insurance costs for everyone, but those who will suffer the most are lower income homeowners.
"We also urge caution against implementing a proposed 50% increase in the NHC levy. Taxes and levies already make up a significant portion of customer premiums and for Tower could rise to 56% of an average premium under the current proposals.
"In short, the net result of the proposed NHC levy increase would significantly undermine Tower’s efforts to implement fair, risk-based pricing by sending the wrong price signals. It would be a direct slap in the face for homeowners who live in less hazard-prone areas.
"For the avoidance of doubt, Tower believes in – and will continue to advocate loudly for – risk-based pricing," Stiassny said.
Underlying profits strong
In terms of the detail of Tower's half-year results, the company said its "underlying net profit after tax" was $61.7 million, up from $36.6 million for the same period a year ago.
"The strong results were due to continued improvements in business-as-usual (BAU) claims performance, continued gross written premium (GWP) growth and improvements in the management expense ratio (MER)," the company's statement said.
The "reported profit" of $49.7 million includes provisions for ongoing customer remediation-related costs and an increase in Canterbury earthquake cost estimates, "due to Tower continuing to receive more over-cap claims than expected from the Natural Hazards Commission (NHC)".
The company provided this summary:
- Underlying profit $61.7m vs $36.6m in HY24
- Reported profit $49.7m vs $36m in HY24
- GWP $297m, up 4% on HY24
- BAU claims ratio 38.1% vs 49.7% in HY24
- MER improved to 30.4% vs 31.3% in HY24
- Large events costs $3m vs -$1.9m in HY24
- Customer numbers grew to 312,000, up from 309,000 in HY24
- Combined operating ratio (COR) 69.7% vs 80.2% in HY24
- Fully imputed interim dividend of 8 cents per share.
Tower just recently upgraded its expected underlying earnings for the full year to September to a range of $70 million-$80 million.
It didn't add any update to that forecast on Tuesday, but did say that this assumes full utilisation of the company's $50 million large events allowance. To date, the company has used just $3 million due to the Dunedin flooding event in October 2024. The April 2025 Cyclone Tam flooding event in New Zealand will be recorded as a large event in the second half with an estimated cost of $4million.
Tower says any "unused portion" of the large events allowance (after tax) at year end "will increase underlying NPAT to improve the full year result".
Tower's interim chief executive Paul Johnston said the "positive" first half results reflected Tower’s commitment to delivering sustainable, profitable growth by upholding core insurance fundamentals: robust risk selection and pricing, and claims management.
"Tower is focused on continuing to grow high quality risks while enhancing the company’s resilience and claims performance. This year we will expand risk-based pricing to include sea surge and landslide risks, helping our customers better understand their risks and how these factors impact their insurance pricing," he said.
3 Comments
Christchurch hazard maps show that the risk remains over most of the city
https://apps.canterburymaps.govt.nz/ChristchurchLiquefactionViewer/
The irony of course us that the Govt. and insurers dragged out the whole process to their benefit, and thus are the creators of the gravy train system.
The students learned the lesson well from the masters.
Well Key, English & Brownlie lay the foundation for all of that. All that was needed was an honest and accurate assessment of residential damage and if over the EQC cap, pay it and leave the rest to the claimant and their insurer. What eventuated was thousands of dud repairs by the EQC/Fletchers which ultimately let the insurer of the hook. No friend here of the sixth Labour Government but they were in 2017 certainly handed a bloody expensive botch up to remediate.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.