The Defence Minister warned the Finance Minster before the sinking of HMNZS Manawanui that uninsured Royal New Zealand Navy (RNZN) vessels remained “a significant identified risk”.
Judith Collins wrote to Nicola Willis after she received the NZ Defence Force’s annual insurance programme for the 2024-25 year in July.
The letter was released to interest.co.nz alongside a briefing on the NZDF’s insurance programme under the Official Information Act (OIA).
According to the briefing, Treasury's finance instructions require the Minister of Finance to be notified whenever a “significant identified risk cannot be managed by a department using baseline funding or insurance markets”.
The briefing provided a draft letter for Collins to send to Willis which is signed by Collins but not dated. Interest.co.nz has asked the Office of the Chief of Defence Force (OCDF) to confirm when the letter was sent.
The letter says the NZDF has two risk exposures which are not insured and considered unmanaged risks: the RNZN vessels and the Royal New Zealand Air Force (RNZAF) aircraft.
Collins’ letter says historically RNZN vessels have not been insured because the premium is considered “too prohibitive”.
“[...] even if purchased, the available cover would be heavily limited by standard policy exclusions and conditions which apply to many of the RNZN activities. Examples include intercepting and boarding operations, operating without commercial identifiers or lights, southern ocean activities, shallow water activities and cyclone response,” the letter says.
“This risk is mitigated as much as possible by standard operating procedures, activity approval processes and the expertise and professionalism of NZDF personnel.”
‘Premium reduction’
Interest.co.nz requested a copy of the NZDF’s insurance briefing to Collins under the OIA following the sinking of NZ navy ship HMNZS Manawanui. The $100 million vessel ran aground on a reef off the coast of Samoa in October.
It was a specialist dive and hydrographic vessel and had been carrying out a reef survey before it sank. Following the sinking, Willis confirmed the vessel wasn’t fully insured.
The NZDF’s annual insurance programme gets renewed on June 30th each year.
Although the briefing says “significant premium reductions have been achieved” for 2024-25, the actual premium amount wasn’t released to interest.co.nz.
“The premium reduction for full-year 2024/25 is primarily due to improved market conditions, intense market pressure and strategic changes to policy structure. Minimal additional risk retention is required and this is offset by improved coverage conditions due to the revised policy structure,” the briefing says.
According to the briefing, the NZDF has insurance coverage for $10.51 billion of NZDF assets through its material damage insurance programme, with a catastrophe limit of $400 million, including business interruption.
The NZDF’s policy excess on the material damage and business interruption insurance policy is $20 million per claim. The briefing noted the material damage insurance policy had been reduced from $447.5 million to $400 million.
The insurance policies are provided by NZ and offshore insurers although the briefing doesn’t name them.
The briefing notes the Defence Force “self-insures” its owned ships, aircraft and motor vehicles, as well as some other risk exposures against all or some risks.
For the 2024-25 programme, a new environmental impairment liability policy has been put in place for new pollution events over $5 million.
“The NZDF carries a self-insurance level on this policy of $5 million per claim and no cover is in place for known or existing pollution conditions,” the briefing says.
A salvage expert put the cost of cleaning up the wreckage from HMNZS Manawanui at up to $40 million in an interview with RNZ in October.
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41 Comments
plenty of big multinationals don't insure, i worked for one of the biggest in the world 698 planes and 175 k vehicles and they did not insure their planes or vehicles , the reason being is the cost each year was way above anything they would pay out in damages , court cases or replacements and yes it was a USA company so they would rather spend the money on a bank of lawyers than insurance as the cost savings was huge
It only works when you essentially put what would normally be your premiums aside each year into a separate account to pay for the things your insurance policy would normally cover. That fund would build overtime. The advantage is the "profit" (unrealised costs) would not be raked off by an insurance company. The downside is that in the early days or years the fund may not be big enough to cover a large hit. The choice must be carefully considered. For private individuals the risk is some organisations (banks) and the government on occasion requires your assets to be commercially (a policy taken out with an insurance company) insured . The Post Christchurch earthquake recover measures was an example, but it was pointed out that insurance companies do not cover bare land.
Yup, and it would be unwise to not have at least third party cover.
We've done it with our older motorhome, figure I can fix most things anyway, the premium is high for the value of the vehicle, and the insurance depreciate value for older vehicles to a large degree anyway.
Why can't the government insure itself? You know, "print" it's own money, instead of paying premiums to insurance companies?
If the boat was insured it's just expecting money out of nowhere from someone else to build a new one.
Why won't they release the premium number and instead release pretty jargon?
I'd love to see what the exclusions are in the policies.
Yes for something like hull repairs after colliding with a submerged container while in transit, or accidentally damaging someone's wharf while docking; repairs after action, I suspect not.
How is this not a case for self insurance?
NZDF launched! an inquiry, could take up to 2 months, so maybe findings in December. (e or i? ;) Zachary S?)
https://www.abc.net.au/news/2024-10-07/hmnzs-manawanui-formal-court-of-inquiry-launched/104440412
Yes, I should have used an i with it being a formal inquiry and all.
According to Wikipedia some of the findings of the inquiry may not be made public if deemed commercially sensitive. We do know that the ship was carrying out survey work of a reef in rough seas and high winds which is a bit eyebrow raising. How far from the reef was the ship when problems started? Were they unable to drop anchor? Lots of details yet to be filled in.
As someone who has done a fair bit of boating and holds a skippers license, there are few excuses for this at face value. As with flying, at a commercial level there should always be redundancy. If conditions were bad then don't move in to survey shallow, or at the very least have the anchor ready to drop at a moments notice.
What would we know though.
How far is a heavy steel boat going to swing on it's chain? In poor weather? What was the depth where they lost power (ocean side of reef - is there a shelf?).
My guess is the main issue identified will be the decision to do the survey that day, considering the weather and state of ship.
PS. I'm not a skipper, but that was a heavy boat with a lot of wind surface area.
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