The Wellington Mayoral Taskforce was set up in response to anecdotal claims that insurance premiums, particularly for commercial property including apartment dwellers, were unaffordable. Insurance premiums have risen sharply over the last two to three years as a result of a better understanding of the city’s seismic risks arising from the experience of the Canterbury and Kaikōura earthquakes as well as input from revised earthquake models that help inform insurers’ underwriting decisions. There has been some withdrawal of cover from the market and some insurers are close to the maximum exposure they seek to have in Wellington reflecting their appetite for risk. Although the unaffordability issue has been talked about for months, body corporates have yet to provide hard quantitative data of the numbers who cannot afford insurance. What we do know is that it will be a very, very small proportion of the New Zealand population.
The Taskforce has yet to finalise its recommendations, although a draft set of recommendations were discussed at a taskforce meeting yesterday. The recommendations cover ways to transfer, mitigate, accept and avoid risk. Several of the recommendations talk sensibly about updating hazard models, improving building performance and providing more transparent information about risks and hazards to property owners, which will help inform and make Wellington more resilient in the future.
“One recommendation to increase the EQC cap to $400,000 from the current $150,000 was put forward,” said Tim Grafton, ICNZ Chief Executive. “ICNZ opposes this for several reasons. First, it would require the entire country to be levied to address a small, but as yet unquantified, affordability issue. This is quite disproportionate to the problem when direct Government or even local council assistance would be the most appropriate, targeted response. I am not aware that the council has identified who its vulnerable citizens are and assessed what assistance they need. Second, it would dramatically remove private insurance competition and the benefits that brings to all New Zealanders. Third, because the cap is paid for by a levy on all those who take out house insurance policies regardless of the risk, location or value of the residential property, it would mute the signal insurers are sending through risk-based pricing. This could create perverse outcomes such as poorer building quality, or converting commercial space to residential to benefit from the subsidisation provided by less risky regions. Fourth, it would be unfair because those in less risky areas would be pay more while those in higher risk areas would pay less. Fifth, it would add significantly to the Crown’s liability. All of this would happen with no evidence to support that there has been any material reduction in the uptake of insurance in New Zealand.”
“The taskforce has met just three times and undertaken very limited deep or broad analysis. ICNZ and insurers have separately engaged with The Treasury to provide as much information as possible to inform decision-making and have discussed a wide range of options to address the as yet unquantified unaffordability issue.”