I once read that people were more likely to read an article with the word “sex” in the heading than otherwise would be the case - hence this article’s title.

Insurance is not generally a “sexy” topic for politicians to pontificate on. Politicians in New Zealand generally mention insurance only when throwing barbs at the industry, whether it be for the perceived lack of a timely response to an insurance crisis, the “huge” profits overseas-owned insurers generate, or any other perceived bad news stories that might come along. It was surprising therefore to see insurance on the agenda in a major way at the NZ Labour Party’s annual conference in November 2013.

The NZ Labour Party is NZ’s main opposition party and elected a new leader in September. New policies are needed and one of those proposed is establishing a state-owned insurer to be called KiwiAssure. If elected, the Labour Party will establish KiwiAssure to offer home, contents and vehicle insurance, along with cover for small businesses’ plant and equipment. Apparently it would need to have total capital of NZ$300 million to take 5% of the insurance market targeted.

Opposition Leader David Cunliffe linked the KiwiAssure policy to the decision to hold the Labour Party’s annual conference in Christchurch. “In this very brave city, I am announcing that Labour will confront the challenges of an insurance industry that is no longer Kiwi-owned; one we know from experience has not met Canterbury’s needs.”

According to Mr Cunliffe, Canterbury’s earthquakes highlighted slow payouts and patchy service from existing insurers. According to Labour, a new NZ-owned insurer would put downwards pressure on premiums, even though it faces the same reinsurance costs as other insurers. This is because KiwiAssure won’t face pressure to maximise dividends for off-shore interests. But is that really the case?

Not according to the Insurance Council of New Zealand (ICNZ). Creating another state-owned insurer is an ill-conceived back-to-the-future policy, ICNZ CEO Tim Grafton says. “This is the second political party to hold its annual conference in Christchurch in recent weeks attempting to grab low-hanging political fruit by ignoring the scale of events in the city and blaming ‘foreign-owned’ companies for the pace of recovery efforts to justify establishing a state-owned insurer.” Mr Grafton said insurance is footing almost NZ$20 billion, or 10% of NZ’s GDP, for the Christchurch recovery.

Given its size, NZ is one of the most vulnerable countries in the world to natural disasters so maintaining an appealing, competitive insurance market is essential, Mr Grafton says.

Establishing a state-owned insurer and slamming foreign-owned insurers sends a very negative signal to potential investors. Following the Canterbury earthquakes, the last thing anyone should be doing is trying to drive away insurance capital, he says.

The suggestion of creating a Kiwi insurer is somewhat ironic, given the criticism the Earthquake Commission has copped following the Canterbury earthquakes. And the NZ Government has had to bail out one of the largest domestic insurers in the Canterbury region, AMI Insurance, because of the Canterbury earthquakes – hardly a good sign.

Canterbury Earthquake Recovery Minister Gerry Brownlee (National Party) has said the reason insurance businesses tend to be internationally owned and operated by big companies is because they can hedge their risk across a range of markets. According to Mr Brownlee, Labour’s insurer would be completely exposed to the NZ market, which every citizen knows is at major risk of incurring heavy losses from natural disasters. So what Labour is saying is it’s prepared to increase the financial risk to every NZ taxpayer by entering a market in which it has no expertise and cannot offer any competitive advantage without ratcheting that risk up even higher, Mr Brownlee says.

Sexy words? Perhaps not, but obviously the Labour Party sees political capital to be had in the insurance field. New Zealanders better understand insurance following the earthquakes and no one likes rising premiums so perhaps the political interest in insurance should not be a surprise.

On a totally different note, I wish everyone a very Merry Christmas and a happy New Year. Enjoy your break (if you get one) and come back fully refreshed and revitalised for the year ahead. No doubt, it will be challenging.

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