Three years after it was announced, the government review of the Earthquake Commission Act has seen the light of day. The proposed reforms are intended to address insurance problems highlighted by events in the past 20 years – particularly those encountered after the Canterbury earthquakes.
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You automatically get EQC cover when you take out fire insurance with a private insurer. You can call on the insurance if your home, contents or land is damaged by an earthquake, natural landslip, volcanic eruption, hydrothermal activity or tsunami. Damage caused by fire resulting from these events is also covered. However, there are limits. You’ll only get a maximum of $100,000 plus GST for damage to your home and $20,000 plus GST for damage to your contents. Your private insurance policy will have to cover the cost of damage above these caps.
If the reforms are passed, EQC cover will no longer insure your contents. There can be numerous claims for contents following a natural disaster. By ditching contents, the review argues EQC can concentrate on its main job: putting roofs over people’s heads.
The review also proposes consumers lodge claims for natural disaster damage with their private insurer rather than the EQC. The private insurer would assess the claims – and either deal with them itself or pass them on to the EQC if necessary. The government says this would speed up settlements as private insurers have “an existing capability to deal with the large number of claims that arise in a major natural disaster”. However, Cantabrians who found it difficult to get a straight answer from their private insurers following the 2010/11 quakes may argue otherwise.
Another major proposal is the increase of the building cap from $100,000 plus GST to $200,000 plus GST. This is good news. The existing cap hasn’t been adjusted since 1993. It’s worth much less than it once was due to inflation. An increased cap should also reduce premiums charged by private insurers as they won’t have to bear as much risk.
It’s proposed the increased cap is accompanied by a higher excess for building claims. At the moment, EQC cover deducts an excess of $200 if your building claim is $20,000 or less; or one percent of your claim if it’s more than $20,000. The reforms would replace this formula with a standard excess of $2000. By increasing the excess, the EQC won’t have to deal with as many low-value claims.
We support a single standard excess because it’s easier to apply than the existing set-up. (in practice, it can be difficult to calculate one percent of a claim until the final cost of repairs is known). That said, we’re concerned $2000 will be too much for some consumers, particularly after a catastrophe. Keep in mind the average excess following the Canterbury earthquakes was $500. Therefore, a lower excess may be justified.