EQC holds funds for two more quakes
New Zealand still has insurance cover for two more big earthquakes.
Despite Prime Minister John Key appearing to suggest in a radio interview that the Earthquake Commission's Natural Disaster Fund would soon be exhausted, the fund still has $3 billion of assets, as well as reinsurance contracts to cope with any future devastating earthquakes.
There have been calls for a rapid recapitalisation of the fund through levies on wealthier taxpayers, but commission chief executive Ian Simpson said the combined expected claims paid by the fund as a result of the earthquake on Tuesday and the one in September last year would not go over $3b.
The fund would spend up to $1.5b on paying claims on residential homes and reinstating the land under them for each quake – so far it has paid out $750 million in claims for the September quake.
After it has met the first $1.5b on each quake, international reinsurers pay for the next $2.5b in claims.
Simpson said the combined EQC fund and reinsurance payout cap of $4b for each quake was very high and would likely be enough to cover the repairs to residential homes and land damaged in the two earthquakes.
Simpson said that left around $3b of assets in the fund in addition to the reinsurance contracts, which "reset" after each claim, so the fund could sustain another two $1.5b payouts. If the claims for each of the quakes topped $4b, the fund is empowered to call on the government to pay the rest, preserving the rest of the fund to allow the cover to continue.
Simpson said the fund had performed exactly as it was designed to do. It had been designed to be able to cope with a giant magnitude seven earthquake and still leave in place cover should a second quake strike.
The commission, set up in 1945, was predicated on coping with a shake in Wellington. Research several years back reassessed the likelihood of a huge earthquake there from a probability of one in every 600 years, to one in every 900.
Simpson said despite calls for a rapid recapitalisation of the Natural Disaster Fund, the cover in place means recapitalising is not an immediate priority.
He expects an inquiry into the operations of the commission and the fund.
This would include looking at whether the EQC levy should still be collected through premiums on house and contents insurance, or if it would be fairer to collect it via the rates, so it covers all homes, not just those insured.
- © Fairfax NZ News