Cameron Preston takes a look at Canterbury earthquake claims settlements and finds IAG and Southern Response apparently struggling

Cameron Preston takes a look at Canterbury earthquake claims settlements and finds IAG and Southern Response apparently struggling

By Cameron Preston

Progress in the settlement of the 23,181 most extensively damaged homes in Canterbury appears to have hit a wall.

The company with the largest pool of claims is also the slowest, and appears to be having major problems coming up with solutions for repairing properties to meet its policy obligations.

IAG, which now has two-thirds marketshare in general insurance in New Zealand, is struggling to reach the halfway point on claim settlement as cash settlement opportunities dry up more than four years after the first earthquake:

Previously I have explained how IAG used a complex offshore captive reinsurance structure to disguise the fact it did not sustain any material financial loss in the Canterbury Earthquakes.
IAG was then able to, along will all other insurers, increase premiums and switch to a sum-insured model while at the same time buying up distressed insurer AMI and then Lumley.

It is now announcing record profits from its New Zealand operations in its homeland of Australia.

A close look at data shows that in the badly damaged “Technical Category 3” areas of Christchurch, out of the 997 new houses IAG have committed to rebuild for their customers, they have only completed 61.

They have committed to undertake major repairs to 1,283 properties in that same area, but as at 30 November 2014 they had completed 27:

Other areas in Christchurch do not appear to be faring much better.

IAG’s closest settlement “competitor,” Southern Response is not performing much better, with only 54% of claims settled. However it doesn’t have any other worldly business apart from claim settlement, and also has no reputation to uphold.

It is clear from the data that those insurers who have "better" settlement progress (Lumley, Tower and AA), have achieved this from cash settlements, rather than rebuilding or repairing. However there are indications this has come at some loss to their local reputation.

More than four years after the first earthquake, there are continuing questions over whether this lack of progress is a deliberate delaying tactic from insurers.

When queried on why IAG’s data appears to contradict that of the Insurance Council, IAG noted:

We are constantly revising our data classifications to reflect the spectrum of settlement solutions available. Where you may note a variation in results, there has been a reclassification of data, i.e. some homes which were previously included under completed rebuilds but were actually cash settled have been reclassified into cash settlement.

I had previously requested the above data from the Insurance Council of New Zealand, (whose president is coincidentally IAG’s CEO). however, I was told it was “confidential to its members” and the Council “did not have it anyway”.

Apparently the ICNZ’s much spun regular quarterly reports on progress in Canterbury are based on data collected from its members by the Canterbury Earthquake Recovery Authority (CERA) who aggregate it, collate it and then simply pass it to the ICNZ for word-smithing.

The ICNZ never see the raw data from its members apparently.

So I simply approached the insurers separately, and to their credit, with the exception of Vero, Medical Assurance Society and Farmers Mutual Group, they all answered my request for their progress stats.

I have little doubt the ICNZ will continue to spin the progress of its members by mixing residential claims with commercial claims, small under cap claims with larger over cap claims, and inventing fantastical expressions (my favourite new term is “resolved” which is some type of purgatory where both parties have “resolved” to settle the claim sometime in the future).

But certainly the ICNZ has been effective in acting as a buffer, deflecting any need for the chief executives of these insurers to have to explain their progress to the public. After all these CEO’s have better things to do at present, don’t they?

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?

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A little light:  some digging would have brought out the unsurprising fact that much of the claims tail is for legally difficult circumstances:

  • multiple units with a different insurer for each unit.  Requires solid cost sharing agreements to be hammered out and an overall remediation approach signed off.  One recalcitrant owner, insurer, lawyer, engineer, QS, certifier can hold the whole thing up for months if not years.
  • body corporates and other arrangements (cross leases etc.) where, again, multiple parties have to be found, agreements reached, remediation measures designed and signed off.  Many BC's have not functioned:  at all, inadequately, or incompetently.  One recalcitrant owner, lawyer, engineer, QS, certifier ...wash, rinse, repeat
  • Apportionments of liability over the four/five/six quakes (depends on who is counting), especially if owners have changed insurance arrangements over the three year quake sequence or had work done between major events.

While I have absolutely no doubt that there are some cases of shall we say insurance chain-dragging, much of the remaining issues can be put down to human nature:  the fact that, as Buffet famously noted, "you only know who's swimming naked if the tide suddenly goes out"....

That is untrue.
Most of the remaining unsettled claims are actually stand alone homes.  Most big multi unit complexes were settled years ago and land has now been sold by the body corporates .
eg, Cramner Court, the Peterborough, the Establishment, Heathlea, Park Towers, Millbrook, (and the neighbouring tower), Terrace on the Park, etc etc.  In fact, I can only think of a handful of buildings with more than 8 units that are unresolved.

That is untrue.
Why am I not surprised? Will someone refute this claim with proof.

Not sure what you are saying SH.  Just check the number of standalone homes that make up the unresolved claims.  Blaming cross leases is nonsense, most cross leases are detached or semi detached and can be resolved without much complication, only unit titled properties and a few party wall properties have any complications.  Most large complexes with body corporates have single insurers anyway.  Waymad is just making up excuses.
I have to say it is insulting that EQC years ago now sent out letters to us for stand alone houses on cross leases stating that because the property was multi unit it could not be resolved for some prolonged period, it was all bloody nonsense as the houses were no different to fee simple ones next door ie completely separate not even a shared drive!
Then we got the same letters for a block of three units we owned.  All one owner (us) all one insurer (IAG), still that property has not received all the EQC payouts, even though EQC claim all under $15k claims have been settled.  Also IAG have not settled the driveway claims yet.

Chris_J - I meant those cheerleading the insurance industry need to come forward to refute what I believe you have correctly observed.

IAG and Southern Response in particular have decided that they are going to come up with ways to fix homes on the cheap (or make it appear that they can) in order to draw out the settlement process, reduce the cost of claims and force cash settlements.
For example, I have an elderly relative (near 90).  Concrete slab is bent cracked and sloping.  EQC handed it to SR in mid 2011, SR handed it back saying slab could be relevelled.  EQC took three years to decide that it couldn't be after doing drilling.  SR get it back in 2014 and say it can be relevelled and no need for engineers report nor permits.  SR not provided any information on how repair can be done, have not made offer to settle.  All the while my relative really needs to be able to move on into a resthome.  It is criminal.
Another example IAG.  My property, IAG refused to assess despite severe damage, eventually EQC handed it to IAG 1 year ago.  IAG still have not made an offer, or given a repair strategy.  After four years property remains in uninhabitable state.
Key and Brownlee are responsible by failing to provide adequate supervision of both private insurers and EQC.  Sutton of course was too busy looking at his staff's g strings...

can't re-level.  They'd need materials information and stabilisation factors which aren't possible.  Attempting to do that in Christchurch would violate the Building Code, as it's a foundation which needs particular bottom and reinforcing characteristics to pass compliance.  It would be cheaper to rebuild the house from scratch.

Looks like the law needs to put a compulsory limit on the "settlement period" on the claim time.  I know what happens if I'm late with premiums and want a claim....  clearly is in publics interest otherwise these hanging dudes can just procrastinate indefinitely

Maybe insurance paying kiwis should go on a premium payment strike in response to the claims payout strike of the insurance companies?

They are doing it cowboy.  I have seen houses that have tilted and all the insurer has done is top the perimeter ring foundation with more unreinforced concrete and jack the piles.  
I have seen unreinforced concrete walls that part collapsed rebuilt without any reinforcing and some of the remaining cracks just painted.  Thanks to State Insurance (If they want to Investigate I will give them the address - it's actually the other half of a cross lease we own).
It's all shambolic.  Perfectly good properties being demolished.  And wrecked properties being bodged...

yep. all illegal to the building code - but who watchers the watchers?