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Quake cover could be withdrawn

26 Jul 2017

Scott Hawkins of Munich Re has told a conference in Wellington there could be a "knee jerk reaction" by insurers if NZ suffered more earthquakes, "The provision of insurance might be something that becomes unattainable".

Such a response would be an undesired consequence for the economy, Hawkins said.  "As a result, the insurance industry need to carefully consider its responses to quake insurance claims".

."What we don't want, is the capital providers, or the insurers, saying: 'OK, we won't cover anything that's non-compliant [with the building standard] from tomorrow,' because that's also not something that is going to be useful for the people or the economy or businesses."

There was a danger investors would stop funding reinsurance companies because "the level of risk is too high for the return", which would limit the amount of insurance coverage available for earthquake damage, Hawkins said.

"[The insurance industry] absolutely cannot deal with the earthquake risk that New Zealand faces purely in New Zealand, nor can we do it purely by insurance," Hawkins said.

"Insurance is a risk management tool, [but] it's not the only risk management tool."

But John Lucas, insurance manager at the Insurance Council, said New Zealand was not yet at the point where anyone needed to worry about earthquake cover disappearing. "That would be a long way up."

New Zealand had a high level of insurance cover and it was reasonably cheap, he said. But insurers were starting to ask more questions about the risks they covered.

People wanting cover would find it easier if they had better buildings, or good information about those buildings to make their case to the insurance companies, he said.

"If we don't act now, one day insurance terms could change. It could become more expensive or restrictive in cover for certain building owners. But not at this stage."

"Risk management can't be: 'I won't do anything as a building owner because when it falls down, it will be put up properly the next time'."

Munich Re suffered its biggest loss as a result of the 2010 and 2011 Canterbury earthquakes, Hawkins said.

Insurance commentator Michael Naylor, of Massey University, said similar claims were made after the Canterbury earthquakes.

"Certainly, reinsurers will take decades to recover their Canterbury losses. Basically, the industry has underestimated New Zealand's quake risk."

He said New Zealand would always be able to get reinsurance, but it was a question of price.

"I'm of the opinion that the major roles of the Earthquake Commission should not be paying out minor claims but backing insurers in terms of ensuring reinsurance access," Naylor said.

An Insurance Council of New Zealand spokeswoman said the Kaikoura earthquake affected the ability of businesses to stay open and highlighted Wellington's potential vulnerability.

Argosy chief executive Peter Mence thought it was unlikely reinsurers would withdraw from New Zealand. Argosy owns several Wellington buildings, including Stewart Dawsons Corner.

"That's a wee bit dramatic because the total property industry in New Zealand is a very, very small proportion of global insurance. We wouldn't even move the needle."

However, he said it could be more difficult for a new building owner to get insurance than a landlord like Argosy, which had been with the same insurer for 25 years.

Mence said premiums had spiked after the Christchurch quakes, reduced, and then jumped again after last November's Kaikoura quake.

Some premiums in Wellington had increased 30 per cent, depending on the resilience of the building and "all kinds of things".

But any reinsurer who was not aware of Wellington's quake history had not done its homework, Mence said.

"Insurers are pretty professional and they value the business out of New Zealand ...

"At the end of the day, is the same going to apply because we have a tsunami risk in Auckland? There's a risk wherever you are."

 - Stuff



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