Press Release – Vero
Vero Chief Executive Gary Dransfield says the EQC Act Review is a “once in a generation” opportunity to significantly improve the way natural disaster insurance is funded and managed in New Zealand.Vero CEO calls for significant changes to EQC Act
Vero Chief Executive Gary Dransfield says the EQC Act Review is a “once in a generation” opportunity to significantly improve the way natural disaster insurance is funded and managed in New Zealand.
Addressing the Trans-Tasman Business Circle at a lunch in Wellington today, Mr Dransfield said: “I believe it would be a lost opportunity if Government, insurers and others simply used the review to finesse existing legislation.
“For insurers, it should be the start of an ongoing reform process designed to deliver a resilient general insurance sector that underpins New Zealand’s economic competitiveness.
“For Government, it should be an opportunity to consider the best way to reduce the fiscal risk to the Crown for natural disasters, while providing an acceptable level of protection for public and private property.”
The latest Reserve Bank of New Zealand Financial Stability Report says expected total claims costs related to the Canterbury earthquakes may exceed $30 billion.
That would be more than 15% of the GDP of New Zealand. Fortunately, 80% of those costs are expected to be met by insurers and reinsurers.
“If the New Zealand Government had to borrow what reinsurers and insurers are paying out for the Canterbury recovery, the Government would have to find an additional $800 million a year in debt interest payments.”
Mr Dransfield said insurance had protected New Zealand from the full fiscal impact of the Canterbury earthquakes.
“The Canterbury earthquakes exposed weaknesses in the current EQC and private insurer hybrid insurance approach,” he said.
“The model is systemically flawed when placed under the stress of a massive volume of claims and no consistency in the terms and conditions of policies being managed by both the EQC and private insurers.
“Having a government insurer and private insurers responsible for claims from the same customer has made the Canterbury recovery extraordinarily complex and has reduced claims management speed and efficiency.
“Another major deficiency of the current approach is that it increases costs and wastes capital for both the Government and private insurers. Those additional costs are ultimately met by taxpayers and customers.”
Given the Government’s commitment to a balanced budget and debt reduction, Vero questioned whether it was sensible to operate a fully resourced and funded public insurance agency with the sole mandate of managing claims after a major natural hazard disaster.
Mr Dransfield concluded by saying that solid progress was being made and that prospects were bright for investment in Canterbury.
“That progress would have been faster and more substantial if not for the inefficiencies of the current earthquake insurance model. Pleasingly, we now have an opportunity to rectify those.”