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More quakes could challenge availability of affordable cover in NZ, warns Munich Re

26th July 2017 - Author: Luke Gallin

More earthquakes in New Zealand could see commercial building owners struggle to find adequate, effective and affordable insurance protection for the risk, warns Munich Re’s Scott Hawkins.

Kaikoura, New Zealand earthquake damageGeneral Manager, Non-life, Munich Re Australasia, Hawkins, warned of the risks during a speech at a recent building industry conference held in Wellington, New Zealand, according to reports from numerous New Zealand-based publications.

Earthquake insurance premiums in the country spiked after the 2010 and 2011 Canterbury quakes, before reducing again, and then spiking once again after the November 2016 Kaikoura quake.

Were the country to experience more quakes, Hawkins warned that insurers could have a “knee jerk reaction,” making coverage difficult to come by and expensive.

“The provision of insurance might be something that becomes unattainable, which would be an undesired consequence for the economy.

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“What we don’t want, is the capital providers, or the insurers, saying: ‘OK, we won’t cover anything that’s non-compliant from tomorrow,’ because that’s also not something that is going to be useful for the people or the economy or businesses,” Hawkins told the audience.

He called for the insurance sector to review its responses to earthquake claims, and also warned of a situation where investors of reinsurance companies cease funding as they view the level of risk outweighs the potential return, which, in turn would limit the amount of insurance coverage available for quake losses.

The Industry, said Hawkins, “absolutely cannot deal with the earthquake risk that New Zealand faces purely in New Zealand, nor can we do it purely by insurance. Insurance is a risk management tool, it’s not the only risk management tool.”

Despite the warning from Hawkins, insurance manager at the Insurance Council of New Zealand, John Lucas, said this was a long way off, and the country didn’t need to be concerned about a lack of earthquake coverage, although he did say that now was the time to act.

“If we don’t act now, one day insurance terms could change. It could become more expensive or restrictive in cover for certain building owners. But not at this stage.

“Risk management can’t be: ‘I won’t do anything as a building owner because when it falls down, it will be put up properly the next time’,” said Lucas.

Michael Naylor, an insurance commentator from Massey University, highlighted the huge volume of claims after the Kaikoura and Canterbury quakes, and warned that while New Zealand will always be able to get reinsurance protection, it could come at a steep price.

“I’m of the opinion that the major roles of the Earthquake Commission should not be paying out minor claims but backing insurers in terms of ensuring reinsurance access,” said Naylor.

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