EQC 10 years after the 2011 earthquake: Has it transformed or only been tweaked?

Thursday, 18 February 2021

Aranui home owner Dot Boyd, 85, finally got some attention from EQC when her case was highlighted in Parliament.

EQC has been a byword for incompetence and chaos for most of the 10 years after the Canterbury earthquakes. Under a new board, new rules and a new chief executive, a chastened EQC hopes to do better in the next major catastrophe. MARTIN VAN BEYNEN reports.

The Earthquake Commission’s annual report was off to the printers when there was a sudden development. On September 4, 2010, Canterbury was hit by a magnitude 7.1 earthquake causing widespread and profound damage to structures and land.

The EQC report for the year before September 2010 now looks terribly naive. It had been a good year. Claims had cost only about $20 million and the Natural Disaster Fund – an EQC-managed stash for a rainy day – had grown by $355m to $5.93 billion.

Then board chairman Michael Wintringham had just enough time to jam a short piece on the September quake into the report.

* Government to change EQC laws to prevent communities suffering 'years of trauma'

* EQC inquiry head Dame Silvia Cartwright says inquiry not about reputations

* EQC's clauses muzzle criticism and complaints

Philippa Coory claimed her Springston house was a rebuild and her insurer agreed, but EQC would not agree to a joint review.

“The Canterbury earthquake will test this country’s preparedness for major natural disasters. For the Earthquake Commission, it will test the adequacy of our planning, and the effectiveness of our response,” he wrote.

The earthquake would turn into earthquakes and EQC’s response would leave its reputation severely tarnished. It appeared to have botched every stage of the process, from assessment and customer relations to repairs and resolving disputes. The mistakes cost countless millions.

The organisation was unprepared, overwhelmed and poorly run. For many claimants struggling with life after the earthquakes, EQC was just another problem.

It's instructive to recall just went wrong. The best guide is the public inquiry into the Earthquake Commission chaired by Dame Silvia Cartwright, a former High Court judge. The inquiry's report was released in March 2020.

The inquiry found numerous shortcomings but the most serious related to the following:

Bungled assessments

“ EQC used incompetent and untrained people to assess damage and prepare reinstatement strategies. These assessors were not properly trained in the definition of ‘damage’, did not know how to assess damage, and did not even know what standard their repairs were supposed to be to.” (Individual submitter to the EQC inquiry)

Cartwright said the root of many of the EQC-related problems and disputes stemmed from poor assessments of damage.

Homeowners had to prove their claims but when they provided evidence it was often dismissed, “thus setting the scene for a lengthy dispute. Those who relied on EQC’s assessment sometimes found it was inadequate and later encountered problems with agreeing to an appropriate repair strategy … This cannot happen again,” her report said.

She suggested EQC commit itself to the principle of competence.

Botched repairs

Tai Tapu residents Rose and Rob Spijkerman lived in a flood-prone house full of huge cracks, but EQC assessed their claim as under cap.

“In desperation I accepted EQC’s $45,000 and thought I could project manage things myself. The repair was much bigger than I had anticipated, and it took four years to do it at great physical and emotional cost to me.” (Individual submitter)

A managed repair on a mass scale was not part of EQC’s planning, nor was it the preferred option, the report said. Despite that, EQC decided it was the best agency to provide the service.

EQC’s lack of experience and excess urgency led to many mistakes: inadequate quality control, poor staffing decisions, uncoordinated planning – where land assessments were not finalised before home repairs began and were sometimes conducted in parallel – and poor claimant relations, Cartwright said.

Information blockages

“We never had the same people back each time, the next lot never knew what the previous lot had talked about. We had to explain everything over and over again.” (Individual submitter)

The Cartwright report blamed a “multitude of problems following the Canterbury earthquakes” on the inadequacy of EQC’s information management systems.

“Although its systems were due for an upgrade, this could not be achieved in time to enable more efficient recording and dissemination of information about claims, repairs and even location of properties. EQC needed to share information during the managed repair process with claimants, Tonkin & Taylor, Fletcher and private insurers. However, it lacked the systems to do this.”

Endless disputes

Wayne and Rose Carter had a shoddy jack and pack repair done and EQC refused to come back on site after Wayne disagreed with the repair strategy.

“ They didn’t want to read the engineer’s report that I had. In fact, I paid for three engineer’s reports after each earthquake event to ensure that my tenants and I were safe, but no notice was taken of them.” (Individual submitter)

EQC deployed an inappropriate and unprofessional in-house model that clearly made the situation worse for many claimants, the Cartwright report said.

“It was slow to develop procedures that enabled claimants to access their information and its responsiveness to concerns raised was equally slow and inept, resulting in greater stress for claimants and EQC’s own staff … It took too long to realise that many of the disputes could have been resolved by better communication with its claimants, referral to mediation and arbitration, and assistance for claimants to understand the technical material generated in the process. This has cost EQC dearly –financially as well as in terms of inevitable disputes.”

A new era

So how would EQC cope if – God forbid – another big earthquake rumbled through Christchurch or any other New Zealand city in the next few years?

It would be very different to the Christchurch experience, EQC says.

“EQC, in 2020, is a completely different organisation than it was 10 years ago. The tiny agency of 26 staff has been transformed into a modern, collaborative organisation that is now much better set up to help all New Zealanders prepare for and recover from the next natural disaster, whenever that might happen,” says chief executive Sid Miller, in the agency's 2019-20 annual and latest report.

Dave and Cherie Milne struggled with Dave’s bowel cancer and Cherie’s triple bypass while fighting EQC over shoddy repairs on their Wainoni house.

Words are cheap, so let's look at what exactly has changed or is changing.

As Miller, who took over in 2018, says, EQC has been thoroughly revamped and is well into implementing the recommendations made by the public inquiry, none of which it disagrees with.

If the recommendations are in fact implemented over time, new claimants should therefore expect competent, prompt, thorough assessments, fair settlements, high standards of repair work and quick, respectful resolution of disputes.

New claims system

EQC now has a new model, tested in the aftermath of the Kaikōura earthquake in 2016, to handle claims. Under the Natural Disaster Response Agreement (NDRA), private insurers will act as the agents for EQC in the claims process, including for under cap claims. It means claimants have a single lodgement, a single assessment and a single settlement all managed by a case officer.

Case management is right at the heart of the culture change at EQC, Miller says, because it gives the case officer the ability to understand the history of the claim and the stresses in people's lives.

The process should be faster, simpler and is designed to offer mostly cash settlements.

Miller says the private insurer model also has the advantage of being able to scale up quickly because it can use the resources of the whole insurance sector.

Stephen and Sasha Bell were frustrated when EQC did an about-turn on their claim value after a visit from EQC engineer Graeme Robinson.

“So you don't have one organisation trying to grab resources from another. It allows tapping into the global resource of loss adjusters and assessors.”

The new arrangement forces private insurers to follow prescribed processes when dealing with the under cap claims. Performance measures will be in place and insurers will have to follow a manual and training requirements. Above that cap (now $150,000 plus GST), each insurer can take their own approach.

Insurers are bound by the Fair Insurance Code, which sets up an independent review of complaints.

Miller is confident EQC can ensure private insurers are providing a quality service by monitoring them with regular audits.

Wellington barrister John Goddard, who was supervising solicitor of the Residential Advisory Service, which provided thousands of Canterbury homeowners with free legal and technical advice between 2013 and 2017, is far from convinced the new model will succeed where EQC has previously failed.

“The claim these processes will deliver ‘simplicity and certainty for homeowners’ is inconsistent with the experience of many Kaikōura earthquake claimants and, frankly, lacks credibility,” he says.

Warwick Schaffer's walls were still not plumb after EQC repairs.

He believes the change of approach should have been done by statute after public consultation. Cash settlements are all well and good for people who have some knowledge of construction and project management, he says, but others are easily bullied and exploited.

He also worries that without EQC to fix shoddy repairs, claimants will have to pursue their repairer, whose business may well have failed.

While the Fair Insurance Code required insurers to explain the steps which would be taken along the way, the code lacked detail and the courts seemed reluctant to enforce it against insurers.

“The problem at the moment is there is no way of saying what the minimum standards are. How long should it take to resolve a claim – two years, five years, or even 10 years?”

Assessments should be better

Karen and Dave Gilzean erected a banner at their St Albans property, having had enough of EQC and their insurance company's treatment of their claim.

Miller says the great difference with the new model of assessment is that it allows EQC to capture the real experience of what has occurred.

“In Christchurch we had to look and see; now we can see what the likely damage will be in each area and then drive the approach on those results; we know when a small crack in the wall may have major structural damage behind it and the modelling shows when you have to go for an invasive test.

“With the model we have an ability to assess where the most damage is and to communicate with people where you are deploying your professional workforce first. You can provide a clear picture for people.”

He says insurers being able to tap into a professional workforce of loss adjusters should give the public confidence there will be enough competent people to do the assessments.

Ali Jones, a former city councillor and now a public relations consultant, who headed the now disbanded Claimants' Reference Group, acknowledges EQC has made and supported many useful changes, but she still worries about the crucial area of expert advice.

She says an inevitable bias creeps in with engineers who get a lot of work from EQC. Her own experience is a good example. She and her husband had an old villa with a badly damaged unreinforced rubble foundation.

“I think about our own property, which is a complete rebuild, and the people who sat on our couch two years ago who said this can be repaired. One was an engineering company that often works with EQC and insurers. I want to know how often that company has come to a position and then had it turned over. That's the kind of data we need.”

Jones suggests the On-Sold programme in Christchurch is an excellent example of how the system should work. The programme lets the claimant select an expert who then submits a proposal and fee estimate. EQC pays the bill, but the contract is between the engineer and the claimant. The engineer’s engagement is governed by a standard letter of engagement that covers things like identifying damage and specifying reinstatement.

Sometimes EQC doesn't like an engineer selected by the claimant.

“I say that's fine but tell me why; I don't hear back from them. We should never be happy with EQC or private insurers dictating experts,” she says.

Overall she is still sceptical about EQC’s claimed transformation.

“The frustrating thing is that many of us can see the solutions. Quality assurance systems that provide regular and effective auditing of processes and suppliers, better training, getting MBIE, councils and Engineering New Zealand involved, but we are just not seeing that.”

No more repairs for us

Minister Responsible for the Earthquake Commission Grant Robertson, centre, and Minister for Greater Christchurch Regeneration Megan Woods, with EQC chief executive Sid Miller in 2019.

EQC has lost its appetite for managing a large repair programme.

Miller says EQC is currently not equipped to take on any repair programme.

“We will, however, continue to work with the private insurers to assist any vulnerable customers who require additional support to recover from a natural disaster.”

Access to information

Essentially the Cartwright report called for IT systems that could support the day-to-day operation of EQC efficiently with enough capacity and capability to manage the claims generated by a large-scale disaster.

The report also called for an open system reflecting the basic principle that the homeowner is entitled as of right to all information held by EQC concerning their property, and EQC should be responsive to claimants.

In response EQC has outsourced most of its information systems.

Miller says it has invested in sophisticated cloud technology “to capture data into a single area and allow that to be used by different entities”.

He is relying on private insurers to introduce the technology that will allow people to see their claim and its progress.

Talk, not fight

Miller says none of EQC’s internal reforms, including the new claims system, have changed the ability of Canterbury claimants to use the Greater Christchurch Claims Resolution Service, the Canterbury Earthquake Tribunal and the court system to help them resolve any disputes with EQC or their private insurer.

MBIE is also looking at the Greater Christchurch Claims Resolution Service and the Canterbury Earthquake Tribunal and how these could be used in a future event, he says.

“The additional pathways for customers will be that they can also direct their complaints through their insurer’s internal dispute process (which EQC will have oversight of) and the Insurance and Financial Services Ombudsman (Ifso). This will provide more resolution options for the customer.”

Reinsurance

It's easy to forget EQC is essentially an insurance company and that without reinsurance the Canterbury earthquakes would have cost the government a lot more.

EQC protects the taxpayer from as much liability as it can by getting reinsurance – insurance cover for the risk it insures. In the last financial year it received $446m in premiums, about five times what it took 10 years ago.

After the Canterbury earthquakes, some wondered if global reinsurers would go cold on New Zealand. But, at least for the year to June, EQC has managed to reinsure its losses up to $6.2 billion. This obviously costs and that amount of reinsurance cost EQC $174 million, about 40 per cent of its premiums.

EQC also manages the Natural Disaster Fund, which should sit around $1.75b and increase each year with income from premiums.

Currently, the fund has nothing much in it because all premiums have been swallowed by payouts and EQC operating costs but under the Earthquake Commission Act 1993, the Government provides the funds to meet the shortfall. The fund is not expected to reach $1.75b until 2030.

Miller says reinsurers are impressed by New Zealand’s investment in earthquake research and that affects the price.

“We invest $17m a year in research and that is internationally recognised. We are constantly looking for stronger homes and on better land.”

Where are we at?

This week EQC was still dealing with 1793 Canterbury earthquake claims.

EQC is also administering the Government's $300 million On-sold support package, aimed at Canterbury homeowners who bought a house before August 15, 2019 with a settled under cap EQC claim, but who have since discovered missed earthquake damage which exceeds EQC’s cap to repair. This week, EQC had 2800 open On-sold applications on hand.

The commission expects to pay out over $11b before it closes all claims.

As at December 31, 46 Canterbury claims remain subject to legal proceedings.

Looking ahead

It's clear lessons have been learned and new approaches drawn up as a result of the Canterbury earthquakes. The costs and pain experienced by Canterbury claimants should help claimants in another disaster avoid experiencing the same heartaches. To echo Cartwright, this cannot happen again.

The test of a transformed EQC will come only with a large-scale catastrophe. Nobody wants that test to come but if it does, EQC will have a chance to rehabilitate its brand.