By Jimmy Higgins
Executive General Manager, Claims
16 February, 2015
Economic and social impacts - Lessons learned
One of New Zealand’s largest insurers, Vero, has released a comprehensive, independent report on the insurance response to the Canterbury earthquakes.
Vero is now calling for a discussion on whether New Zealand’s natural disaster insurance model operates in the best way for customers, particularly around claims management - where the inefficiency of dual handling has been a major frustration for customers.
The report by Deloitte Access Economics entitled: “Four years on: Insurance and the Canterbury Earthquakes” was released today at an event in Christchurch. Using data and information made available by Vero, the report makes findings applicable to the wider insurance industry.
The report outlines findings on the impact of insurance payments across a fifteen year period – from the time of the first earthquake in 2010 through to 2025. It also details Vero’s proactive decision to take on considered, financial risk and speed up outcomes for customers by taking over the management of claims where there was evidence damage would exceed the EQC $100,000 cap or where resolution of land damage issues risked delaying rebuilding.
The report provides a comprehensive overview of the social consequences of the Canterbury earthquakes including population dynamics, mental illnesses, housing stock and affordability, employment outcomes and crime patterns.
Vero received 31,050 claims relating to the 2010 and 2011 Canterbury earthquakes, valued at just under $4.8 billion.
Vero chief executive Gary Dransfield said the report was a timely, independent assessment of Vero’s response to the Canterbury earthquakes.
“The Canterbury earthquakes were devastating for so many people in Christchurch, the Canterbury region and New Zealand. The earthquakes had a profound social and economic impact on New Zealand, including death, serious injury, personal financial impact, business disruption, ongoing trauma and displacement. In the context of one of the world’s most complex insurance events in recent times, we have looked hard at what we did and what lessons we can learn.
“Four years on from the Canterbury earthquakes, we have the opportunity as a country to reflect on what aspects of the operation of New Zealand’s insurance model need to change. The feedback we’ve consistently had is customers want a much simpler and more efficient process, particularly around claims management. In their moment of truth, customers need their insurer to help them get their lives back to normal as quickly as possible. This needs to be the defining principle of New Zealand’s insurance framework.
Key report findings (page numbers refer to the Deloitte Access Economics report)
- The more rapidly an insurance claim is paid by insurers, the more rapid the return to patterns of normal economic activity (page 1).
- The impact of payments by insurance companies such as Vero are enduring. Customers will have their claims resolved in the near term, if not already. However, there will be a tail of payments more technical in nature such as delayed receipt of invoices or claims, or work on rebuilds already done. While this tail of payments is expected to cease in 2021, the region’s GDP will remain permanently higher because of claims payments (page 37).
- In addition to claims paid, $1.7 billion has been added to Canterbury’s gross regional product since September 2010 from claims paid by Vero. By 2025, this is expected to be $4.6 billion in addition to the value of claims paid (pages 37-38).
- Vero made a number of decisions in 2012 that contributed to substantial increases in the pace of settlements. This included recruiting case managers with deep and personal understanding of the impacts of the earthquakes and providing them with the necessary authority to directly settle claims (pages 30-33).
- The report finds that Vero’s decision in early 2013 to proactively take over the management of claims where the damages were believed to exceed the EQC cap contributed to a reduction in processing times. In the last 18 months the share of finalised residential claims have more than doubled in percentage terms (page 31).
- Unique circumstances following the earthquake meant previous best-practice approaches needed to be adapted. Vero’s position as a locally-led underwriter, its on-the-ground presence, and readily available technical expertise provided it with an advantage over offshore insurers (page 33, 39-42).
- The report confirms and outlines why the challenges from the 2010 and 2011 Canterbury earthquakes were unprecedented (page 22-25).
- “Insurance is vitally important to New Zealand given its high proportion of insurance and property ownership and the risks we face from earthquakes and other natural disasters. We support a dual insurance model but it is important to ensure that the primary aim is to get the best outcomes for New Zealanders.”
- Vero executive general manager of claims, Jimmy Higgins, said the inefficiency of a dual claims management model had a significant impact on timely resolution of claims for customers, and it was crucial to get this right for the future.
- “In a natural disaster, there is no shortage of good intentions by all players involved in disaster recovery - but we need to make sure the system is efficient and works for customers. The question is whether having both an insurance company and EQC managing claims is the right approach.
The information in this article has been compiled from various sources and is intended to be factual information only. It is not personal advice and any description of an insurance product or service is not a complete description of all the terms and conditions applicable to the particular insurance product or service. You should consult a qualified adviser for advice on whether the information in this article is suitable for your personal situation and needs. While we take reasonable steps to ensure that the information contained in this article is accurate and up-to-date, it is subject to change without notice. Vero Insurance New Zealand and its related companies does/do not accept any responsibility or liability in connection with your use of or reliance on this article.