Settlement of Canterbury quake insurance claims now tops NZ$13 billion

Private insurance claims stemming from the 2010 Canterbury earthquake in New Zealand have hit the NZ$13 billion mark, notes a statement from the Insurance Council of New Zealand (ICNZ).

As of the end of September, insurance companies had settled $8 billion in commercial claims and $5 billion in residential Canterbury earthquake claims, notes a statement from the council. Claims settlements have advanced at an average of NZ$10 million/day this year.

The pace of settlements has not dropped off in 2014, “even when many complexities still remain,” ICNZ chief executive Tim Grafton says in the statement. “In 2014 alone, insurers have paid out $2.7 billion to settle residential and commercial claims,” Grafton reports.

As of the end of September, private insurers have fully settled 12,461 or 54% of all over cap claims, including 2,622 major repairs and rebuilds, up 419 from 2,203 in Q2 2014. In over cap claims, insurers had a further 442 transferred from the EQC (Earthquake Commission) during the quarter ending in September, resulting in the total for said claims reaching 23,181.

ICNZ reports that of the 10,011 customers who chose insurer-managed rebuilds or repairs, 26% (2,622) are fully completed, 16% (1,618) are currently under construction, 3% (315) in consenting, and 8% (791) under contract. The remaining 4,666 (47%) are in the pricing or design process.

Customers who have yet to receive an offer from their insurer now stands at 1,140, down from 1,169 the previous quarter. “Many of the 1,140 customers yet to receive settlement offers are in complex shared properties where assessments are still ongoing,” Grafton says.

“While many complicated issues still remain, such as complex shared properties walls, retaining walls, flood, EQC land compensation settlements and mass land movement, the pace of settlement has not dropped off and insurers are still confident that almost all residential claims with be settled by the end of 2016.”

The latest numbers were released just days before New Zealand’s insurance industry issued a 15-point plan to help reduce the social and economic impact of natural disasters in the country. In a statement Monday, ICNZ argues that heeding the call will help keep insurance available and affordable for all.

Pointing out that New Zealand “remains one of the most vulnerable countries to the impact of natural disasters for an economy of our size,” the council is urging decision-makers to implement a range of legislative and strategic solutions. ICNZ recommendations – which fall under the headings: Strategy and Legislation, Information to make the right decisions, Funding and Insurance – include the following:

• Legislative alignment – review legislation to ensure risk management of natural hazards is aligned and focused on reducing or avoiding natural hazard risks consistent with the strategy.
• Plan to address local hazards – legislation should require local authorities to assess those natural hazard risks relevant to their locality and have infrastructure plans in place to address them.
• Safer commercial buildings – make non-structural seismic restraints part of annual building inspections.
• Educate people – a public education program to inform people about the natural hazards they face and the actions they or their communities can take to minimize them.
• Fund resilience – a commitment to long-term annual funding of initiatives to build resilience where the risk and investment trade-off justifies it.
• Keep insurance affordable and available for all – introduce comprehensive measures to reduce the risk of natural disasters and remove levies from insurance premiums to help keep the transfer of risk to insurance affordable.

Based on data going back to 1900, New Zealand can expect to face, on average, annual costs of $1.6 billion (just under 1% of its GDP) from natural disasters, Grafton says in the statement. “Without risk reduction measures the cost from natural disasters will increase,” he argues.

Beyond the ever-present risk of earthquakes, volcanoes and tsunami, ICNZ notes, 2013 and 2014 were among the most expensive years for weather-related events in the country.

“Climate change will increase the risk of flooding in parts of the country and drought in other areas,” says Grafton. “Coastal areas will be more vulnerable as sea levels rise and we can expect more severe windstorms in the west,” he adds.

The council notes that about three-quarters of the $40 billion cost of the Canterbury earthquakes (20% of the country’s GDP) will be met by insurance.

It argues that without affordable and available insurance, individuals, business, local and central government will end up bearing the brunt of the costs.

“We cannot control the forces of nature, but we can reduce their impact significantly by building New Zealand’s capacity to withstand and recover from natural disasters,” Grafton emphasizes.