Earthquake Commission (EQC) chief executive Ian Simpson says the organisation's reinsurance cover had already doubled in price before the earthquakes that hit Christchurch last Monday, June 13.
Simpson made the comments in an interview with The Listener.
He is adamant the pending court case between the EQC and the Insurance Council wasn't slowing payments, and said he thought the EQC model had worked "extremely well" given the scale of events in Christchurch since the first earthquake on September 4 last year. He also rubbished talk the latest big quakes - on June 13 - would add NZ$6 billion to the overall costs of the quakes since September.
"There was that number that was quoted from a US modelling firm who said [June 13] would cost NZ$6 billion, which is just ludicrous. That had caused a huge amount of consternation in the markets," Simpson said.
Reinsurance costs double
The EQC had just completed renewing its reinsurance policies for June 1, Simpson said.
It has been expected the EQC levy paid by homeowners may have to be hiked from NZ$69 currently to about NZ$180 due to rising reinsurance costs faced by EQC, which would come as general insurance policies also become more expensive in the wake of the quakes.
"In general across the reinsurance market, and this is before Monday, rates had probably just about doubled," Simpson told The Listener.
"And you’d need to talk to other insurers about what conditions they are seeing at the moment as they try to put their renewals in place. So before Monday, EQC’s reinsurance cost went up by 50% but we renewed half the programme. The other half was already locked in at prior prices. So the half we renewed is twice the price," Simpson said.
EQC had 50 reinsurers, Simpson said. The EQC's reinsurance cover is triggered when an event had the EQC paying out more than NZ$1.5 billion, with reinsurance then kicking in to pay the next NZ$2.5 billion in costs. Only the September 4 and February 22 quakes would result in the EQC paying out more than NZ$1.5 billion for each event, meaning its reinsurance agreements had only been triggered twice.
"Each one of them has the same terms, all 50. But the programme itself is smoothed over a three year period," Simpson told The Listener.
He was hoping the situation would have calmed down by when the EQC had to again renew its reinsurance cover in a year's time.
Court case not affecting payments
Simpson tried to clear up the reason why EQC and the Insurance Council were going to the High Court to determine who paid what in certain circumstances. The court case is due to be held in Wellington sometime in the next few weeks. A spokesman for the High Court told interest.co.nz on Tuesday morning no date had been set yet. Insurance company Tower has launched a separate proceeding on the same issue.
"We are going to court because there is a view among the insurers that the EQC act is not clear on what conditions the NZ$100,000 worth of building cover reinstates," Simpson said.
"Basically there is a difference of opinion on the terms under which the cover renews. So on one level, there are lots of areas where we do agree. So if someone renews their home insurance policy then clearly the EQC cover reinstates along with their home insurance policy," he said.
"So the disagreement is within that 12 month period of the insurance policy, what triggers a reinstatement of EQC cover. And very loosely, the insurers believe that every aftershock triggers a reinstatement of EQC cover, and we take the wording that’s in the Act that says EQC cover reinstates effectively when we make a payment on the claim."
"It’s a discussion. As you have probably seen from press reports, we haven’t let this become an argument. We’ve approached it in a very sensible and grown-up manner. This is about how you read the EQC legislation. So we can sit there and try argue and compromise, which actually doesn’t particularly work well for either of our reinsurers if we start compromising. Or we can go collaboratively to the High Court and get a declaratory judgment on how the New Zealand legislation should be interpreted," Simpson told The Listener.
The dispute had "absolutely" not delayed any aspect of EQC's payments.
"We are working hard with the insurers to make sure it doesn’t delay any payments they might want to make either," Simpson said.
Scheme works well
Simpson said he considered the EQC scheme had worked well, given the scale of events in Christchurch.
"I suspect that within the next year or two every aspect of New Zealand’s response and the EQC response and the model will be reviewed," he said.
"I would say though that considering that we charge NZ$69 a year including GST to everyone who buys insurance, and we have just covered two extremely large international scale events I would say the scheme has worked – and I’m talking about the cover, not the organisation – but the cover has worked extremely well."
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.