Wellington insurance taskforce suggests raising Earthquake Commission cap to $400,000

Wednesday, 9 October 2019

As insurance premiums rise sharply in Wellington, the mayor is setting up a taskforce to look at how the industry is functioning in the capital.

A Wellington insurance taskforce plans to recommend changing building regulations and raising the Earthquake Commission cap to the Government.

The taskforce, set up in June to help tackle Wellington's rising insurance premiums, finished the last of its three meetings on Tuesday.

The group recommended increasing the Earthquake Commission (EQC) cap to $400,000, a call for more transparency from insurers about how premiums were set and an investigation into the role brokers played in setting premium levels.

In August, Wellington's Chamber of Commerce said premiums for a typical commercial office block jumped 220 per cent in four years - from $99,000 to almost $320,000.

Wellington mayor Justin Lester says this is the right time for the Government to investigate increasing the Earthquake Commission cap.

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The Insurance Council of New Zealand's chief executive, Tim Grafton, says the taskforce has only met threes time and 'undertaken very limited deep or broad analysis'.

The taskforce, chaired by Wellington mayor Justin Lester, is made up of scientists, engineers, property developers, the Insurance Council and representatives from local body corporates.

Lester said the taskforce recommended raising the Earthquake Commission (EQC) cap to $400,000 and changing the Ministry of Business, Innovation and Employment's (MBIE) building regulations to focus on 'saving property as well as life'.

The taskforce also supported setting up an information portal so property risk and hazard information would be publicly available.

When it comes to buying insurance, set aside some time, and accept that adults read the contracts they agree to.

'It became clear that this is the right time for the Government to investigate increasing the EQC cap to $400,000 in tandem with other mitigation measures,' Lester said.

A statement from the Insurance Council of New Zealand (ICNZ) said insurance premiums had risen sharply over the last two to three years due to 'a better understanding' of the city's seismic risks.

'There has been some withdrawal of cover from the market and some insurers are close to the maximum exposure they seek to have in Wellington reflecting their appetite for risk,' ICNZ said.

'Although the unaffordability issue has been talked about for months, body corporates have yet to provide hard quantitative data of the numbers who cannot afford insurance. What we do know is that it will be a very, very small proportion of the New Zealand population.'

While the taskforce's recommendations would help make Wellington more resilient, ICNZ opposed increasing the EQC cap.

The Wellington insurance taskforce would submit its recommendations to Minister of Finance Grant Robertson at the end of the month.

ICNZ's chief executive Tim Grafton said that recommendation would mean the whole country would have to be levied as a way to address a 'small, but as yet unquantified, affordability issue' .

He was not aware the council had identified who its 'vulnerable citizens' were and what help they needed, Grafton said.

The ICNZ believed it would remove private insurance competition and the EQC cap was paid for by a levy on people who took out house insurance policies regardless of risk, location or residential property value, Grafton said.

'It would mute the signal insurers are sending through risk-based pricing,' Grafton said.

'This could create perverse outcomes such as poorer building quality, or converting commercial space to residential to benefit from the subsidisation provided by less risky regions.'

Increasing the cap would be unfair because people in less risky areas would pay more while those in high risk areas would pay less, and it would add 'significantly' to the Crown's liability, he said.

'All of this would happen with no evidence to support that there has been any material reduction in the uptake of insurance in New Zealand.

'The taskforce has met just three times and undertaken very limited deep or broad analysis,' Grafton said.

The Wellington taskforce would formally submit its recommendations to Minister of Finance Grant Robertson by the end of October.