EQC settlement cap and levies to rise next year

Thursday, 30 September 2021

Dame Silvia Cartwright headed the EQC inquiry.

Insurers have been told they should drop their premiums after the Government doubled the maximum amount the Earthquake Commission (EQC) will pay in a disaster.

EQC Minister David Clark announced on Thursday that from October next year, the EQC payout cap will be doubled, from $150,000 to $300,000 plus GST.

This will add an extra $207 a year to homeowners’ premiums. The actual EQC levy amount paid by each homeowner will depend on their sum insured, but will be a maximum of $552, up from $345.

Government-owned EQC pays out on earthquake and other disaster insurance claims and is funded from householders’ premiums charged by private insurance companies.

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EQC Minister David Clark says the higher cap will raise premiums, and he wants insurers to respond by dropping their portion of the bill.

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The move follows recommendations made in Dame Silvia Cartwright’s report from her 2018 public inquiry into EQC. The inquiry followed the insurance fallout from the Canterbury earthquakes in 2010 and 2011.

Cartwright’s 246-page report made 70 recommendations about clarifying EQC's role and improving how it dealt with claimants, assessed damage, managed repairs and settled disputes.

Clark said the Covid-19 crisis had illustrated how important the appropriate support was when disaster strikes.

EQC was the subject of a public inquiry after the Christchurch earthquakes.

“We want New Zealanders to have access to affordable residential property insurance, to ensure as many people as possible can repair their homes if they are damaged by a natural disaster.”

He said the move to risk-based premium pricing had made home insurance more expensive for homeowners in areas including Wellington, Hawke’s Bay and Canterbury.

With the Government taking on more of the risk of disaster insurance and the EQC potion of the premium set to rise, Clark said he expected to see insurers reduce their portion of premiums.

“Increasing the EQC cap should lead to reduced premiums for many New Zealanders as the Crown absorbs some liability and risk from private insurers.”

The change will take effect over the 12 months from the October 2022 change, as people’s policies come up for renewal.

“If insurer pricing doesn’t behave as expected, the Government is open to considering options such as a competition study to give consumers assurance the market is competitive,” Clark said.

As well as earthquakes, EQC pays out for damage caused by volcanic eruptions, geothermal activity, tsunamis, and landslides. Private insurers are liable for the remainder of each claim.

The EQC cap was increased from $100,000 plus GST to $150,000 plus GST in 2019.

Clark said he expects to announce the other changes to the EQC Act in the next few months. A Bill updating the legislation is expected to be introduced into Parliament early in 2022.

The EQC inquiry received almost 1000 written submissions from both individuals and groups, and heard feedback face-to-face at 18 public forums.