Am I covered? - A guide to how earthquake insurance cover works

Am I covered? - A guide to how earthquake insurance cover works

By John Grant

The size of the damage bill from the Canterbury earthquake will take weeks if not months to be understood.

It impacts both the private and commercial sectors - houses, contents and personal property, commercial buildings, damage to stock, business interruption and the damage to public infrastructure, roads, bridges, retaining walls, water supplies, power and sewage.

The end result will be a figure that will no doubt surprise many. Current estimates of between $1.5 and $2 billion are likely to be revised upwards as more detailed investigations reveal the true extent of the damage.

The government's Earthquake Commission (EQC) was established in 1945 to provide earthquake and war damage cover for purchasers of fire insurance. Later, cover for other natural disasters was included and, later still, cover for war damage dropped. The modern EQC is a Government-owned Crown Entity.

Cover is now capped at maximum claim amounts.

To obtain EQC insurance you must hold a current fire insurance policy on the property with a private insurer.

The private insurer is required to collect a premium on behalf of the EQC. You pay 5c for every $100 of cover plus GST. As the cover is limited to $100,000 (plus GST) for houses and $20,000 plus GST for contents this means most people pay $67.50 per annum as part of their House and Contents insurance.

In addition to the limited EQC cover, private insurers provide cover beyond the EQC cover to the limit of the cover you have on your house and contents policies.

In most cases these days houses are insured for replacement cover to a physical size of the property.  This means a property of 300 sq metres is insured for the cost to replace a 300sq m property.

The benefits of this type of cover will now become very apparent as costs are bound to escalate due to scarcity of material and the labour to rebuild.

Therefore if your loss is of a minor nature then you will probably be dealing with the EQC.

However larger residential losses that will exceed the $100,000 cap will require a coordinated role between your private insurer and EQC. In these cases your insurer will be your primary point of contact and they will liaise with EQC.

EQC only cover physical damage to your property. Therefore if the house is not habitable then you will need to claim for temporary accommodation costs from your insurer.

All claims for non residential losses will need to be made to your private insurer.

Claims for damage to commercial buildings will be substantial. However the largest cost is likely to be for business interruption claims. This is where an insurer will cover loss of profits from the inability to trade. It also provides cover for reduced profits due to damage or restricted access through an event such as this earthquake.

Uninsured and under insured problems

The difficulty will come from those who are either not insured or underinsured. The size and extent of this problem will become increasingly apparent in coming weeks.

In previous large disasters, it has been found that one third of people impacted are uninsured, a further third are underinsured, while the remaining third have adequate cover.

Those who do not hold a house or contents cover and have suffered loss or damage to their house or contents are not insured by the Earthquake Commission.

   

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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14 Comments

1/3rd uninsured?? How can people pour a hard-earned deposit worth at least 10s of thousands of $$$ in a house and then not get any cover at all? That's nuts. If someone has the cash to buy  a home, surely they have 100$/month or so to spare to cover what's probably the most expensive thing they'll ever buy? That said, lots of people seem to think it's OK not to insure their car so maybe they feel the same about houses. Still, I hope it's a much smaller proportion that didn't have any insurance.

Elley - I totally agree but JK has said that Cabinet will need to address this issue, which means the taxpayer will bailout the uninsured. 

I agree that it may be a big cost to some people but those people probably can't afford to or shouldn't be buying a house in the first place in that case, let alone take a mortgage to have the bank buy it for them. It's not like earthquakes or just fires never happened.

I am staggered that 1/3 of folk would have no house insurance.

If that is true, and such folk will not get anything back for the damage to their homes (according to the above) then it is hard to see how the effects of the quake can be anything other than detrimental to the region - in effect the value of hundreds of millions of damaged assets/property will have been taken out of the economy.

Which raises the question...are we in need of compulsory property insurance as part of rates with companies tendering for the premiums on offer.....clearly there will be characters who, due to their past are not deemed to be insurable...in which case their premium goes to a govt fund. It seems bloody daft to allow one third not to have cover in a country that is always at risk of either the shakes or a flood. Cabinet need to look at this matter....NOW.

Surely any house bought with a mortgage has to have insurance?

 

Sorry to hear of that.

 

In changing cover did you not set it to roll over at a set date and time to your new provider.

Or have you let the State policy lapse and were getting around to get cover with AMI and the earthquake struck?

Insurance payments are only for the period of insurance in question. Length of time will only give you a discount on premium and not an expectation of cover.

Based on what you said - you would have no cover.

Certainly the quake has made me drag out our policy documents, and with a house move in the next couple of weeks, want cover from takeover date/time.

Also EQC ALSO covers you for landslides, drainage issues as well.

dbl post shocker again

Sorry to hear your house was damaged. Not sure why you didn't arrange for a proper takeover with the new insurance. When we moved in February, we got cover for the new place 1 week before handover from the builders. Same with my life insurance, made sure to receive the documents before cancelling the policy with another company.

Although technically you're not covered I doubt you won't get something from the govt. I certainly hope you will anyway. Seeing that investors and anyone else who chose to take risks get bailed out, it'd be a shame to leave people who've lost everything in a natural disaster not get anything (it does make me wonder why we bother making sure our family is covered though).

Yet another crap night down here. A number of big jolts again, 2 big ones and at least one of those lasted for long enough to be scary. So tired to be on alert all the time and spend half the night reassuring the kids.

Insurance has to go the same way seatbelts and bike helmets went. Too many are too stupid or too lazy to think but bloody quick to demand munny when it hits the fan.

Hopefully the Cabinet will see past the stupid policies of earlier govts and make property cover a part of council rates.

And NO............. we do not need another bloody working group!

It is the councils responsibility I suspect...though i would wonder if your insurnace pays for damage but not the cause......it maybe time you got a lawyer...

regards.

I assumed EQC has been salting the profits of premiums away, investing it wisely, ready for an earthquake.

But now that we've had such an earthquake and EQC (eventually) pays out to those affected they want to increase the premiums? What? Isn't this exactly what we were all insuring ourselves for and paying premiums for all these years?

What's happened to all EQC's profits during 'lean payout' years? 

Brian

uh....a somewhat strange comment,

the EQC doesnt make a profit.....its all fed back into its piggy bank.

So four reasons,

1) Its now depleted due to the chch payouts so it has to recover its capital.

2) That also means given the size of the chch payout its capital base was too small.

3) It re-insured some of that risk, those premiums if my premium is anything to go by have gone up 200%+...

4) Its highly likely that NZ might find it cant get re-insurance in the future so we will have to self-fund.....that means a way bigger fund is needed.

Is this straighforward enough for you to understand?

regards

Then tell me about this piggy bank.