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The Government commits to increasing EQC cover for buildings, extending the timeframe claims can be made within and enabling more data sharing

The Government commits to increasing EQC cover for buildings, extending the timeframe claims can be made within and enabling more data sharing
Minister Responsible for EQC Megan Woods

The Labour-led Government is speeding up the review of the Earthquake Commission Act, initiated under the previous National-led government back in September 2012.

It expects legislation to be passed by the end of the year, so that changes to the state insurer for natural disasters can be implemented by July 1, 2019.

The National-led Government anticipated changes to be implemented in 2020.

In line with the previous Government’s commitments, the Minister Responsible for EQC, Megan Woods, says the revised legislation will see the limit on cover for residential buildings increased from $100,000 to $150,000 (plus GST).

It will also remove EQC cover for contents.

Woods says: “Removing cover for contents will increase EQC’s ability to allocate more resources when responding to a natural disaster and help reduce any delays in resolving residential building and land damage claims.

“Government has talked to the insurers and the indication is that private insurance cover for contents will continue to be available at a reasonable cost.”

Woods says the agreed changes will also enable EQC to accept claim notifications within two years of a natural disaster, rather than within the current three-month limit.

Furthermore, they will clarify “EQC’s authority to share information to support the implementation of the EQC Act and settlement of insurance claims, and where this is in the public interest and safety”.

Woods’ predecessor, Gerry Brownlee, hadn’t committed to implementing these two changes.

Woods leaves thorny issues to review 

He had however said last June that the reforms would require EQC claimants to lodge claims with their private insurers, who would pass these on to EQC.

A memorandum of understanding between private insurers and EQC saw this system used in the wake of the Kaikoura quake. It resulted in claims being settled more quickly than in the aftermath of the Canterbury quakes when claims were lodged with the EQC from the get-go.

Private insurers have been lobbying the Government to have the ability to receive, assess and manage claims on behalf of the EQC.

The other major issue that Woods hasn’t made mention of, which Brownlee did, is clarifying that EQC land cover is for natural disaster damage that directly affected the insured’s residence or access to it.

Confusion over who pays what for land damage has seen IAG and Tower take EQC to court in an attempt to recoup millions of dollars spent on dealing to land damage in the process of rebuilding or repairing buildings.

These issues around land and claims handling are expected to be covered by the inquiry Woods has commissioned into EQC.

She has appointed an independent ministerial adviser, Christine Stevenson, to report to her on EQC’s claims management, its operational, resourcing, policy and legislative constraints and any constraints caused by processes with private insurers.

Responses from National and private insurers

Both the National Party and Insurance Council of New Zealand broadly welcome Woods' announcement. 

However National’s EQC spokesperson, Stuart Smith, says extending the claim period will be expensive and problematic.

“In a big event, it will confuse arguments of apportionment between reinsurers so the Minister needs to answer how different events are defined within that two year period," he says.

“Following the February 2011 earthquake in Christchurch for example, there were literally thousands of aftershocks, many of which were considered separate events.

“This announcement will likely cause significant increases in costs to policyholders - I’d like to know from the Minister what advice she has had from Treasury about how much this will be - and whether Treasury supports the extension of the claims period."

The Insurance Council’s CEO, Tim Grafton, hasn't commented on this, but reiterates the industry's wish to receive and manage claims on behalf of EQC.

“It’s insurers who have the relationships with customers and the bulk of resources, and will already be involved in settling contents claims in any event,” he says.

Furthermore, Grafton says: “The lifting of EQC cover to $150,000 plus GST acknowledges the fact there has been no change in the level of cover provided in the Act since 1993. 

“The transfer of contents insurance from EQC to private insurers logically reflects the need to focus EQC cover on what is most needed after a disaster: rehousing people.

“There is also an important provision to clarify that EQC can share information with insurers to assist in the settlement of insurance claims.

“The last thing that’s needed when you are trying to settle claims after a catastrophe is bureaucratic hurdles creating delays when information sharing is essential to speed recovery and safeguard people."

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Two major issues that have to be addressed

The red zone. If your land is damaged to the point that the government decides it is not habitable or it is unsafe, but your house is not much damaged and repairable then you are in big trouble. The insurer can legally say their liability stops at the cost of the repair. For the 2010/11 Canterbury EQ’s the government then made pay out offers based on out of date government valuations. Mr Brownlee cynically remarked that that meant some people then got more from their house than what the market would h ave paid. That was of very little comfort to those who were the opposite, ie the majority.

Coming to light now are thousands of EQ repairs under the mantle of EQC that are not code compliant, bad workmanship, unsafe. If that repair should fail in a future EQ and say, collapse the house beyond repair then the owner is uninsured as per the relative clause in every insurance policy. EQC will take no responsibility for this.The owner, ultimately responsible for code compliance by statute, is therefore in a hopeless situation.

Is this new government gong to have the backbone and application to address the above and all the other dire consequences that the previous government ignored. Hope so!

Pharos. Plenty of hard hitting talk from the opposition leading up to the election but so far it mostly remains just that - talk. The reality is that while they have some (limited) ability to bash insurers over the head and splash a bit more more taxpayer cash at the 2600 known outstanding EQC claims so they can claim to have 'cleaned up the last government's mess', the huge dollars to pay for actively seeking out as yet unknown shonky repairs, would send Robertson into a tailspin.

Houses rarely collapse. Unless they are of ancient masonry. Damage would have to be over $150K before the insurer policy was triggered and pre-existing defects became an issue - a reasonably large claim.

There will be a fanfare enquiry on EQC that will spend a long time reporting back on what we already know, the new EQC broom will buy some brownie points with the public, some sort of mediation scheme will be agreed with insurers and the other issues will all do the old soldier routine.

Actually I don’t agree that there was a lot of hard hitting talk by Labour or any of the other opposition for that matter. Strangely muted especially given the dire affect on the Eastern side of town, traditional Labour voters. With the exception of Ruth Dyson who was an unflagging stalwart for her people. She was then demoted for her trouble.

Like oh so very many, we went through a hell of a time with our insurers and before that EQC. The former capitulated one week before our court hearing. We were paid out on a rebuild in excess of $1mill. That was up from a starting point of $112000.00 by EQC fully collaborated by our Insurers. The damage to our house was stark and plain to see even by lay people. Reports verifying this were provided by us by three different firms of structural engineers, two registersed surveyors, two master builders and a QS. All this was ignored up until, as said, a week before the court hearing. One nefarious argument consistently thrown at us during the whole course of this was that our house was structurally unsound through bad design, was a leaky home and there was bad workmanship. This pretext was used to forward a settlement cheque and close our file, YES CLOSE OUR FILE, even though our lawyer had made it abundantly clear that we were still in dispute. Sure a house might not exactly collapse, but the mere fact of the bad workmanship clause, which is obviously fair enough in normal circumstances, has the potential if manipulated by insurers, to cause a lot of grief to those with dud EQ repairs that they have had no control over, but yet are responsible for.

Ha, the 'there's pre-existing deterioration/poor workmanship/design which means we don't have to pay for any earthquake damage to said structure', line. Your type of claim is one of the trickiest, often compounded by incorrect understandings of how gradual deterioration exclusions operate.

You'll have been through hell. Hopefully with the perspective of a bit of time, one or two upsides from the experience might be emerging. Thanks for sharing.

After a bit more reflection I have warmed to your sentiments. Looking at the recent appointments to EQC and the surveillance investigations there is a distinct odour of pussy footing!

$150,000 (plus GST) nowhere near enough. What size basic house can be built, i.e. rebuilt, for that? How about say $250,000 plus I assume something for fixing the land so there can be rebuilding.

Remember, your private insurer will pick up the cost above that EQC limit. 

only if firstly there is an insurer or there are insurers wanting to insure against earthquakes and the government cannot compel private industry to insure what they might not want to and secondly they are still there when the earthquake happens. Otherwise government will need to provide welfare or other economic assistance. Which is what EQC is set up to avoid.

And increasing the amount to $250K would mean a bigger number would stay 'under cap' and thus in the tender care of the food folks at EQC.

Which might be a good idea anyway. If the compulsory insurance cover is not enough to provide a house what do you do with half a house? Ideally only those with more than a basic house should need to buy top-up insurance privately and have to pay whatever might be asked. The argument of more 'under cap' claims is a different issue and I'm not sure keeping the EQC cover low is the way to deal with the alleged non-compliant repairs. Taking it further you could say well keep the EQC cover real low or not have it at all and leave it all with the insurers but this would not at all meet Government's expressed intentions nor deal with the non-insurance or under-insurance issues we are often bombarded with and which is now supposedly heightened because of the requirements of the majority of insurers not to provide full replacement insurance but only to a selected sum insured amount.

The clarification of EQC liability for land damage will be interesting. After all, what will be the point of having your house fully insured if your land becomes useless because of erosion or inundation? EQC's diminution of value payments (DoV) for land in Canterbury that was at increased risk from flooding and liquefaction after 2011 have left many properties in the Avon estuary much more exposed to flooding because the land subsided. Meanwhile, insurers are reportedly withdrawing cover from some coastal districts in Christchurch with a view to reducing their exposure. Climate change and sea level rise are bound to increase the frequency of flood events everywhere. But whereas this is a concern for all coastal communities in New Zealand, Cantabrians experienced the equivalent of 70 or 80 years over the course of the earthquake sequence.
The government will doubtless seek to limit EQC's liability here, but will they front up on the 2010-2011 earthquake land damage which the National-led government sidestepped?