Less cover and higher insurance costs have put councillors in a quandary on how best to protect the region's assets in a natural disaster.
"There is a financial shortfall," Horizons Regional Council chief executive Michael McCartney told councillors yesterday.
There was an insurance cover gap of $230 million for the region and he suggested the council look again at an emergency reserve fund that was proposed in the long term plan, but was discarded.
The fund would raise $1 million a year over 10 years to give the regional council a safety net.
Instead, the council suggested waiting a year and and using an expected surplus from the 2011/2012 financial year and $9m from sales of Ports of Napier shares last year as a fund.
In the meantime, the community would be consulted on whether it wanted an emergency reserve fund, which would be spread across ratepayers according to capital value.
Councillors face the dilemma because of changes to insurance.
The Local Authority Protection Programme Disaster Fund (LAPP) was established in 1993 to help local authority members pay their share of infrastructure replacement costs for water, sewerage and other uninsurable essential services damaged by natural disaster.
Since 1991, central and local government has shared responsibility for these costs. Central government would pay 60 per cent of the restoration costs, leaving local authorities 40 per cent.
In May, LAPP members were informed of a deteriorating re-insurance climate and the inability to significantly build the fund reserves in the past year.
They were told that changes were going to be made and those changes have shown that Horizons will be at risk of paying a lot of money for less support. The Horizons region would have to suffer unrealistic amounts of damage to be entitled to any payout.
"We would never suffer the type of event that would mean we would see any benefit," said group manager of operations Alan Cook.
"LAPP is between a rock and a hard place because the insurance industry wants to reduce 20 per cent of re-insurance across the country," said Mr Cook.
Members to the scheme have been asked to increase insurance contributions four-fold so that the fund could meet substantially increased re-insurance costs and simultaneously rebuild reserves.
The new council plan will go to a full council meeting on June 26, when the draft LTP will be adopted.
- © Fairfax NZ News
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