Labour Party plans to expand state-owned trading into the insurance industry; ill-conceived says ICNZ

Labour Party plans to expand state-owned trading into the insurance industry; ill-conceived says ICNZ

The Labour Party today announced plans to establish a Kiwibank-clone in the house and contents insuance industry.

At the Labour Party conference in Christchurch today, leader David Cunliffe committed to establish "a local insurance company called KiwiAssure".

He said that after the Christchurch Earthquakes, Cantabrians struggled to get claims approved and homeowners around the country faced more restrictive, more expensive cover.

He also said he was frustrated that profits went overseas and said he believed a locally-owned insurance competitor would help drive down premiums, even though it would have the same reinsurance costs as others. That was because it would be trying to attract new customers and would not face the same pressure to maximise dividends for offshore investors.

"The Christchurch earthquakes have left thousands of Cantabrians struggling to get their claims approved and households throughout New Zealand face more restrictive cover for years to come," he said.

"Christchurch residents know their pay-outs have been slow and the services they’ve received have been patchy."

"Many New Zealanders are concerned the sum insured changes have pushed up their premiums. They want the assurance of a service-focused state-owned company that has their best interests at heart."

"KiwiAssure will offer New Zealand families a responsive and innovative insurance alternative they will share a stake in."

"Subject to a business case, KiwiAssure will be a sister company of KiwiBank and will evolve out of the existing Kiwi Insurance Limited. It will offer home, contents and vehicle insurance, along with cover for small business plant and equipment."

Responding, the Insurance Council spokesperson Tim Grafton said "This is the second political party to hold its annual conference in Christchurch in recent weeks attempting to grab low-hanging political fruit by ignoring the scale of events in the city and blaming ‘foreign-owned’ companies for the pace of recovery efforts to justify establishing a State-owned insurer."

"Insurers believe recovery efforts in Christchurch are progressing well given the enormity of the task and the unique situation in New Zealand that requires the State-owned earthquake insurer EQC to deal with claims before transferring over cap claims to the private insurance industry,” he said.

"The fact is, the vast majority of claims are already being managed by the State-owned insurer EQC and State-owned claims manager Southern Response."

"New Zealand already has a responsive, innovative and responsible private insurance industry and to suggest that further State ownership is the answer, begs me to ask what on earth is the question?” said Grafton.

"Insurance is footing almost $20 billion, or 10% of New Zealand’s GDP, for the Christchurch recovery. Given its size, New Zealand is one of the most vulnerable countries in the world to natural disasters, so maintaining an appealing, competitive insurance market is essential. Establishing a State-owned insurer and slamming foreign-owned insurers sends a very negative signal to those who provide the investment capital to support insurance activities in this country that there will be no level playing-field."

"Following the Canterbury earthquakes, the last thing anyone should be doing is trying to drive away insurance capital,” said Grafton.

"Further, it only adds exposure to taxpayers who face more risks if a State-owned insurer ends up manipulating premiums for political purposes ignoring the whole purpose of insurance which is to price risk."

"It makes absolutely no sense to have three State-owned insurers - EQC, ACC and now KiwiAssure."

(Correction: An earlier version of the headline refered in error to 'ICANZ'. It is ICNZ.)

Update: here is the Government's response to the Labour proposal.

Canterbury Earthquake Recovery Minister and Minister Responsible for the Earthquake Commission Gerry Brownlee says Labour’s policy of establishing a state-owned insurer is no different than its other half-formed ideas – it’s emotive, shows a hopeless grasp of economic realities, and raises questions Labour won’t be able to credibly answer.

“Labour might hate private insurance companies, but the reality is they’re paying for $20 billion of the Canterbury rebuild – twice New Zealand’s annual corporate tax take,” Mr Brownlee says.

“The fact of the matter is you can only undercut insurance competitors if you’re prepared to take greater risk.

“Two insurance companies were doing that when the Christchurch earthquakes struck – both of them New Zealand owned – and they both collapsed.

“The reason insurance businesses tend to be internationally owned and operated, by big companies, is because they’re able to hedge their risk across a range of markets.

“Labour’s insurer would be completely exposed to the New Zealand market, which every citizen knows is at major risk of incurring heavy losses from natural disasters.

“So what Labour is saying is it’s prepared to increase the financial risk to every New Zealand taxpayer by entering a market in which it has no expertise and cannot offer any competitive advantage without ratcheting that risk up even higher.

“Insurance only works because big capital calls are available to back it, which is why insurers work very hard to price that risk accordingly, and smart governments limit their exposure on behalf of taxpayers where possible.

“With $600 billion of insured assets, New Zealand has a competitive insurance market for its size, with a more comprehensive range of cover than in many other jurisdictions.

“Ironically, given Labour’s apparent concern at foreign owned insurers’ profit levels, the chance of adverse selection occurring and simply increasing those profits further is very real.

“Again, insurance is priced to reflect risk, and the only way a state insurer could offer lower premiums is by managing risk unsustainably and becoming a magnet for bad risk.

“And the only way that ends is badly.”

Mr Brownlee says it’s simplistic and unfair of Labour to use the example of the Canterbury earthquakes as a reason to launch this policy – but then simplicity and negativity has been the hallmark of Labour’s response to the earthquakes.

“These events were like no others, and they were massive. Canterbury is the fourth largest natural disaster insurance event in history.

“But by working together, the Government, local government and the private sector are spending $40 billion putting the region back on its feet and creating a modern city all Cantabrians, and New Zealanders, can be justly proud of.”

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?

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.


ICANZ: "New Zealand already has a responsive, innovative and responsible private insurance industry"
Anyone in ChCh with a overcap EQ insurance claim: "[unprintable]"

We already  have a plan.
Like all socialist policies.
It is called the 'taxpayer will back up and guarantee the shortcomings and excesses by others plan'

I would have been more amazed if ICANZ had said it was a good idea.

Will the premiums be cheaper?
Is this Kiwiassure going to have a Govt gaurantee?
If the answer to these questions is NO then what's the point.

Good on Labour for having an original, interventionist idea which will stimulate economic activity.  If KiwiBank is a reasonable success then why not Insurance to keep the insurance companies a little more honest.   Plus KiwiAssure would be more trusted by Joe Average.
I would be more than happy to move my insurance to KiwiAssure. Disclaimer: (have never voted Labour!). 
I think even those who support private enterprise in NZ historically are realising that the only way small businesses and farmers can survive against global capitalism is for government intervention and providing some re-distribution encouraging SMEs & Regions away from the large corporate model currently imposed.  

"Establishing a State-owned insurer and slamming foreign-owned insurers sends a very negative signal"
I guess we are lucky then, as re-establishing a state-owned insurer, after an absence of 24 years when the country has had a state-owned insurer for far longer than that, should be sending a very neutral signal"
Is it that the insurance industry spokesman is completely ignorant of the history of insurance in NZ, or is it that he expects us to be?

Thanks for that, the history of insurance in this country has more than once featured government efforts to make insurance both available and affordable for New Zealanders, sadly whatever success achieved has mostly been thrown away by political ideologues and short-term thinkers in the last 30 years. Tim Grafton in his role has no legitimate claim to represent the interests of NZ or NZers, he represents solely the interests of the overseas shareholders of the insurers who appointed him. His statement referring to capital investment being put at risk is little more than a thinly veiled threat that his bosses will throw their toys out of the cot if any government tries to improve the insurance landscape in this country. Just as Kiwibank has proved itself commercially, a well planned and well managed local insurer could do likewise.
A note of warning though. The Key government when first elected, was briefed on EQC's ongoing needs, and did nothing, to the great detriment of the populace in Canterbury. This outfit needs serious reform, and government proposals I've seen so far are just tinkering round the edges. Key and his mob offer us (other than the 1%) no hope, no integrity, no loyalty to NZ, no long term thinking, bugger all honesty,... (insert other insults here)

Well, whaddyaknow - Chaston - ya really had me goin there for a bit - almost got me shorts in a knot
Headline "ill-conceived says ICANZ"

As a member of the "Institute of Chartered Accountants NZ" my first reaction was "on whose authority" did they make that statement - pretty quick out of the blocks - they haven't asked me - yet
Next thought was that pseudo-number-1 NZ accountant John Key was doing a Muldoon, picking up the phone to his mates and doing the midnight whisper
Further investigation reveals that ICANZ, while mainly representing the Institutue, it also represents
ICANZ - Inter Country Adoption New Zealand
ICANZ - Insulation Council of Australia and New Zealand
Further investigation reveals
It does not stand for the Insurance Council of NZ
Was that carelessness on your part? Where did you get ICANZ from?

You are right. My error. Fixed now.

The insurance industry does not have clean hands
Todays news - they are getting worse - yet you give their lobbyist instant oxygen
A distraught 11-year-old boy who lost his home in the bushfires was told by an insurance company to list every toy and treasured belonging in his destroyed bedroom before it would consider a payout
NSW Attorney-General Greg Smith has blasted the ''cruel'' behaviour of some insurance companies towards Blue Mountains residents who have lost everything, after demands that families provide photographs and receipts to support their insurance claims


Hasn't it always been so?    Bastards, im trying to get a group of farmers together so we can, 'self insure'.
 They love to pay themselves bonuses, when its your turn they know how to put the screws on.

Andrewj, look up Chris Cook+Guarantee Society+Open Capital to gain some ideas on a possible model for an arrangement which would allow a group of farmers/business to provide insurance and even short term trade credit to each other.

Thanks, will look in the morning.  Aj its a case of which is the worst one to heading to the bottom fastest...
Congrats to labour what a great achievment this is....not

David Cunliffe, what a great idea having state owned insurer.  
Now why stop there, kiwis have been ripped off for years in grocery prices, can we please (pretty please) have state owned supermarkets too?  But wait, how about petrol stations?
Hold on, having state owned companies. Does it mean we will get better prices and no more fat profits???  Where's my power bill, let's see...

You are indeed on the right track , Mr Chairman Moa ..... as the Gummster has banged on about for some time , the bakeries in NZ are making way too much dough , bread is a civil right .... start up a Kiwi Bakery next to each Kiwi Bank ... and Kiwi Insurance ...
.. .. and wot aboot those usurious real estate agents .... Kiwi Realty will shake up their nice little featherbed ...
Heck , the Kiwi government could just takeover the house industry , and fix house prices at an affordable level .... that'd solve everything ... go for it Cunny , and yer got my vote ...
... gosh , time for a brewski .... better have a Moa , Moa .... seeing as youse guy's forecast a $ 6 million loss this morning .... you may be extinct soon .... ummmm , again ...

I think it would be totally appropriate for me to be a NIMBY on this one........

Don't let it bother you that socialism has been an abject failure throughout the entire world over the last 200 years , Mr notaneconomist ...
... Labour can make it work in NZ .... trust them ...all will be revealed .... they have a very Cunny plan ... they know best ...

what? you not a fan of the marquis of queensbury?

More of a Marquis de Sade follower ... a lover , not a Queensbury Rules fighter ....
... Gummy would need a forklift to raise a sweat !

GBH..our new best freinds once removed from Socialism would disagree with you on that.
 They currently see themselves as the market drivers Globaly.
 Failure is not an option for them....of course that ideology is soon to clash head on with Western Pop Culture the most powerful assimilating force of the 20th Century.....the veritable Vanguard of the Free Market  World....not to be confused with Free World a common and popular misnomer. 

Wots got Gummy cufuddled is how it is that we're in a mad frenzy pursuing the TPP agreement , when the biggest exporter in the TPP region , China , is not included !
... we need the TPP and the USA like a duck needs nipples ...

yes its a floater..
Gummy you wouldn't be one to shoot'em on the water - would you?

No ! .... of course not ... ....  not if they were looking at me ..

Look at meee, Gummy, look at meeeee. What a clever duck. Best you keep on the egg hunt.
For here is a little something for you to use the cracker night next bonfire for:

Categories: Eggs, Chinese
Yield: 12 servings

2 c Tea, very strong black
1/3 c Salt
2 c Ashes of pine wood
2 c Ashes of charcoal
2 c Fireplace ashes
1 c Lime*
12 Duck egg, fresh

Cunny and the Reds.......drivin it like they stole it.........vs.........Johnny and the dregs........drivin it they like stole it.........MATCH DRAW.

Two horse town Notaneco......inescapably , tails wagging horses, horses toting tails, someone giving the dog a bone occassionaly.
They shoot horses don't they...?

Where's Bob Jones and the NZ Party when you need 'em ...
... someone's got a wide open field on the right of centre to snaffle up ...
... so wide , so open  ,..  shag  --- even the Black Caps could hit a winner there ....

The foreign owned insurance industry may or may not be spending $20 billion on Christchurch- the actual figures always seem very sketchy. My understanding though is that whatever they are spending they are making a good go of getting back in current and near future premiums; in other words they are not really using past profits or premiums to pay for the claims they do end up forking out. So the rest of us in all of New Zealand are probably paying well over the odds for future risk, in that we are now paying past claims plus future risk plus profit.
Some of us without mortgages can self insure if we consider the risks low; but anyone with a mortgage has to have building insurance. Anyone with a car should/must have insurance.
Given insurance therefore is compulsory for many, it does seem something the government could very properly be involved in. If an SOE is established to be commercial, then the rest of the industry has no real grounds for complaint.
Clearly building insurance is susceptible to natural disasters; and any insurer including the government should have reinsurance to cover extreme events. Car and contents though presumably are a very steady relatively certain business.
Warren Buffett made nearly all his money in insurance. We should not feel too guilty paying a little less to foreign insurance companies.

Stephen L: That's the difference between a private insurer and a public insurer
Good example (not necessarily) is EQC .. they had built up a fund of $5 billion over 60 years .. and they undertook re-insurance .. big mistake was, they were asleep at the wheel (or somebody was) in that EQC premiums had remained static for many years and the sinking fund was inadequate and under-funded when needed. It could have been a lot worse .. and it could have been a lot better.

Private sector insurers pay out profits as dividends, empty the coffers, dont set aside a sinking fund,  and when the unexpected happens front-end future premiums

Govn I think, asleep. No Pollie wanted costs to increase impacting their re-election chances.  At least they took out some re-insurance.
The Q should be asked on this one, yet it seems it has not.

Says the ICNZ...?well there's balance for you, what the hell else they gonna say...? hey great just what we needed .....?
 There used to be a state insurer, the world didn't end then , in fact they paid me out on the only bloody claim I've ever made, without any problems .
 Wonder how most of the insured feel about it ?, of course they're just incidental, it's the wheels of Business that really matter here.
That said he's gonna have to have a way better brainchild than that to get the hopeless, apathetic, mal contents off their fat lazy asses on vote day.
 Still think Key may go early......

How is the referendum going to go?  If JK wins it, yes maybe, early makes sense. If he loses it, wait some months so memory fades.
All on Cunliffe not to lose it.

How is the referendum going to go? 
I think Steven, it will be a resounding a whopping 30% of eligible voters, giving Key the opportunity to say his Mandate at the election was bigger by 12% ...with a bit of quick math he'll say even Labour couldn't motivate their own support to ...truly against it.
That sound about terms of political bullshitery I mean.

Hmmm interesting...even a no wont be enough of a no. 
Grab your ankles then for another JK term.

Since Labour's so keen to buy back and de-list Mighty River and Meridian, why not also buy back Tower insurance (the former Government Life)? Now there's a real blast of the 1980's. 

Why buy them back before you have destroyed their market to make believe value by regulation?  As an aside got to wonder how the TTPA will work that one out BTW.
I suggest that at some stage in the not to distant future we'll see the private [re-]insurance industry exit certain risks. Climate events seems to be one of them, if then you cannot get insurance cover to satisfy the mortgage, or at a cost you can afford, what are you going to do?

...not not so's already started.  Maybe he has read this report and is trying to curry favours with all those low lying beach front owners.  

The taxpayer-subsidized National Flood Insurance Program is practically the sole provider of coastal flood insurance

  • Many private insurers have left the coastal insurance market in the face of increasingly unmanageable risks

Your access to our unique content is free - always has been. But ad revenues are diving so we need your direct support.

Become a supporter

Thanks, I'm already a supporter.