EQC liquidity claims 'nonsense'
Earthquake Commission chief executive Ian Simpson was in Christchurch recently on a charm offensive and talked to Marta Steeman about progress in repairs.
Insurers may have more generous terms in their replacement policies than the Earthquake Commission.
That is likely to account for some differences in what each might do to repair properties.
Homeowners have been calling The Press over the past few months about differences in the scope of works and the value of that between EQC and insurers.
It has mostly involved properties where damage comes close to the $100,000 plus GST cap that EQC is responsible for. If damage is over $100,000 plus GST insurers take over the handling of the repairs or rebuilding.
Some lawyers have also commented that EQC's approach to repairs and rebuilding is different from some insurers.
Earthquake Commission chief executive Ian Simpson acknowledges that.
"The difference might be in the wording of the insurance policy," Simpson said.
EQC under the Earthquake Commission Act reinstated a property to where it was at the time of the quake, taking into account any new requirements of the building code but "some of the insurers might have more generous terms in their insurance policies", Simpson admitted.
EQC repairs were governed by what the Earthquake Commission Act said, but Simpson said EQC tended to mirror what insurance policies said on contents but "for building cover the act is more prescriptive, so it is about whether to reinstate what was there at the time of the earthquake as far as reasonably possible".
For example, if the house had rimu framing, that might not be available but another hardwood would be available, he said.
The Insurance Council claims insurers replace "as new" and EQC replaced to "substantially as new" and there was a material difference between the two.
Simpson said some insurers might have "far more generous terms" in their replacement policies but when it came to the quality of the work, the standard would "absolutely" be the same.
With regard to substantial differences in repair cost, Simpson said when EQC was pricing the lifting of a house to repair foundations, it did not include a risk margin for cracking of walls whereas insurers were adding $40,000 for that in case it happened and these were issues EQC and insurers still had to resolve.
EQC would repair to the standard required by the Department of Building and Housing, he said.
Fletcher's responsibility was quality assurance, to make sure the repairs by tradesmen were to the correct standard.
"We expect our tradespeople for a given scope of work to do as good a job as anybody else," Simpson said.
He acknowledges there are two issues - what is the scope or extent of repairs and the quality or standard of that work.
"Given the policies of the insurer our scopes may be different," he said.
EQC was reinstating what was there before the earthquake and homeowners should not end up with a lower standard than what they had before the earthquake.
EQC spokesman Iain Butler said it would be reasonable to expect EQC to fix a room for instance and have all the walls look the same and not just fix a crack or cracks in one wall and paint just that wall in a room,
EQC's quality control required the homeowner to sign off the repairs had been done as the scope of works stated and the homeowners had 90 days to come back to EQC if they were dissatisfied.
EQC was also phoning customers for their views on how well the repairs had been done because it considered some homeowners might feel pressured to sign off while the contractors were with them.
EQC was finding 80 per cent to 90 per cent of customers were satisfied and Simpson said in "normal" times 10 per cent to 20 per cent would not be happy with the work they had received.
There is also talk in Christchurch that EQC's reinsurers are slow in paying, but Simpson rejects this.
"We are under no financial constraint other than needing to meet the letter of the act. If there is any suggestion we are trying to reduce the cost of repairs beneath what it should be as specified in the act or if we are under some sort of financial pressure and there are liquidity issues, then that's nonsense."
Reinsurance money was coming from reinsurers now that EQC had spent more than $1.5 billion on settling claims and repair costs for each of the September and February earthquakes where it had a $1.5b excess for each quake.
"There is no issue with us paying claims," Simpson said.
It had used about $3b from the Natural Disaster Fund so far, and the fund had reduced to about $3b. EQC had another about $4b of reinsurance to tap into. When that ran out it had the Crown guarantee.
The total estimated costs of the Canterbury earthquakes to EQC so far was $12.5b which included a $1b risk margin, so cash outlay might be about $11.5b. "We will be calling on the Crown guarantee for about $1b for the Canterbury earthquakes."
But because EQC was also drawing from the disaster fund for other claims, such as the Nelson floods, the Crown guarantee would cost more than $1b.
Simpson was only praising of reinsurers, as would be expected.
He said the process was to settle claims and then claim the reinsurance. EQC had claimed about $500m from the reinsurers so far.
He described the reinsurers as "amazingly supportive" and settling claims "within days".
"The money is coming across very quickly, as soon as we call for it."
AT A GLANCE
SEPTEMBER 4, 2010
Estimated total loss for EQC is $3.5 billion.
EQC has $1.5b excess and $2.5b reinsurance cover.
FEBRUARY 22, 2011
Estimated total loss of $6.5b.
EQC has $1.5b excess and $2.5b reinsurance cover, and pays for rest of the claims after they top $4b.
Canterbury earthquakes total loss estimated to be $12.5b.
- The Press
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