By Jimmy Higgins
Executive General Manager, Claims
2 February, 2016
A full copy of Vero’s submission on the EQC review is available here. Vero’s submission is a response as at 11 September 2015 to the Government’s proposals for potential changes to the Earthquake Commission Act 1993 (the EQC Act).
Vero believes New Zealand’s dual insurance model has served New Zealanders well since its introduction in 1945 and Vero supports the continuation of this model.
Vero largely agrees with the proposed legislative purpose outlined in the discussion document. Where Vero believes the legislative purpose could go further is a more specific emphasis on the need for the EQC Act to enable public and private sector organisations to put the needs of New Zealanders first. In particular, in the case of insurance companies and EQC, a legislative framework that enables a timely and effective response to the needs of their customers.
Vero supports the following parts of the Treasury’s Discussion Document:
- That EQC continues to insure against earthquake, natural landslip, volcanic eruption, hydrothermal activity, tsunami, and storm and flood. (page 5 of Vero submission)
- That EQC building cover should continue to only be available to residential building and dwellings in non-residential buildings, where the dwelling constitutes 50% or more of the total area of the building, part or structure. (page 5)
- That EQC land cover only be available for land associated with residential buildings. (page 6)
- That EQC should no longer offer residential contents insurance. This will make post-event claims handling more efficient as it will remove duplication between the insurer and EQC. (page 7)
- That EQC have a standard claims excess of $2,000 +GST per building claim. Overall, Vero believes this will keep levies lower, assist with efficient management of claims and increase the incentive on homeowners to mitigate minor damage where possible. (page 14)
- That monetary caps, premium rates and claims excesses on EQC cover should be reviewed once every five years. Vero notes that changing systems, processes, policy terms and wordings is a time intensive and expensive process and that therefore changes should be made only when they are material and based on sufficient need. (page 15)
- That EQC cover should continue to automatically attach to fire insurance policies on residential buildings (although Vero notes that fire-only policies are rare in New Zealand today). (page 16)
- That EQC continues to have the ability, but not the obligation, to directly provide EQC cover to homeowners who request it. Vero submits this should particularly be the case where not to do so would result in unconscionable outcomes. (page 17)
- That all EQC claims be lodged with claimants’ private insurers. However, Vero believes the legislation should go further and require insurers to be the first and ongoing point of contact for New Zealanders in the event of a natural disaster and to be responsible for the management of under and over cap claims. This would be in line with the feedback Vero has consistently received from customers in the five years since the first Canterbury earthquake, which is that customers want a much simpler and more efficient process, particularly around claims management. (page 17)
- That the current three-month time limit for claims notification be retained, but EQC be able to accept claims up to two years after an event, unless doing so would prejudice EQC (page 21)
- That the new EQC Act should contain pricing and transparency principles requiring the scheme to adequately compensate the Crown for its expected costs and risks. (page 22)
- That the current flexibility to charge flat-rate or differentiated EQC premiums should be retained. In particular, Vero submits a straight-forward pricing structure makes it easier to explain to customers and to support this in systems and processes. (page 22)
Vero disagrees with the following parts of the Treasury’s Discussion Document:
- That EQC building cover be extended to include siteworks and the main access to the building so that there is one EQC cap available to cover both house and land damage. If this proposal were adopted, it could lead to the insured being grossly underinsured in the event of natural disaster damage. Vero believes including siteworks within the build cover does not support, and risks undermining, the second proposed legislative purpose of the legislation, which says it “recognises the importance of housing in supporting the recovery of communities after a natural disaster”. (page 7, 12)
- That the monetary cap on EQC cover for combined land and building damage be increased to $200,000 +GST. Vero proposes a building cover of $150,000 +GST but that this be exclusive of landworks, which would have a natural cap of its own determined by the economic value of the land. (page 8)
- That EQC building cover reinstate after each event. Vero submitted that EQC pay the full costs of accumulating damage in each event until it reached the cap, and that EQC cover would then reinstate once the repair was fully completed. (page 10)
- That land cover be restricted to situations where the insured land is a total loss meaning it is not practicable or cost-effective to rebuild on it. Vero believes such a restriction could result in people being grossly uninsured in the event of natural disaster damage (page 10).
- That EQC’s legislated standard of repair is broadly consistent with current industry norms. Vero proposes EQC cover follow that of the insurance policy on the site. (page 13)
- That EQC cover should automatically attach to insurance policies on residential buildings, and EQC cover should exclude any natural disaster peril that is excluded from the fire insurance policy it attaches to. Vero submits EQC cover should not exclude any natural disaster peril that is excluded from a private insurance policy. EQC cover should be available to all. (page 16)
A full copy of Vero’s submission on the EQC review is available here.