Did you know that when you pay your regular household insurance premium that you are in fact getting three layers of protection? First and foremost, you are getting what we all think of as regular insurance should your home suffer sudden and unforeseen damage, such as a car crashing through the wall, a fire, flood or storm damage.
The second layer is EQCover. This is disaster insurance for damage to land within 8m of your home and up to 60 m of the main access way to your house as well as damage to your home arising from earthquakes, landslips, volcanoes, tsunami and hydrothermal activity. This cover is paid for through a levy that your insurer collects on behalf of Toka Tū Ake EQC.
Right now, EQCover covers the first $150,000 of any qualifying natural disaster claim for damage to your home. If the land covered by EQcover is also damaged, there is additional compensation for that loss. For that, you pay a flat rate levy of $345 (inc GST). This is about to change.
For all new insurance and renewals from 1 October this year, the amount of EQCover for damage to your home is increasing to $300,000 and the flat rate levy by $207 to a total of $552 (inc GST). As everybody pays the same for this disaster cover no matter where they are in the motu or the regional risks, say for earthquake, they face, everyone will be paying more for their EQCover.
Losses to your home above EQCover limits are covered by your insurer up to your policy limits. Your private insurance policy does not cover land damage, but it covers property other than the home that EQCover does not cover.
EQCover supports the widespread uptake of disaster insurance by means of it being priced at a flat rate. Currently, around 96% of New Zealand homes are insured. This is a very high rate compared to most other western countries, and very high indeed when considering the uptake of all risks insurance in parts of the world subject to high natural hazard risks where it is often difficult, if not impossible, to get regular commercial cover for certain risks such as earthquake or wildfire.
That we have such a high uptake of all risks insurance is a very good thing. The Canterbury earthquakes resulted in economic losses of around $40 billion. EQcover met about $11 billion of these losses and private insurers met about $23 billion. Slightly more than half of the private insurance losses were house and contents policies and the rest commercial losses.
For both private insurers and Toka Tū Ake EQC, the bulk of the losses were borne by overseas based reinsurers. Reinsurers insure the insurers. They met more than half Toka Tū Ake’s losses and about 75% of private insurance losses.
The sharing of risks with global reinsurers makes sure that your insurance company will be in good shape to pay out claims in the event of a major disaster.
All New Zealand insurers are obliged to have enough capital or reinsurance in place to meet a one in a thousand year earthquake. This is so that you and I can be confident that our insurers will be there to pay claims in the event of catastrophe.
While all of these layers of insurance may seem a little complex, they are all designed to promote insurance being in place for as many of us as possible and to ensure that, should the very worst happen, your insurance company will be there to help you.