Three years too long for insurance

Today is the third anniversary of the first big Canterbury quake, the Greendale quake. The thousands of earthquakes in Christchurch and the recent severe shaking in Marlborough and Wellington have underlined that New Zealanders really do live on the shaky isles.

Three years on though, thousands of Cantabrians still haven’t reached a settlement with their insurance company. It’s really hard for families to move forward with their lives and make plans for the future while they are still waiting for their insurance to be finalised.

A settlement deadline on insurance companies would help promote a faster recovery from future significant earthquakes and other natural disasters and reduce the uncertainty and stress for those whose homes and business premises and equipment are severely damaged.

New Zealand is fortunate in having the Earthquake Commission (EQC) to provide initial cover for earthquake damage.  Public and media focus has been on the speed with which EQC has dealt with claims because EQC is the first port of call. Yesterday EQC said it has settled building claims on 108,000 homes, with another 70,000 to repair or make a cash settlement.

The private insurance industry needs to lift its game given that today Radio New Zealand reported that new Insurance Council figures show that 5000 severely damaged properties in Canterbury are waiting to settle their insurance claims and that 600 of those have not even received an offer from their insurers. Until they are settled, policy holders, home and business owners are in limbo, unable to get on with their lives.

In Australia in 2011, after huge flood events the Government announced an independent review into disaster insurance in Australia. One of the recommendations was that the Insurance Council of Australia amend its Code of Practice to put in place a four month time limit on insurance claims.

Without a rule like this, there is no incentive for insurance companies to settle and make a prompt pay-out. Similar rules are overdue in New Zealand and those businesses and families still waiting three years later will attest to that.

6 Comments Posted

  1. Insurance companies are among the wealthy entities in the world Photonz, they are financial institutions, they have money to loan, invest, speculate with… and they have done very very well over the past 50 years. Think about some of the monuments they’ve erected. The Prudential tower, the Transamerica pyramid, the John Hancock tower… they aren’t exactly losing money. Not even after a disaster, it is a GOOD business to be in, and a shitty business for the rest of us.

    As for our situation?

    My response is that the insurer who is still making a profit while paying off after a disaster like Christchurch is likely either not exposed in Christchurch or cheating its customers. If even major disasters don’t hurt then we are all paying too much for insurance.

    You seem to have some odd notion that they are entitled to make profits all the time. If it is an INSURANCE company and made book on the earthquakes it has to have lost a LOT of money in Christchurch.

    I am sorry if this offends your sensibilities, they are apt to make money in most years, I don’t mind if they do. Every year? That’s a signal that the house percentage is too large. Not much different from the interest rate spreads the banks offer. The house percentage is too large.

  2. “One of the recommendations was that the Insurance Council of Australia amend its Code of Practice to put in place a four month time limit on insurance claims.”

    Any idea what setting of this absolute line-in-the-sand does, or might do, to premiums?

    Having recently returned from living about 3 years in Victoria, I could easily see an industry representative of Australian insurance companies (which is exactly what that body is) recommending a course of action that would provide a nice excuse to increase premiums. Insurance is already more expensive on that side of the ditch for some reason, imho, although we only ever had car and contents insurance so I may have missed some of the picture.

  3. BJ – their NZ operation made $100M on $2B – or 5% – That’s hardly excessive.

    Your idea that insurers should have to pay full insured amount if they are too slow doing assessments is nuts.

    To cover that, our insurance premiums would be many times what they are now, and 19 out of 20 years the insurance companies would effectively have a license to print money.

  4. It boils down to this Photonz

    IF the insurers were actually paying out claims and servicing the needs of the half a million people who were affected they’d be QUITE incapable of lifting “profits” until that process was complete. The insurers are the ones who are supposed to absorb the blow, not the homeowners. Two and a half years is too long.

    I like what JC2 says. Sounds like some serious thought went into it. My point of view is that after some more excessive period of time the insurer is simply liable for the full amount insured. Assessment or no.

    The assessor is there first for the benefit of the insurer, not the claimant, as it is often cheaper for the insurer to pay out actual damages rather than the total sum insured and the assessor’s role is to determine what the actual cost of repairs ought to be and so limit the liability of the insurer.

    The assessor often assists a homeowner in detecting hidden damage and a professional inspection is a good idea before starting work, but it needn’t be the insurer’s assessor.

    To this however, was added the EQC assessment of the properties, the “red zoning” and “green zoning” issue which determines whether the property itself can even have a building on it. The insurer is not liable for that delay.

    That process has been extraordinarily drawn out for an area survey. Going over each and every property is not logically a requirement for EQC. Specific appeals by homeowners seem to be part of the issue?

  5. One of the issues overlooked in every story on Canterbury earthquake claims, is the size of the problem.

    Carrying out an assessment on the damage to a house, and what materials and labour are needed to fix it, an not an easy or a quick thing to do.

    Yet to get through nearly half a million assessments, there have had to have been 600-700 assessments per day, seven days a week, for the last two and a half years.

    Even if just 10% are slow, or not satisfactory, or the result debated, that’s 50,000.

    It’s a difficult process, it’s a slow process, and for everyone at the back of the queue, it’s not fair.

    But the reality is that with such an enormous task, there is no changing the fact that there is always going to be thousands at the back of the queue.

  6. Hi Eugenie,

    I’m not sure that your proposal works for me. I don’t know what happens when the deadline is exceeded, and I don’t know how that’s shared with the government which, through EQC and CERA has been busy:
    – rewriting building law
    – not sharing geological data

    There’s a general thing where, until the coverage in EQC is increased, insurance in New Zealand is impossible, because the size of the likely population event is too large. This has been known since at least 2008, and will be painful to fix, so no government wants to front it.

    Here’s my alternative narrow proposal:
    – for the purposes of the contracts act, the payment due date on an insurance payout is the date of the insured event
    – so, after a month, penalty interest starts to accrue
    – to minimise insurance companies’ incentive to crank down the size of the payment, in the absence of circumstances beyond their control, that interest is on the sum insured, not the eventual payout
    – [not so sure about this] maybe a third party causing a circumstance beyond their control should be liable for a share of the penalty interest

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