The interaction between New Zealand’s Earthquake Commission (EQC) and private insurers was “a horrible situation”, Lumley General NZ CEO John Lyon told the NZILA conference.

Participating in a panel session on current issues in the NZ market, he said the “complex inter-relationships” between EQC, as insurer of the first $100,000 of households’ earthquake damage, and private insurers could have been much simpler had the EQC sum been inflation adjusted.

Mr Lyon, a former NZ Insurance Council president, predicted EQC would continue to exist, but the cap would be increased and contents cover eliminated. “EQC was formed for a social purpose, that is, providing enough to build an affordable home”, but it was “a complicated beast”, particularly because of the failure to inflation-adjust the monetary cap.

Darryl Cowan, NZ CEO of loss adjuster Cunningham Lindsey, said there had been “a lot of wasted resources” in the “early days” after the Canterbury quakes. Carl O’Shea, CEO of broker Crombie Lockwood, agreed, saying demarcation lines needed to be established. “We need greater clarity around roles.”

Mr O’Shea said the industry deserved more favourable media coverage, given it had injected $25 billion into the economy. But Mr Lyon said the industry underperformed and some complaints were justified.

“If someone wants to go on a hunger strike outside an insurer’s [office], we know something has gone wrong. We didn’t nail it, and we acknowledge that. We must nail the next stage of the recovery and leave no excuses for the industry’s reputation to be undermined.”

Mr Lyon agreed commercial claims settlements were happening faster than domestic claims, but said businesses were more ready to accept cash, which speeded the process. “Residential property owners need more hand holding. Cash settlements give ownership back to the property owner and, if cash settlement works for them, we go for it. Reinsurers recognise that a good claim is a closed claim.”

Mr Lyon predicted resource constraints in 2014 as the rebuild “gets into full swing”.

He said the market was more risk averse after an event like the Canterbury quakes. “It’s a natural reaction to narrow the appetite post-event; the dynamics of the cover on offer have shifted.”

Mr O’Shea agreed, saying clients were now more interested in the risks to which they were exposed and brokers had to “move beyond insurance being the only risk solution”. Insureds needed more education on products, for example, the availability of excess buy-down cover. “Some people may not even know their $10 million building may have a $1 million excess.”

NZ’s new regulatory regime came into force from September, with all insurers required to have Reserve Bank-approved licences. Mr Lyon said the regulatory regime was driven by competing drivers – protecting consumers from “inappropriate traders” and maintaining an open, competitive market. He warned that regulators could, over time, become “more austere”, as had occurred with APRA in Australia.

He said the transition to NZ’s regulatory environment had been “relatively smooth”, particularly as so many NZ insurers were branches of APRA-regulated Australian insurers.  Mr Lyon said the Reserve Bank had to be flexible, but consistent.

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