By Alex Tarrant
The government is unlikely to get involved in the insurance market to help prospective property buyers enter into insurance contracts for properties, Assistant Earthquake Recovery Minister Maurice Williamson says.
Williamson was responding to reports that insurance companies were not writing out new policies for house insurance as they assessed the market in the wake of the devastating Christchurch earthquake on February 22.
MP Jim Anderton, who is the member for Christchurch’s Wigram electorate, asked Williamson in Parliament what the government was doing to help people who had signed house purchase contracts and were seeking insurance cover, at a time when insurers were not writing new policies.
Williamson said the same issue arose after the September 4 quake that hit Canterbury last year.
“Following that event, a range of quite creative and innovative legal solutions were provided by the legal fraternity and it was made possible for these contracts to be entered into and function,” Williamson said.
“I would therefore advise people to consult with their lawyer to see if those same mechanisms can be employed in the interregnum of this earthquake,” he said.
“I have been told that the legal fraternity found a number of quite innovative and creative ways. That is, the new owner may actually just rent the property for some time, the old owner keep the title, the insurance that was on the property therefore carry on, and then only get the change of ownership on a date where insurance can be [bought].
“Can I point the member [Anderton] to the Christchurch Press today in which the largest insurance company in the area have said that they will continue to insure a house if it’s currently insured with them, even if the new purchaser is not a customer of theirs,” Williamson said.
Williamson said he hoped other insurance companies would follow their lead and do the same.
Anderton then asked:
What would he say to a constituent of mine who sought to re-house her parents after their home was destroyed in the earthquake, by buying an undamaged property in an area that sustained no damage and now finds, after the purchase price was agreed and cash placed in the solicitor’s trust account, that she cannot get the insurance cover to allow the deal to proceed, despite approaching the company which provides a cover to the current owners?
“I can’t obviously comment on a specific case because there’s always elements to it. I’m told that you cannot proceed with the purchase if there’s a mortgage involved because the banks will ensure or insist that insurance cover occurs, so therefore there would be an out in that case. If this was bought for cash, then that might not have been the case,” Williamson said.
“But in the end I am told, and the Canterbury Law Society’s been doing some work on this, [of] the creation of some quite innovative techniques that will allow people to keep that property covered until the insurance industry re-enters the market, which wasn’t very long after the September 4 earthquake,” he said.
“I grant him that it may be a little bit longer because of the magnitude of this one.”
Anderton then asked whether government would help by underwriting the risk for prospective home buyers who risked having an uninsured home while there were negotiations with the industry to ensure full insurance cover.
“I’m not sure it will be that widespread if the largest insurer says they will make sure their coverage carries on to a change of owner,” Williamson said.
“I’m sure the others will follow because the market will not allow one to take such a beneficial rate.
“In the end, I am told that these creative mechanisms that the lawyers used, in nearly every case resolved the problem. So for that reason alone, no, the government I don’t think will be getting involved in the insurance market,” he said.
Meanwhile, Finance Minister Bill English earlier said government would need to get more hard information about what insurance companies were doing before it made a decision on whether or not to get involved.
There is a possible situation that home buyers who are unable to get insurance cover would not be covered for EQC payments in the instance of another disaster if they did not have private insurance.
“If that was the case it would be an issue, but we need to get some harder information than just speculation,” English told interest.co.nz this afternoon before Question Time at 2pm.
“We wouldn’t want to get ahead of ourselves there. We just want to get a good understanding of what the insurance company position actually is,” English said.