A series of three major earthquakes and over 11,000 aftershocks hit Canterbury between 2010 and the end of 2011. That sequence of earthquakes was the most damaging natural disaster to occur in New Zealand in recorded history.
Between September 2010 and the end of 2011, 4 major earthquakes and more than 11,200 aftershocks shook the residents of Christchurch and surrounding towns. Those shakes, collectively known as the Canterbury earthquake sequence, were the biggest insured event in New Zealand history and at the time the 4th most expensive insured, global natural disaster to ever occur.
More than 650,000 insurance claims have been made as a result of the quakes. More than 168,000 of these have been made with private insurers.
To date, the combined events have cost private insurers more than NZ$21 billion. EQC has paid a further $10 billion, bringing the total insured cost of the event to more than $31 billion.
Total economic losses for the entire sequence are estimated to be more than NZ$40 billion.
At current premium rates, it would take private insurers around 40 years to pay off the cost of the Canterbury earthquake sequence provided no other earthquake claims were received in that time.
Given these high costs, it's important private insurers maintain good profitability and reinsurers continue to remain in the New Zealand market. It's these factors that ensure we're covered for such large-scale events.
In Canterbury, anyone whose house or contents were damaged in one of the earthquakes had to first lodge a claim with the Earthquake Commission (EQC). EQC would investigate and pay out up to its cap ($100,000 for a house and $20,000 for contents) then transfer any claims amounting to more than these caps (known as over cap claims) to people's private insurers.
The process of investigating and transferring over cap claims has been slow. As of mid-2018, private insurers are still receiving an average of 2 over cap claims a day from EQC.
A new model for disaster recovery
To help improve the claims process and settle things faster for affected customers, following the Kaikōura earthquake in 2016, EQC and private insurers worked under a partnership model where insurers acted as agents of EQC, investigating and paying out claims for their customers directly. EQC then reimbursed private insurers for the under-cap portion of all the claims they managed.
This model worked much more efficiently. One year on from the event, 83% of all property claims relating to the Kaikōura earthquake had been fully settled.
Since 2016 ICNZ has worked alongside its members and EQC to develop a new model for all natural disasters. In November 2020 EQC, ICNZ and eight private insurers announced the new partnership model to provide an improved, more collaborative approach to supporting New Zealanders through natural disasters in the future.
Under the new partnership, from 30 June 2021 anyone with home insurance whose home or land is damaged in a natural disaster can lodge the claim through their private insurer. Customers will then work with their insurer who will assess, manage and settle their claim, ensuring a more effective and efficient response, and delivering simplicity and certainty for customers during a very stressful time.
The recovery in Canterbury was complicated by a number of factors.
- There were 14,000 earthquakes between September 2010 and June 2012.
- Several earthquakes of magnitude 3-4 occurred in 2016.
- 56 quakes were larger than magnitude 5.0.
- Each major event caused more damage, meaning further assessments were needed and more costs needed to be apportioned between insurers and EQC for each event.
- Many buildings in Christchurch were made of unreinforced brick or masonry, which was very vulnerable to damage in the shaking and could cause more damage when it fell.
- Land stability and administrative authority factors, including the establishment of the Canterbury Earthquake Recovery Authority (CERA), meant rebuilds couldn't start for almost 2 years.
- Over 7,000 homes were red-zoned (deemed to be on land that was no longer safe to be built on).
- Mass land movements in the Port Hills delayed recovery efforts.
- Parts of the city sank between 50- and 100cm.
- Thousands of sites needed geotech assessments to determine how safe the land was to build on.
- 7,000 homes became vulnerable to further liquefaction and 7,000 others became vulnerable to 1-in-100-year flooding. 2,000 homes became vulnerable to both.
- Liquefaction removal took 2 months for each of the 3 main earthquakes.
- New building guidelines had to be developed for properties prone to liquefaction or flooding.
- House insurance policies were for full replacement, not sum insured. That meant that for each policy where a repair or rebuild couldn't be facilitated, insurers and customers had to negotiate what the total value of the loss was before claims could be settled.
- A lot of infrastructure was damaged. Repairs to services such as roads, sewerage, plumbing and power all impacted how and when rebuilds can be conducted.
- There weren't enough tradespeople to do the work needed.
- The local council's building consenting process collapsed under the number of consents that needed to be issued, creating delays of up to several months.
- Land movement could affect property boundaries, shifting them or causing 2 properties to encroach on each other. This caused a lack of legal certainty around titles and made sales and purchases complex and challenging.
- Many people owned property on cross lease titles. 100% agreement is needed to move repairs forward on these but some owners were underinsured, did not have insurance or could not be located. A large number of the outstanding claims in Canterbury are attributable to cross lease titles.
- 1,354 commercial buildings needed to be demolished - 826 in the central business district (CBD) and 528 in the suburbs.
- Cordons were up around the CBD for a total of 29 months. This affected who could get in and what work they could do.
- Some repairable commercial buildings were acquired and demolished on government orders due to safety concerns of buildings around them, without reference to how this would impact on the building owners' and occupiers' insurance.
- Private insurers could only begin repair work or settlement negotiations once EQC had transferred a claim to them. The scale of the event challenged EQC to have the resources and processes in place to complete this work quickly and accurately so progress on transferring over caps was often slow.
- The transfer of claims from EQC to insurers created double-handling because private insurers then had to commission their own technical reports and assessments and often homeowners commissioned their own reports, meaning multiple expert reports were often attached to a single property. This, along with different interpretations of the loss, led to disputes and delays.
- Some of the most damaged properties weren't transferred from EQC to private insurers until years after the event.
Court cases were often needed to set precedent on a number of issues regarding the interpretation of insurance contracts. This slowed down progress for not only the customer involved in the court case but other customers waiting to see how the courts would rule.
Some of the key rulings on policies in Canterbury post-quakes included determining what should happen when:
- a property is repairable but located in the red zone
- a property is to be rebuilt on a new site but the claimant seeks what reinstatement would have cost if built on the original site
- the home is an Edwardian villa with rare, native wooden flooring
- the insured claims for costs they do not actually incur, including demolition, professional fees and contingencies, because they elected to buy a new house
- reinstating a commercial property where the insured wants it built to more than the minimum building standard
- a policy compensates loss per event and what this means in terms of caps on an insurer's liability.
Insurers did more than just resolve claims for people in Canterbury. They worked hard to help the recovery effort, including
- establishing the Residential Advisory Service (RAS) to provide free legal, technical and facilitation advice to those trying to navigate through the claims process
- working with the Earthquake Support Coordinators governance group to help the government and community groups support Cantabrians with social issues arising from the earthquakes
- convening weekly, fortnightly and then monthly meetings (through to 2017) with EQC and government agencies to coordinate recovery issues.