Proposed EQC changes 'weak' - Massey Uni lecturer Michael Naylor
Proposals to overhaul the Earthquake Commission (EQC) Act are weak, unimaginative and still leave homeowners "stuck in the quagmire of the two insurer problem", an academic says.
A review ordered in 2012 resulted in significant proposed changes to the existing model, which has come under fire in Canterbury since the 2010 and 2011 earthquakes.
The proposals, released last week, included insurers managing EQC claims and EQC's cover, also known as the cap, being increased from $100,000 to $200,000.
Dr Michael Naylor, a senior lecturer in finance and insurance with Massey University's School of Economics and Finance, said the proposals were weak and did not solve many of the problems affecting Cantabrians.
Other changes under the proposal include contents insurance being left to private insurers and earthquake land cover only applying to situations where homes could not be rebuilt on their original site and owners were forced to buy elsewhere.
"While these reforms are sensible, they are unimaginative and go nowhere near far enough," Naylor said.
"Given the multiple problems of the dual insurer model exposed during the Christchurch rebuild, the Treasury needs to be bolder and to rethink the purpose of EQC, including the possibility of focusing on offering reinsurance cover to private insurers."
He said EQC could be replaced if insurers were required by law to hold "excess-of-loss reinsurance", which involved a large worldwide reinsurer agreeing to pay all losses above an agreed sum in the event of another disaster.
The Treasury report "sensibly" recommended private insurers act as the first point of contact, Naylor said.
However, EQC would still have to deal with thousands of claims and private insurers would have to handle claims they would ultimately not pay for – "and this will push up premiums".
Treasury needed to "take a step back and think a bit deeper", he said.
"There is really no justification for the EQC to be involved in quakes that are smaller than disasters and when large disasters happen the EQC will never be ready, given their small staff size during non-crisis periods. The Treasury proposals still leave us stuck in the quagmire of the two insurer problem.
"The ultimate objective of providing widespread and low-cost disaster insurance could be better achieved at a cheaper price if the EQC removed itself from customer contact."
Earthquake Recovery Minister Gerry Brownlee said Naylor had taken "two bad ideas to try to produce a good one".
Naylor's criticisms of the review were "emotive", he said, and his assertions were not backed up.
"Remember, you're talking large sums of money, very big risk and, in that context, the proposals in the document that's out for discussion are quite reasonable."
Insurers would "simply exit the market" if compelled to take over the liability covered by EQC, Brownlee said.
The proposed changes would have reduced the number of Canterbury earthquake over-cap claims by two thirds, which was a "generous extension".
Insurance Council chief executive Tim Grafton said customers would have a "seamless entity" to deal with if private insurers handled claims in the first instance.
"If we can ensure the quality of reinstatement is the same whether it's for an under or over cap claim, then I think it would go a long way to addressing issues that a lot of people in Canterbury have experienced."