Conference Issue 2018


EQC reform Bill 'disappointing'

The New Zealand Government has missed opportunities for better reform of the Earthquake Commission, University of Canterbury senior lecturer Henry Holderness told the NZILA conference.

Mr Holderness is writing a PhD thesis on the EQC and has spent six months studying natural catastrophe insurance schemes globally. He found most studies were done by economists not lawyers, so they examined concepts like 'availability bias', 'adverse selection' and 'charity hazard'.

There were many schemes with the common factor that events affected a large number of people all at once, so they were "prohibitively expensive to insure under the ordinary insurance model. Inevitably, that gets governments involved".

Mr Holderness said the EQC was "to some extent a success", given about 90% of NZ households were insured for earthquake damage, compared with about 10% in California, USA. NZ's figure was "incredibly high", compared to other countries. "We can be confident aspects of EQC work well."

EQC was "not rotten to the core", but had experienced some incompetent management. There was "room for improvement" in EQC legislation and day-to-day management. Unfortunately proposed reforms in the EQC Amendment Bill 2018 were disappointing.

There were only four substantive amendments and one, greater information sharing with private insurers, had already been implemented after the 2016 Kaikoura quake.

Mr Holderness said the Bill was a "mixed bag" that could have gone further. Suggestions in a 2015 discussion document were not all adopted in the Bill, which was a "missed opportunity to make broader changes to bring more significant improvements".

A clear statement of purpose would have assisted the courts in interpreting the Bill once it became law. It was "significant" there was no change to land cover, which was "very complicated and needs to be simplified".

He said remaining problems included investment of the Natural Disaster Fund (NDF). In September 2010 it had a reported balance of $NZ6 billion, but $NZ4.1 billion of that was invested in government stock. "That's not a wise choice and it's been dictated by Treasury  ... the stupidity of this has been noted by many commentators but nothing's been done."

Mr Holderness said the NDF was held in Wellington, "the seismic centre of the country".

A comprehensive review would properly invest the NDF in diversified global equities to be liquidated urgently when needed, he said.

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Resolve is the official publication of the Australian Insurance Law Association and
the New Zealand Insurance Law Association.