EQC could use insurers as agents, raise cap to $150,000, drop contents cover

Monday, 26 June 2017

Earthquake Commission Minister Gerry Brownlee says any changes will not affect existing claims.

Insurers may soon act as agents for all Earthquake Commission (EQC) claims and the body's claim cap may increase to $150,000, but not include household contents.

On Monday the Government announced these proposed changes to the EQC Act. EQC acts as a Government-owned insurance company for natural disasters, automatically covering all residential properties with private insurance policies that include fire damage cover.

The changes would mean people with homes damaged in natural disasters claimed through their insurer rather than directly to EQC. It would be much like a trial that has been running with all November earthquake house claims.

Claimants would then only have to deal with one organisation about their claims.

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It would also mean EQC's natural-disaster claim cap would be raised from $100,000 to $150,000 and cover for household contents would be ditched.

Insurance Council chief executive Tim Grafton said private insurers supported the proposed reform, but wanted 'a clear expectation' that insurers should be responsible for assessing and managing claims for house damage.

Last year EQC and insurance firms signed a memorandum of understanding that allowed insurers to act as EQC's agents assessing and settling all house claims from the November quake.

Grafton said the council believed that system should be used for all EQC claims, otherwise claims lodged with insurers might be passed to EQC to assess and manage.

More than six years after the Canterbury earthquakes, EQC was still passing on some claims to private insurers when it acknowledged the claims were worth more than the maximum $100,000 EQC payout.

Grafton said this could be avoided if insurance companies managed claims.

EQC Minister Gerry Brownlee said the proposed changes would not affect existing claims.

Brownlee said the existing $100,000 claim cap was negotiated by the Government in 1993 when insurers were threatening to withdraw from disaster insurance.

He said the new cap was a result of analysis that showed people were generally capable of managing a repair of up to $150,000 themselves 'in normal circumstances'.

'You get the best economy out of our scheme at that figure.'

Other proposed changes included standardising the claim excess – previously between $200 and $1150 per claim – to $1000 and clarifying that EQC land cover would be only for natural disaster damage that directly affected the insured residence or access to.

However, EQC would still provide land cover in 'total loss' situations where a site could not be repaired or rebuilt on.

Brownlee said the existing land-damage policy had led to confusion over claim values.

He said the review was 'what you would expect to happen' after a series of large events.

'Naturally you are going to have a review to look at refinements.'

Grafton said the most important aspect of the proposed reform was that land cover was kept separate from building cover.

'This means that where land damage has occurred, separate funding to the building cover is available to fix the land or access to the property, so the house can be repaired or rebuilt.'

He said EQC dropping contents cover would increase the risk for insurance companies, which could increase insurance prices, but raising the EQC cap would decrease risk.

Contents were a small proportion of claims following an earthquake, he said.

'Each insurer will decide their own appetite for risk and how they price that.'

Removing contents insurance made sense, because EQC's focus should be 'ensuring people can be rehoused after an earthquake', and private insurers would cover contents claims.

The Government hoped to release a draft EQC reform bill later this year or early next year, with the changes implemented in 2020.

From November 1 this year, the EQC levy will increase up to $69 per homeowner per year.

The Government expected little to no change to private insurer costs from the proposed reforms.

PROPOSED CHANGES TO EQC ACT

▪ EQC claim cap raised from $100,000 to $150,000.

▪ EQC will no longer cover contents.

▪ Claim excess standardised to $1000.

▪ Claimants to lodge claims with insurance company, not EQC.

▪ EQC to cover natural disaster land damage only when it directly affects the residence or access to it.

The headline in a previous version of this story incorrectly stated EQC could act as insurers' agents.