Labour leader Phil Goff is calling on the government to say whether it has considered setting itself up as an insurer of last resort for Christchurch homeowners and businesses, while Finance Minister Bill English is playing down the idea, at least for the time being.
The key concern in Christchurch was that if insurance companies held back in terms of writing new policies, rebuilding would not be able to get underway as quickly as hoped. English said the government was working on providing insurers with all the geotechnical information it had on Christchurch as parties waited for aftershocks to die down.
Goff told media in Parliament on Tuesday morning it was the unknown time until aftershocks died down that Labour was worried about, with there perhaps being a role the government could play by stepping into the gap until private insurers were willing to enter into new business in the city.
English later responded by saying it was unlikely the government would step in an insurance provider role, although all options were still on the table as uncertainty around aftershocks and land in Christchurch continued.
Prime Minister John Key said it could be a very expensive process for the government to step in and take a risk the private sector was not willing to take, in terms of postioning the government as an insurer of last resort.
Last week, when announcing a blowout in costs faced by the Earthquake Commission (EQC) due to new estimates of damage caused by the Christchurch earthquakes, English said in a media release that several major insurers were not currently writing new insurance over in Christchurch as continued seismic uncertainty made it difficult for them to anticipate risk.
Minister for Earthquake Reconstruction Gerry Brownlee is set to lead a government delegation to a reinsurance conference in Monaco this month in an effort to provide the private companies with all the geotechnical information the government has on Christchurch, in order to help provide more certainty to insurers and their reinsurers on risks in the city.
'Should govt step in?'
Talking to media in Parliament today, Goff said there were real problems with insurance companies not paying out in some cases and not being prepared to insure people wanting to build in the city.
“You can’t leave that situation like that indefinitely, so the government needs to come clean with the information that it’s got,” Goff said.
Labour would support the government on the issue, if the government provided it with the information it had.
“What can they do to actually get that rebuilding process underway, because at the moment it’s stalled,” Goff said.
Rebuilding was being held up by unwillingness from insurance companies to re-enter the market.
“We need to know from government, have they considered making the government the insurer of last resort. What are the arguments for that, what are the arguments against?” Goff said.
“Is this the critical factor holding up the rebuilding of the city? Is the government prepared to sit back and wait longer-term without intervening? Can they intervene, can they provide that support, what are the costs?” he said.
'Unlikely, but nothing's off the table'
Finance Minister English played down the idea, telling media the the government was not looking at setting itself up as an insurance company. However all options were still on the table.
“There’s quite a mix of evidence about insurance in Christchurch. For instance, a lot of insurance companies are continuing to cover their own clients – so if someone sells a house and goes to another one, it appears they can get coverage," English said.
There were a number of stories of commercial business owners being quoted very high prices for insurance that made it almost impossible for them to buy cover.
“We’ve got to bear in mind here, the insurance companies will be wanting to see the prevalence of earthquakes actually drop-off. You can understand them being concerned about the risk of further quakes,” English said.
The government was monitoring the issue closely.
“This is really a matter of timing. We’re confident that the aftershocks will tail off, that the possibility of higher premiums is going to attract insurers into the market. The question is really how long that will take, and whether there’s any action we can take in the meantime to encourage insurers back into the market,” English said.
One of the most important things government could do was provide insurers with information about the area.
“We probably know more about the natural hazard risks in Christchurch than any other place on earth at the moment, and Gerry Brownlee’s going to talk to the reinsurers this week to give them all the information we can give them to demonstrate that with higher standards of building code, with a good understanding of the earthquake risks, that the insurance companies can come back in because they know what the risks are,” English said.
The government wanted to minimise delays, but had not made any final decision about what role it could take in this.
“We are trying to get a really good understanding of what insurance activity is occurring, because, while on the one hand there are a lot of stories about real difficulties, and I’ve talked to some of those people myself, on the other hand there’s clearly some insurance activity going on because houses are being bought and sold,” English said.
The government had not considered “in detail” whether it could perhaps be an interim guarantor of insurance companies.
“At the moment we’re dealing with our guarantee of EQC to make sure that they can continue with business as usual, and monitoring the insurance market pretty carefully," English said.
"We're not going to rule anything out, because we are keen that we can get on with the rebuild of Christchurch. Just bear in mind, the biggest single problem here has been the ongoing significant aftershocks, which no one can control. And until or unless they drop-off, it's going to be a bit of a challenge to get insurers in and get rebuilding going," he said.
"But the signs are the aftershocks are dropping off."
'Would be costly'
Speaking to media on Tuesday afternoon, Prime Minister John Key said the insurance process in Christchurch was a challenging process.
"It also could be a very expensive process for the government to step in and take a risk that the private sector’s not prepared to take," Key said.
"It’s not clear-cut in terms of insurance down there, quite a number of people are getting insurance, others aren’t. I’m confident that the government’s on the right track, we’re working with the insurers," he said.
(Updates with Key, English quotes, videos of Goff, English)
47 Comments
This also complicates things, I doubt such problems will "drop off":
I read some links that Hugh provided, or maybe Chrisj ? anyway, they showed these problems have been known for yonks - they don't need sweeping under the carpet, again.
If the Govn becomes insurer of last resort, does that open up moral hazard?
I suspect however that this will be what eventuates, disasters like this and the ever increasing weather events from AGW will I suspect mean if we can get re-insurance it will be prohibitively priced. This leaves the only option of the cost having to be shared amonsgt NZers or NZ will become a quiet backwater with few ppl in it......business will simply leave.....OZ is nice and close.....
Can but assume that the EQC levy is going to rocket.... x several hundred % seems on the cards....
regards
Taxpayer commercial guarantees of any sort are moral hazard by definition.
It would also mean insurance would be politicised.
What made you think weather events were increasing?
The USA hasn't had a CAT3 or stronger storm hit land in six years, which is the longest 'drought' on record.
The current Texas drought is smaller than dust bowl of the 1930's and Texas had the largest rainfall year ever recorded in 2007.
There simply isn't any scientific data to support that idea.
And if your assumptions are erroneous your 'only options' conclusions are also erroneous.
Sigh.
Such a knee-jerk Labour reaction to an entirely understandable insurance reaction: the probability of further major shakes is around 70% (check Geonet...).
And Phil Gap's idea presupposes that a Gubmint organisation is actually capable of the task.
After all, no insurer self-insures. Full stop. They all re-insure and parcel out the risk, offshore.
So is Phil G seriously advocating a Gubmint-run (funded with Our money, too, in case y'all hadn't picked up on That aspect) re-insurer?
Kiwi Re?
What happens to NZ's businesses and economy if no one can get re-insurance? or if its cripplingly expensive? For ChCh if it was me I'd jump on a plane with a one way ticket....chch will never recover.....stretch that out as NZ...
Advocating, yes if not I suspect he might have to.....the ECQ at least had built up several Billion.....it can do the same again, and will have to.
regards
AMI for instance that the Govn is back stopping? and even AMI has re-insurance, for now. Anybody with them for instance is 1 month's notice from no insurance....The bank that holds your mortgage with insists you have to have cover....or can force a sale.....what happens if you cant get or afford a new policy?
Most commercial companies that operate here, actually I think all of them have considerable re-insurance...none of them are totally self-financed.....
There is also no assurance that we have time, therefore the only probable option is Govn (tax payer) backed cover.....so an EQC on steriods seems probable.
Whichever came to pass the equake cover is going up and going to go up a lot.
regards
Could we please once and for all begin to replace the word Govt....with Taxpayer as from social services to kingdom come...people have this delusion that the Govt just prints it as you need it...
Should the Taxpayer be the Insurer of last Resort....is how it should read as it is factually how it is.
Yes there have been a few who have thought on these lines....that and try reading some of the Green's blogs......funny but Im a socialist in here, but a greedy, fascist landlord with no care for the poor or morals....there.....I must be about centre in that case.
regards
There is nothing wrong with masquerading as a fascist Steven ..you get to dress up in nice leather and wear a little Eagle cap n all..may even involve some rubber..anyhoo you stand out in the crowd..!
The socialist look is so commonplace you can't tell which side your on...!
Hey do you know what the sex of the Eagle was on the SS hats.....?
GBH..... you are speaking of the Hier apparent.....with his Bruce Lee lookalike demeanor he is about to roll Phill like a damp Port Royal and smoke his soggy ass out of there.
Cunnie...Cunnie...Cunnie...Cunnie....will be the chant as clenched fist stabbing caucus wannabe's form a huddle in the dunnies......
And yes security stopped taking notice of Annette King going in there since Darren's departure.....so no problem there.
Very unlikely IMHO.....Look at the history of the last 20 years of NZ and UK politics....to be in Govn you have to be the centre ground....the swing voter says who wins and likes centre politics....if a left winger gets in as would be leader/PM Labour will be polling down around the greens come election day....The UK Labour party managed that with Michael Foot and got wiped off the map....NZ labour did a Tony Blair and HC took them to the middle, 9 years was the result....JK had to be more middle than HC.....and he won....
regards
Seems to be a few people around not old enough to remember the history of State Insurance - the insurance company formerly owned by you and me (via the government so many seem to think so incapable). It made more than a penny or two for you and me, and yes it provided a quality product and service that made many other companies look like the "profit above all else" zombies they are.
Re Chinese insurance companies, they're already here. And it seems from their behaviour they've decided they don't want to be here anymore.
If the Govt sorted the building code so that a medium large earthquake doesn't cause new residential buildings to become total losses, then there would be zero risk in EQC underwriting insurance policies.
The fact is that if they are still providing the first $115k in cover anyway, then if the property was designed so it could be say repiled for $40k and it was also base isolated to prevent any internal damage at all then the only risk would be from a magnitude 8+ striking within a short distance of ChCh, which we know is impossible unless there is an undiscovered fault large enough in the area (highly improbable).
Get some building codes sorted then we can get on with getting things up and running.
To be honest, sometimes you've got to just take the risk. We have a small project we are doing which is uninsured for earthquakes, not the best scenario but honestly we know what damage could occur and it would be better to pay to fix it ourselves if there was a problem than wait in an insurance queue anyway.
The Government however need to get things moving, otherwise they'll find themselves unexpectedly moving offices (although that would take a large amount of action from Goff).
Chrisj, as always I'm so very impressed with the practical approaches you suggest for what seem at first glace to be intractable problems for the politicians and bureaucrats.
And at the same time I despair that someone with your commercial acumen and expereince, combined with this entreprenurial quality of lateral thinking, isn't in a position of responsibility - or at the very least, in a position to advise those in charge of making it happen for the people and the businesses of Chch (and indeed the country - as the situation and the issues have implications for the whole of NZ).
Bernard - why not put this suggestion to John Key, Phil Goff and Russell Norman - as I'd really like to hear what each of them would have to say on this idea - as it would certainly influence my vote.
To me, this problem with insurance is huge for NZ. It needs solving, and solving now.
------------------
On another point, this statement from Bill English above;
We’re confident that the aftershocks will tail off, that the possibility of higher premiums is going to attract insurers into the market.
is disturbing. Basically, he's saying he's confident that once the insurance companies realise they can fleece the local Chch market with higher premiums after the risk has passed - that will attract them back into the market. It says alot about the way Bill English is so totally divorced from the real world - as this is certainly the comment of an elitist who has little understanding of how such higher premiums will impacted on NZers in average/middle income brackets. Moreover, he seems to be promoting price gouging by the private sector companies. Disgusting.
Ref your second comment, you seem to be under the impression that insurance companies should be expected to continue to offer cover on the same terms as before, when events have shown that it was substantially underpriced before.
Perhaps you could share with us examples of other businesses who are driven by the goodness of their hearts, without thought to the impact on shareholder investment, to sell products for less than their value and less than it costs to provide them?
The reality is that private insurers will either return on terms that are commercially attractive to them, or they will not return at all. I don't see what's not "real-world" about that.
Mr English thinks that the former would be preferable to the latter, for if private sector insurers don't return at all, then individual home-owners and/or the taxpayer will have to take on the whole risk. You may disagree on that and think that that the Government would make a better job of managing insurance provision, but I'm having trouble identifying what evidence or experience would lead you to that conclusion.
All you people not in Christchurch get your chimneys down to the ground , replace your lathe and plaster with gib, strap your water cylinders, screw all your bookshelves etc to the walls with big brackets. Then when the big one occurs in your town you won't contribute as much to the next blow out.
This has to be the last nail in Goff's improbable campaign. YOU HAVE GOT TO BE JOKING. We're mad to be spending a dime of the huge reinsurance payout on Chch at all, let alone sink it all (and more) on a non-city sitting on a quake-prone silt-filled flood plain that's suffering ongoing aftershocks. Get a grip Phil - suggest spending the reisurance money somewhere in the NZ economy that would send NZ forward rather than blowing this once in a lifetime opportunity. Sorry Chch, this delusion should have ended months back - time to leave town before the reinsurers ultimate decision to bail (and they will - who in their right mind would take the risk ... except spent politicians who love spending my and other net taxpayers' money). This is Emperor's clothes stuff people - can everyone not see that he's naked - just like the chance of getting reinsurers to reinsure Chch. When is the truth going to come out that Chch should never (and may never) be rebuilt ... 27 November perhaps?
First cut the BS you are not sorry for Chch. The truth is there, has actually been there in the public domain since May but will not be absorbed by the public or polies. It is a classic case of behavioural psychology where loss aversion meets commitment and they can't back out now. Many times in history public policy has been caught by this nexus. The only good that will come from it is the smart money is given a chance to divest. For that I'm thankful. For the taxpayer and Chch no satisfaction going to happen.
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