EQC to cut contents cover, hikes levy

The Earthquake Commission has proposed a series of sweeping changes to its business, including dropping contents cover and continually increasing its levy, as it awaits a review.

The commission's briefing to its incoming minister, released today, makes a series of recommendations for consideration in a forthcoming review prompted by the Canterbury earthquakes.

They are:

- Removing contents insurance cover.
- Introducing variable premiums, depending on house size or hazards risk.
- Automatic adjustment of premiums and payout caps.
- Increasing the excess on claims.

The EQC levy was increased threefold yesterday, jumping from $69 to $207 a year for the typical homeowner.

In its briefing to minister Gerry Brownlee, the commission says that while private insurers had been consistently lifting premiums, the EQC levy has not moved in 18 years.

''The level of the premium should ensure financial sustainability of the scheme over time, given the Government's risk preferences,'' it said.

''It may also be useful to consider an automatic adjustment mechanism for the premium (and also any caps) to ensure that policy intent is reflected over time.''

Excesses on claims had also not been reviewed since 1993 and were a complex mix. The commission suggested that a review of the excesses could ''improve mitigation incentives''.

The briefing also floats the idea of the EQC scrapping its operational work and instead becoming purely a financial re-insurer to stand behind private insurance companies.

But it comes down against the idea, recommending instead that it continues to handle the bulk of residential property claims.

Coverage of home contents by the EQC is raised as a possible candidate for the scrapheap.

''EQCs coverage of contents increases complexity for customers and, in light of the Canterbury experience, requires disproportionate EQC resources during the recovery phase,'' the paper says.

''Arguably, private insurance or self-insurance may result in more effective mitigation by homeowners than EQC cover does.''

The briefing also reveals that the EQC expects ''a significant shortage'' of skilled workers in the Canterbury rebuild, particularly in trades such as carpentry, painting, bricklaying and plastering.

There were ''a number of training initiatives to upskill workers'' under way. ''However, there is a limit to how far these will go in addressing the skills gaps that are expected, given the nature of the repair work.''

Shortfalls of 5175 painters, 2000 carpenters and 735 bricklayers have been identified in a study by the Canterbury Development Corporation.