Risky business - insurance, earthquakes and the law.

EQC; rebuild, reboot, restart?

EQC is broken and needs to be rebuilt. You’ve heard this from quake affected people in the past. Is it true or are they complaining about the inevitable? After all EQC is doing something unprecedented, the situation is complex and overwhelming, so some complaints and conflict are to be expected, right?

Let’s look at the facts. The first Canterbury earthquake occurred over three years ago. In February it will be three years since the second, but the rebuild has barely begun. EQC admitted recently that its 2013 rebuild targets have been missed, just like the 2012 targets.

Is EQC’s task unprecedented? Christchurch is not the first New Zealand city to be rebuilt after a catastrophe. The 1931 Hawke’s Bay earthquake is still NZ’s deadliest natural disaster. The earthquake and the fires which followed destroyed or damaged the majority of the buildings and infrastructure in Napier, and a high percentage of the buildings in Hastings, Waipukarau and Wairoa. Significant aftershocks continued for a year.

In 1931 New Zealand had a population of 1.5 million and was in the third year of the great depression. Roads and support infrastructure were poor by today’s standards. There was little insurance cover and of course no EQC. The rebuild was financed by low cost government loans. Despite the extent of the damage and the limited resources, it took less than two years for Napier and Hastings to be declared re-opened. The vast majority of buildings rebuilt were completed in 1932 and 1933.

Modern day Christchurch is not Napier in the 1930’s, so what about other modern countries? Gen Re, one of the three big international reinsurers, has paid 91% of claims for the horrific quake and tsunami in Tohuku, Japan and 100% for the 2010 Chilean quake and tsunami that destroyed 1 in 10 homes in the city of Concepcion. In Christchurch, Gen Re has paid 26%.

Some of the delay, we are told, is because of aftershocks which continued up until June 2011. But the Hawke’s Bay aftershocks continued into 1932, in Chile aftershocks were recorded in January 2011, and in Tohuku aftershocks have occurred as recently as October 2013. So why is Christchurch different?
Gen Re’s Global Treaty Manager said that, in part the delays were due to “issues… with EQC”. Lawyers acting for quake affected clients have seen that the biggest barriers to people moving on and settling their claims for damaged or destroyed homes is EQC’s handling of their claims.

I’ve seen examples where an insurer has assessed quake damage as costing several hundred thousand dollars to repair, only for EQC to come back with a figure less than a quarter of that. And insurance companies aren’t known for their generosity! I’ve seen examples where EQC staff don’t understand the simple claims handling process set up by Parliament and it is common for people to be offered a settlement with the threat that if it’s not accepted they will go back to the bottom of the pile to wait more months or years. This delays the Insurers from settling their portion of the claim.

The role of EQC is to provide affordable and basic earthquake insurance cover that would otherwise be unobtainable or uneconomical, to enable New Zealanders to recover from disaster. It is failing - time it was rebuilt.