I.A.G.’s insurance earthquake has implications for N.Z

I.A.G., owner of New Zealand Insurance, A.M.I. and State has announced that a more conservative approach will be taken in allowing customers to take out new insurance policies. The announcement from New Zealand’s largest insurance group means that insurance premiums are likely to increase as a result of a decision to turn some Wellingtonians away from new policies due to the high seismic risk in the area.

From I.A.G.’s perspective it might not be so surprising. As the largest player in the Wellington market, they have about 65% of all insurance customers, which leaves them spread rather thinly in terms of coverage and in an attempt to correct that exposure, perhaps we should not be so surprised.

And yet, I am sure many people will be. It was not a physical earthquake as such, but it might just as well have been as far as the wallet and insurance premiums are concerned. Despite two large earthquakes causing billions of dollars in claims, there are still complacent customers who have purchased insurance and probably locked the documents away thinking that they are all covered, as well as non-customers on a wing and a prayer hoping nothing of consequence happens in their life time.

One thing that needs to be pointed out is that the E.Q.C. cap of $100,000 has not been raised in its existence and even though it is going up to $150,000 later this year, that is only really a half hearted increase. An ideal cap would be $300,000+ – or completely removed altogether.

So, where does all of this leave New Zealand and New Zealanders in the long run? Will it encourage other companies to have second thoughts about who they insure; whether they too, are over-exposed in the market; can they meet their obligations in an emergency? Is it possible that perhaps these insurance companies are trying to pay nice, and are really only doing this because big international insurers refuse to take on any more risk in New Zealand? These questions and others will be demanding answers that might not be to the public’s liking.

I do not know the answer to any of this. However I am aware that the Institute of Geological and Nuclear Sciences discovered that the Wellington Fault, widely thought to be the highest risk fault in Wellington, is actually less frequently active than thought and that the last event on it was more recent than previously thought. The quake risk to Wellington, whilst still significant is from other faults such as the Hikurangi Trench, the Alpine Fault and whatever is lurking under Cook Strait.

I would like to see the methodology of how I.A.G. and other insurance companies calibrate their risk assessments. When doing the risk assessment for say a particular fault line, do they look at the entire known palaeoseismic record of the fault line or just a small part? When new research is released do they revise the risk component for that particular fault?

E.Q.C. plunder example of New Zealand corruption

When one thinks of the Earthquake Commission (E.Q.C.), s/he might think of a body that has failed Cantabrians and New Zealand at large miserably. New Zealanders might look at the politics of it over the last 8.5 years and wonder why we still have it. But what if I told you at least in the 1990’s institutional ineptness was not the cause of the problems, so much as politicians using it as a lending body for their big projects?

This is a rare moment in time when one might have a shred of sympathy for the E.Q.C., which many New Zealanders viewed, perhaps incorrectly as a rainy day fund for natural disasters. The incorrect perception would stem from the fact that on the day of a major disaster, a substantial chunk of the rebuild fund comes straight from Government coffers, and usually at the expense of other major projects – roading, hospitals, schools, new social welfare initiatives and so forth.

E.Q.C. did not ask to be “plundered” as one commentator put it, but thanks to a decision taken by the fourth Labour Government in 1988 to privatise E.Q.C., it was left to control its own finances, appointments in processes in accordance with the Earthquake Commission Act 1944. In other words it was basically told it could do what it wanted. And during the 1990’s that happened, with the billions of dollars that was meant to be under their control in case of a major earthquake, being used to fund Government budgets for non related stuff.

Perhaps too, the public were a bit lazy in terms of paying attention to E.Q.C.’s problems. Perhaps they did not understand what was going on, or simply adopted that damaging New Zealand attitude “she’ll be right mate”. After all no big earthquakes exceeding magnitude 7.0+ would strike on land at all in the 42 year period between the Inangahua earthquake of 1968 and the Darfield earthquake in 2010. Memories were short, complacency was setting in. Why bother about something that has not happened in my life time, many asked.

On 04 September 2010, the magnitude 7.1 Darfield earthquake and its aftershock sequence put the E.Q.C.’s 22 permanent staff and 2 part time staff to the test. Very quickly – within a couple of days – it was very obvious that the magnitude of the disaster was in excess of anything that they could handle. Over 100,000 individual claims from businesses and private owners alike were in bound. The internal filing system was swamped and staff did not know where to start.

Worse was to follow. E.Q.C. were still struggling with these 100,000 claims and the attendant problems that went with them when Christchurch was slammed by the 22 February 2011 aftershock. Whilst an aftershock technically, it was an event in its own right by virtue of the damage done, lives lost and vastly more complex problems now arising.

Now, having had three major earthquakes costing New Zealand billions of dollars and the very real knowledge that in the future there will be more, one has to wonder whether E.Q.C. can be built back up in time. With faults in north Canterbury having been stretched by the Kaikoura earthquake and the Alpine Fault waiting in the wings with a magnitude 8.0+ earthquake that will cause disruption all over the South Island and much of the lower North Island, the urgency is there.

I am not sure re-nationalizing the E.Q.C. will work, or whether it would have the desired effect in time. A renationalization would require the Government to take back financial and procedural oversight of the organization. In a political sense this carries the obvious risk that a future Government would not then privatize it a second time.

The public might despair of politics, especially when it comes to politicians with their snouts in the public fund trough. However it really would be a good idea given the monsters waiting in the wings to start paying attention to what is happening to E.Q.C. now.

8 years since first Canterbury quake; Insurance still fiddling and farting

530,000 Cantabrians went to sleep on the night of 03-04 September 2010 thinking tomorrow would be just another day. Probably not a single person thought about the fault lines lurking underneath the alluvial gravel plains that Canterbury and Christchurch sit on. But many, many people will remember that freight train like rumble coming through the night, the frantic staggering to the doorway as the house began to shake.

When the shaking stopped about a minute later, it was immediately obvious a major earthquake had hit. The power was out, as was water and sewerage. A steady stream of aftershocks continued bolting through in the remaining hours of darkness and into the day, the days, the weeks and months.

Within days aftershocks of a human kind had started. Completely overwhelmed by the magnitude of the disaster that had befallen them, E.Q.C. had the rabbit in a headlight look – frozen, not knowing what to do and completely unable to assist customers. With every big aftershock a new claim would have to be lodged. With each one, new reports and inspections would be needed. New case managers would need to be assigned or reassigned.

Whilst there were initially 240,539 claims needing to be solved, of which 240,021 have been, 8 years of putting ones life on hold whilst waiting for a Government agency to get its act together is quite shocking. But that was the case of one lady in Christchurch on the consumer affairs programme Fair Go last night.

8 years, many more earthquakes later and it is now obvious that E.Q.C. actually DOES know what they are supposed to be doing. They just do not want to. For reasons only understood by their bureaucracy it is somehow not in their interests to wrap up the remaining several thousand Christchurch earthquake claims that should have been wrapped up by my guess not later than the start of 2015.

Imagine that.

Let us be honest. Earthquake Commission, and the major insurance companies have no intention whatsoever of finalizing the remaining claims and New Zealanders should stop deluding themselves into thinking otherwise.

90 days or see you in court, is what I say the Government should tell them. During that time they should prepare the necessary legal documents for the court, and on the 91st, these should be served.

There is no excuse for any of the on going delays. There is only so many times a report can be written without covering material covered in previous reports. There is only so many times an inspection can be done before the inspectors see that they are looking at things they have already sighted. There is only so many times anyone trying to get to the bottom of this should ever have to put up with bureaucracy before they have a case to make against the officials in question.

That time has long since come for E.Q.C. and the insurance companies.

Earthquake Commission needs bailing out

The coffers of the New Zealand Earthquake Commission are bare. After shelling out billions for the Canterbury earthquake 2010, the Christchurch earthquake (technically an aftershock of the former)in 2011 and the Waiau earthquake of 2016, the bank accounts of the Earthquake Commission are in need of Government bail out.

No one should be surprised at this. Prior to the earthquakes of this decade the Earthquake Commission at one point managed nearly N.Z.$6 billion in assets. The combined costs of the three events is around N.Z.$46 billion (around $4 billion for the Canterbury earthquake; $40 billion for Christchurch earthquake and $2 billion for the Kaikoura earthquake and aftershocks).

However, it is not an acceptable state of affairs in a country as prone to earthquakes as New Zealand is that our main earthquake insurance provider should be without any funds. It also raises questions about how we fund the Earthquake Commission and how we expect it to dispense insurance in the future.

It needs to be remembered that E.Q.C. insurance is capped at N.Z.$100,000 and whatever is in excess of that is the responsibility of the claimants regular insurance company (State, New Zealand Insurance, A.A., and so forth). It is not geared to supporting businesses and only supports domestic assets.

In order to reduce the E.Q.C.’s own exposure it takes out insurance with large reinsurance companies. An example given is the $2.5 billion taken out with 30 reinsurance companies.

Still, the large earthquakes of the last several years have raised a concerning question. How will E.Q.C. cope if further earthquakes occur in the Christchurch or Kaikoura tectonic settings? Such concerns are real because the Hope Fault with a repose period of 120-150 years has not ruptured for 129 years, and typically ruptures in magnitude 7.0-7.3 earthquakes – it branches off the Alpine Fault and goes out to sea just north of Kaikoura. The Greendale Fault, which started the Christchurch earthquake sequence, only partially ruptured on 04 September 2010. Whilst there is no suggestion it is going to rupture in the immediate future, at some point the segment that has not, has to reconcile with the rest of the fault – that will probably be another magnitude 7.0 earthquake.

A Crown Guarantee ensures that should an earthquake breach the $1.5 billion excess cap, the Natural Disaster Fund pays out until its limit is met and then the Crown pays the remainder. All very well, but when the Crown has already forked out for multiple large events that have nearly completely drained E.Q.C., one should consider whether the Crown needs some sort of back up. I do not know how this might happen or if a backer is even possible, but still it is worthwhile considering this possibility.

Time for E.Q.C. inquiry

During the campaign, Prime Minister-designate Jacinda Ardern and Labour made a slew of promises regarding the Christchurch earthquake recovery and the role of the lead agencies involved. Whilst the Canterbury Earthquake Authority has since been dismantled, the Earthquake Commission, the other major Government agency involved – overwhelmed and somewhat leaderless since 2010 – has fought a losing battle coping with the complexity of the civilian rebuild.

The incoming Minister for Christchurch Earthquake Recovery, Megan Woods, has stated her desire to hold a Royal Commission of Inquiry into the failure of the Earthquake Commission. The Commission which has oversight for the repairs to properties damaged in the 2010-11 earthquake sequence told media that she “absolutely wants one to be held.

This is long overdue. It should not have taken a change of Government in Wellington to bring about something that many have been demanding for several years. Despite having largely finished the settling of civilian claims, the Earthquake Commission has since been found significantly wanting in signing off on repair work done. Many of the claimants have come back to their properties after work was supposed to have been completed to find defective repairs or in some cases work that was meant to be done, not being done at all.

When former Minister for Earthquake Recovery, Gerry Brownlee was appointed to the role in September 2010, following the initial magnitude 7.1 earthquake, the Earthquake Commission was swamped by claims from the quake which totalled N.Z.$4 billion. Only a fraction of those had been processed when the 22 February 2011 earthquake hit. The claims blew out to over 200,000 and totalled N.Z.$35 billion, rising to N.Z.$40 billion with the damaging 13 June 2011 aftershocks.

Although Mr Brownlee made significant effort to get the Canterbury Earthquake Recovery Authority and E.Q.C. working together, there were common problems – a lack of communication, unwanted Ministerial intervention, a lack of transparency in the organizations and accusations of nepotism. Unfortunately a degree of truth existed to all of these with the Chief Executives of both E.Q.C. and C.E.R.A. coming in for damning attention. To his credit, the C.E. of the Canterbury Earthquake Recovery Authority, Roger Sutton fell on his sword after realizing the damage his behaviour had done. Mr Sutton had gained respect in September 2010 for his outstanding leadership of Orion, the lines company responsible for the electricity power line network and distribution in Christchurch.

The Canterbury Earthquake Recovery Authority wound up on 18 April 2016, five years after forming. It had several successes such as overseeing the Christchurch recovery blueprint, but it also had negative events such as the premature demolition of several buildings with heritage classifications on them undermine the more positive work. Its failure to co-ordinate properly with E.Q.C. served to undermine the effective and efficient early stage recovery.Whether or not any Royal Commission of Inquiry seeks to uncover who did what is another story altogether. Let us hope it does, for the ability to find out how E.Q.C.’s involvement in Christchurch got to where it is, depends on this.