NZ's biggest insurer of churches and heritage buildings stops covering earthquakes across NZ; Zurich also pulls quake cover in Wellington, ChCh

NZ's biggest insurer of churches and heritage buildings stops covering earthquakes across NZ; Zurich also pulls quake cover in Wellington, ChCh

Ansvar Insurance covered the Anglican and Catholic cathedrals in Christchurch, which were both severely damaged in the earthquakes. Ansvar suffered NZ$700 million in claims.

By Bernard Hickey

New Zealand's largest insurer of churches and heritage buildings announced late on Thursday it will stop offering earthquake coverage throughout the country.

The British-owned Ansvar Insurance suffered NZ$700 million of losses in the Christchurch Earthquakes, including losses on the Anglican and Catholic cathedrals and the Christchurch Arts Centre.

It is the first insurer to stop offering earthquake coverage nationally since the devastating series of quakes that are expected to cost insurers over NZ$15 billion. It raises fears that insurers and reinsurers worried about further aftershocks may stop offering earthquake cover across New Zealand, forcing the government to step with its own expanded scheme or coverage. Parts of Japan and California are practically uninsurable for earthquakes because of sky-high premiums.

Ansvar's Australia and NZ Chief Executive Andrew Moon said the scale of the damage was much greater for Ansvar relative to its business than for other insurers because of the number of stone buildings it insured. The risk of future earthquakes and the prohibitive cost of reinsurance had forced the decision, Moon told Interest.co.nz from Australia.

"We just can't expose ourselves to the risk," Mr Moon said.

Ansvar's damages bill represented a multiple of 20 times its annual premiums, whereas the industry generally had suffered damages of about 4-5 times premiums.

Ansvar's decision to drop earthquake cover for all of New Zealand is the first by a New Zealand insurer and comes just days after Earthquake Recovery Minister Gerry Brownlee accused the Insurance Council of scaremongering by claiming that New Zealanders may not be able to get earthquake coverage in future.

Brownlee returned from Monaco last week expressing confidence that reinsurers would return to New Zealand to offer earthquake coverage once the aftershocks had settled.

Brownlee confident

Brownlee told Interest.co.nz he was confident the withdrawal of Ansvar and Zurich would not spread to the other larger insurers.

"I'm not pessimistic. We're seeing an unfolding of positions. Some will come and some will go," Mr Brownlee said, adding he also expected reinsurers would return to New Zealand.

"We've spoken to the five big reinsurers and we know there's capital. The issue is going to be the price," he said.

Ansvar will continue to offer other types of insurance directly from its Australian branch. It insures around 40% of New Zealand's churches, along with many heritage buildings, rest homes and charity buildings. It has also indicated it would refer customers who wanted earthquake coverage to other insurers.

"We are also exploring whether it might be possible to provide future protection, either by offering earthquake cover as a standalone product or potentially as part of a broader cover, through an underwriting agency," said Michael Tripp, the Group Chief Executive of Ecclesiastical Insurance Office Plc, which is the UK-listed parent of Ansvar.

Ecclesiastical announced the withdrawal in a statement to the London Stock Exchange late on Thursday. It said there was no change in Ansvar's staffing levels in New Zealand, where it has 33 staff.

Customers with existing annual contracts would still be covered, but would not be renewed for earthquake coverage once the policy matured.

Ansvar's decision followed an announcement from insurance credit rater AM Best that it had downgraded Ansvar NZ's financial strength rating to B++ (good) from A- (excellent) and had placed the rating on review while Ansvar discussed its future with its British parent Ecclesiastical Insurance Office Plc.

"The rating actions reflect Ansvar New Zealand's weakened risk-adjusted capitalization and its significantly higher levels of reinsurance recoverables following the successive Christchurch earthquakes between September 2010 and June 2011," AM Best said.

Zurich pulls quake cover for Wellington, Christchurch

Swiss insurance giant Zurich also announced this week it would stop writing new earthquake cover for areas outside of Auckland, Northland and Waikato, which means the most earthquake prone areas of Wellington and Christchurch would no longer be covered.

"We are all experiencing challenges in our trading conditions following the Canterbury earthquakes and we face the need to actively manage our exposure to earthquake accumulation," Zurich's New Zealand General Manager Adrian Riminton said in a note to brokers announcing the changes that was obtained by Interest.co.nz.

Insurance Council of New Zealand Chief Executive Chris Ryan said he was not overly concerned by the decisions by Ansvar and Zurich to remove and reduce earthquake coverage respectively. He said they represented only a small part of the market and competitors were likely to fill the gaps created.

"I don't think it's a significant problem. When they leave and create a hole, others will tend to fill it," Ryan told Interest.co.nz.

Industry figures show the combined written premium of Ansvar and Zurich is around NZ$50 million, which represents 1.5% of the NZ$3.3 billion of premium written annually.

(Updated with comments from Brownlee, Michael Tripp, Chris Ryan)

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Surely the Guy up top could look after the churches :-)

How long since the last Earthquake in Christchurch? So they have essentially budgeted on an Earthquake every 20 years, yet this one hurts them financially. They have been taking $50M per year for what exactly? Looks like another bunch of charlatans offering discount rates to get the business, but the business has burnt their greedy a***.

Good riddance by the look of it.

There will come a day (might already be here) when not only do you need to get a code of compliance for a building, but a ‘code of insurance’. 

I’d suggest there will be some rather nervous property owners in places like Wellington right now – if you need insurance to get a mortgage or re-finance, but you can’t get insurance … ?

But wait, I’ll just get an engineer to sign off to say it is okay … but the engineer can’t get indemnity insurance….

Short verson, Yep.....

Its not even getting a mortgage, the insurance company lists the bank as an "interested party" so if/when the insurance lapses they have to to send the bank a letter I understand....so even existing customers mortgagees are vunerable....

"Oops sorry you have no earthquake cover so we want our money so you have to sell up"........the political fallout / risk from that should be worrying Brownlee.....if it isnt, he's a fool.....oh wait he is....

The only logical conclusion is the EQC/Govn is going to have to take up the slack....now if Brownless had any nounce he'd be asking whats that cost/impact and figure out a strategy to deal with that possibility.eg  if its 30billion then there has to be a "tax" and a substantial one put  in place to make sure there is enough money...

NZers have to wake up to the fact that they are stpuid enough to live on a fault so have to pay for that.

regards

At the end of the day the government may need to again setup an insurance company if this becomes a major problem, and then the country self insurers itself. That is what we had EQC for, but obviously not enough.  It would however be a tragedy if NZers weren't able to affrd to insure themselves, and a NZ city could become like New Orleans if struck by an EQ. The jury is still out as to what will happen in Chch, but I think Bob Jones made some good and valid points.

I think the premium should possibily be higher for higher risk areas, and higher risk buildings. For example a brick and tile building nuilt in the 60's in Wellington will very likely fail in a large EQ, compared to a lightweight timber one built this decade, so their premiums should be different

Makes you realise how stupid Insurance companies actually are. They take money in, they insure risks they do not understand, brilliant. So Auckland will never get an Eathquake then, great. In the end property values will have to reflect the risk of building in NZ, which are earthquakes. So - the land is worth less than if we did not get earthquakes.

 The problem seems to be with the financial integrity of the insurance companies that open for business in NZ. Small outfits just cannot cut the mustard. They are one trick wonders and we should not be surprised if they collapse in a puff of smoke leaving many in the shite.

Is there sufficient regulatory control over these companies. Does govt know whether insurance companies operating in NZ, feeding off Kiwi, are financially sound. I think not.

In which case Cabinet needs a collective boot up the arse.

What we have here is a full blown test of National's belief in 'free enterprise is best' and clearly from the events so far, both the reinsurance problem and the payout problems, free enterprise is doing badly.

The trouble is, if Labour were in power, yes I know it's not a nice way to start Friday, they would be shoving the 'public ownership of all insurance' wagon through the chch cbd and buggered suburbs. That would look like a great solution...and for a year or two it might work well....and then the new department of state would begin to bloat...new super high rise head office complex...monster fat salaries for another army of bureaucrats...premiums allowed to rise and rise with no competition...no incentive to manage in an efficient manner. It would soon become a tax gathering arm of a labour govt.

Wolly you are so ful of crap.

this top end salaries/growth happened to the EQC?

no it didnt....

Competition, I fail to see why there cant be competition....we have the EQC right now and private insurers....for some years the private ppl might step out, but if the premuims are high they will come back......greed will see to that.

tax gathering...simple its legislated in as a specific fee as it is now so its firewalled.

regards

I don't agree with Wolly's doctrinaire approach to these matters, however, EQC has had its deficiencies exposed in the last 12 months, and, in my view, some reforms would be beneficial.

1. Instead of EQC covering the first $100k + gst of property (house) damage, let them share the liability of first $200k with the private insurer 50/50. Result: one assessment instead of two, EQC can allow insurer's assessor to assess damage as they have equal skin in the game. No need to hire retired policemen from Oz. Process simplified immensely. Premiums will rise but they will anyway.

2.If EQC is to still offer land cover (should it?) the premium should reflect the vulnerabililty and the value of the land - at present it does neither. Do people realise the gentry with million dollar plots bordering the Wairarapa Steam in Fendalton pay the same EQC premium as the folk of Bexley and Aranui? (I might not be 100% correct on this point,if so, can someone enlighten me?)

Just my 5c worth.

Wolly have you a blind spot about Labour or something?

An alterative model of what might happen with a public insurance company is the Super Fund which gets good returns or ACC if you put Nick Smith's bullshit spin figures to one side.

 

A "blind spot"!...are you kidding AR?....what the hell has a public insurance company and ACC got to do with buying power on promises that can never be attained. Both parties of liars play that game. Both are rife with idiocy. Both have contributed massively to nz being an economic shambles today.

A pox on all their houses I say.

But I reserve the right to ask..what good did Clark's 9 years do for this country!

A Few leasons that can be taken from this if you are building a house anywhere in NZ.

- make sure that the land you are building on is sound

- make sure your building site is well above the water table and sea level

- build a very strong house that is resistant to earthquakes, fires and anything else that may come along

- if possible build in low earthquake prone parts of the country

- build a house that you would be happy to own without insurance because apart from our immediate concerns we live in an increasingly volatile and disaster prone world and insurance may get increasingly expensive and difficult to obtain.  It is possible that insurance coy's may look at the risk of each individual house more closely so better than  sound construction may be a big advantage.

I agree with you Chris-M.

And having a site safe from all floods...sound ground...inland and away from slip prone slopes...A house in fireproof material...highly resistant to quakes...with security system....So why should my premium not be lower...why should I have to subsidise others who build or buy near a river, on a bog, under a cliff, on a hillside or at the top of a cliff, in tinder dry wood, at the beach etc etc...!

 

Pretty much the whole country is prone to earthquakes, and Eqs can occur in most places in the world. I mean Chch was seen as relatively low risk, which is why many of the byuildings hadn't been strengthened to the amount that Wellingotn buildings have been. The problem with NZ is that we have such a high home ownership rate and as such most people have comprehensive insurance, so these insurance companies have a large persentage to pay out. This is unlike other countries that have suffered natural disasters, where many people  don't have insurance.

You would think this sort of thing may reduce house prices in places like Wellington, but I would doubt it. But I guess the banks may struggle to lend if someone is unable to get EQ insurance.

Yes but some areas are more prone than others.  Interestingly, as you say Ch-Ch was viewed as relatively safe at about a medium to low risk.  The link to Consumer appended sets out the Zones for some risks in NZ.  http://www.consumerbuild.org.nz/publish/site/start-environmental.php  I wonder if these will be reviewed in light of recent experience.  

As I have said before though, there are plenty of homes standing untouched in Christchurch which demonstrates that correct building site selection and house design will stand you in a good position.  One of the general problems in this country is that we are not good at taking responsibility for our own actions.  It is a bit lame to take little or no responsibility for what or where we build, then expect the insurance companies, Government or somebody else to pick up the pieces.  However given that Don Elder produced a report 20 years ago, outlining the many of the risks,  I would be suing the council for allowing some subdivisions that occured subsequently.

Funnily enough that map differs from the one in the NZ Standards NZS3604 1999 book I have got.  Christchurch is classfied as Zone B, while most of the top of the South Island and most of the north island apart from the northern end are classfied as Zone 'A'(higher risk.). Most of NZ is in the zone 'A'. 

The problem with Chch, wasn't the strength of the Eq, but that  the waves were magnified due to the ground conditions. I had heard that a  lot of it was built on a old river bed. This is why you got pockets that were largely unaffected, which were mainly the ones on good firm ground.

Yes Rob there does seem to be a few variations on this.  I looked back at a1979 NZED in house  manual produced by Peter Geach.  It reproduced map from the then current Siesmic Resistance to Building Services Code.  It shows the A/B boundary running close to Balfour, Alexandra, Springburn and out to see at Sefton, the B/C boundary scoups part of coastal Otago coming ashore south of Clinton and departing at Hampden.  Quite different again.  

I wonder If anybody is reviewing the areas in Ch-Ch where new houses will be build to trace the paths of old river beds?

For all their squealing, the insurance companies haven't had it that bad in CHCH. EQC take all claims up to $100k, so that's the insurance companies laughing all the way to their bonuses. Sure, the private boys get loaded with the big commercial claims, but they're relatively few.

As for building stronger houses, it's a shame/sham that it costs so much to build a minimum code house of cards in NZ. And residential building costs in CHCH are already going to the moon.

The bloody insurance companies have been gouging a fortune for decades! They make the kind of profits banks can only dream of. Now that they've had to pay out a tiny fraction of that after a genuine disaster they whinge and whine and up their premiums to recoup their "loss". If I tried to run a business that way I'd have the FBI's anti-mafia squad on my case, yet insurance company bosses are feted by our political leaders.

Its amazing how many people cant do the math - If EQC's up for at least $7billion on residential then private insurers will be up for amounts over that. Assuming all the 20,000 + write offs cost a lot more than $100K I would suggest private insurers will be up for a min $4-6 billion on residential.  Relatively few commercial claims - probably 20,000 at a lot more than $100K ie Port of lyttleton stated at $500m for theirs plus all the buildings demolished in ChCh  plus loss of profits cover - probably another 7-10 billion.  Also the simplistic arguement of taking $50m a year - They do pay working claims out of that and the Ins council figures show that ins coys in NZ havent been that profitable over the last 2 decades. We have to rely on the overseas insurers to ask their shareholders to pay up in NZ. Regardless of what the government does we need capital backing from overseas if we want insurance.