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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