thechristchurchfiasco

"Highlighting the inadequacies of the way in which the earthquakes of 2010-2012 were handled by the insurance industry! "

Introducing KiwiSure

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KiwiSureI think it would be fair to say that the majority of Cantabrians would agree that both EQC and the private insurance industry have failed the citizens of Canterbury in the most spectacular fashion. Some of these stories will be mind blowing as the recent EQC plunder alludes to. I have enumerated the problems we have all encountered with EQC before (e.g. nepotism, wildly inaccurate assessments, flawed apportionment process, reversal of  settlements and constant bureaucratic blundering and plundering). In many respects, the “privacy breach” is a blessing in disguise for EQC because it avoids scrutiny of these bigger issues. Aside from that, Ian Simpson feigns “taking responsibility” and Gerry Brownlee gets to “appear magnanimous” from http://eqctruths.wordpress.com/. I suggest that there is much more to this story yet to come. We wait with bated breath.

Notwithstanding my comments above, the events in Christchurch have clarified my belief that the private insurance industry is unable to provide the requisite protection necessary for a post disaster event of the magnitude we have faced in Christchurch. There is an ideological misfit between the corporate focus on profits and shareholders and the quick and efficient return to recovery of an affected community. It is for this reason I believe New Zealand (and other nations too) should drop the private insurance model in favour of a home grown public model. The logo above was created by a friend of mine and I think you’ll agree that it encapsulates what I am trying to achieve. (See https://thechristchurchfiasco.wordpress.com/2013/04/03/so-is-this-really-the-system-new-zealanders-want/).

Let’s face it, New Zealand needs to be seriously looking to its future if  and when further disaster strikes. This charade cannot continue. We need to find a better way. And there are better ways. The provision of catastrophe relief is a principal function and core responsibility of Government and remains so even if  the current National Government has been unsupportive and contributed to the current market problems and distortions that we currently face in Canterbury. Its stance of standing aloof from the damaged communities has created confusion and frustration about Government roles and responsibilities amongst those affected or involved on the ground. We are in a ‘time of crisis’.  This is not the time to ‘leave it to the market’. The whole fiasco demonstrates very clearly that catastrophe insurance is too important to be left to the non-performing private insurance industry.   Some time ago I wrote:

A government insurer could well provide the most effective insurance instrument for our society given its scope and size. As a single provider, the government has the potential to be far superior to private insurers in its capacity to reduce risk through aggregation while at the same time providing more cost-effective pricing than private insurers”, and ” the democratic ideal is that governments are elected by their populations to carry out the will of the people and govern in their best interests. If democracy were functional and politics honest, it would be a fair assumption that governments of the day would move to correct situational perpetuities which were not in the interests of the welfare of the citizens. Some such issues transcend party politics in the mind of the populace and should do likewise in the thinking of governments of any persuasion.”  p172 Chapter 7, ‘Catastrophe Insurance: Why the Government Should Provide it’ in The Christchurch Fiasco: the Insurance Aftershock and its Implication for New Zealand and Beyond. I  submitted my book to Treasury to be considered with the EQC review (some months ago) and to my dismay my submission/contribution has still not been acknowledged.   It is my understanding that Government Departments are required to reply to private citizens within ten days?  A sign of the times, I suspect.

Around the globe it is clear that the increasing costs of catastrophes have significantly stressed insurance markets. And it is true to say that insurance works best for high-frequency, low-severity events, which are statistically independent and have probability distributions that are reasonably stationary over time. Catastrophic events, particularly mega-catastrophes such as Katrina, Northridge, Christchurch and Haiti, violate to some degree nearly all of the standard conditions for insurability. With the ever increasing threat of climatic change and consequent ‘disaster’ there is even more urgency and reason to implement a national system which enables New Zealand to be relatively self reliant without the concern of reinsurers or insurers exiting the market – which has happened around the globe e.g. in Florida after Hurricane Andrew.

New Zealand had a public insurer in times gone by, called State (not to be confused with IAG’s State Insurance).   It got its name from a large American insurer State Farm which was considered the model to follow at the time. The New Zealand Government went to California (USA ) in 1944 after the Northridge earthquake and carried out research on best practise catastrophe response arrangements and based its own EQC programme on what it found there. ‘State’ in New Zealand (back then) performed well, so well that it was eventually privatized and now only the private insurance industry remains other than the small contribution the Earthquake Commission makes toward catastrophes.

I think it is high time we seriously revisited the potential for another public system. The benefits are undeniable. The time has come to tighten constraints on insurers and find other ways to lower the now rapidly increasing costs (with the introduction of sum insured/fixed sum insurance) and expand the availability of coverage. (See https://thechristchurchfiasco.wordpress.com/2013/03/10/why-fixed-sum-insurance-is-not-the-answer-for-policyholders/).

If insurance is profitable for the private sector then it can certainly be more profitable in the public sector. This also acts to negate the ideological misfit between private insurance focus on profit and shareholders and the interests of an affected community post-disaster. Those two positions are entirely irreconcilable… And lets face it, the Christchurch experience demonstrates that ‘good faith’ is nothing more than a slogan, so let’s own our own insurer, in which we can have some faith and accountability…  The numbers certainly stack up.

~Future Proofing for a sustainable, participatory, democratic society.

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Author: Sarah Miles

Trained as a lawyer, psychotherapist and mediator. My goal is to make my voice heard for the causes in which I believe so as to improve and contribute to a more sustainable and equitable society. I believe in the enormous power of the human spirit and the power within each of us to effect major change. "The only triumph over evil is for good men [and women] to do nothing". https://thechristchurchfiasco.wordpress.com/

12 thoughts on “Introducing KiwiSure

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  3. Sarah,
    I have got to remind you that the fiasco is not just a “private” one.
    EQC and the biggest company dealing with the vast majority of the rebuild is run by—–the government.
    EQC is run as a mafia style organisation under the umbrella of the “legal” system, allowing itself to crush any rights of information, written correspondence or transparency and by that allowing others (the private sector) to behave in similar manner sometime even less severe than the government, that instead of tidying this sector only gives them a bad example and a free ticket “out of jail”.
    So let’s not be too hasty with shifting even more power to government unless the government is a cleaner entity, clean of greed and “friends” sharing cushiony jobs and contracts arranged to each other mainly bureaucrats (regardless of their poor qualifications or performance)
    And unfortunately this is no matter issue of left or right.
    The trzillion $$$$ question is how to reduce corruption which is all the way through.
    Something to think about???

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    • Absolutely John, I couldn’t agree more (see paragraph one of my post) – what this experience has uncovered is the extent of the corruption- it goes all the way to the top of EQC, Government and the private insurance industry. You will note in my blogs and book I think EQC is just as inept as the private insurance industry – I also make it clear that a massive restructuring is required and that is unlikely to happen under this Government. But that aside we need a better system- private insurance simply sucks up our premiums, pockets the benefits and does not live up to its promises and if you think the current situation is bad wait until a natural disaster happens under a sum insured regime. People will find themselves even more out of pocket than the current state of affairs.
      Simply because things are bad though doesn’t mean that we should stop working to make them better. My focus remains heading toward a more honest and transparent system – there are people out there who can help us to acheive that outcome.

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  4. It has been demonstrated that neither the government organisation (EQC) nor the private insurers has the complete answer. The mutual organisation of AMI/SIMU was very successful for several generations of normal happenings and was well respected and supported by the people. Somehow then a version of a mutual organisation that is specifically underwritten by the government for major events could be a formula that may stand the test of time and be supportive rather than adversarial in times of major disasters.

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  5. I would love to see this happen and would take it up if it come to fruition. We need a system that helps people in their time of need and not the system run by the private sector which is all about them only

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  6. “…only in this scheme the money stays on-shore.”

    The money? The premium money? This is not how insurance works. It requires the support of other multi-national reinsurance firms to spread the costs of such events, does it not? How could locals stump up with the required $12-15 billion cash?

    Largely, I agree generally with many of your sentiments, and NZ’ers are tied to their mortgages more than others. I read today’s article too, but I would still be like dozens I know who simply upped and left.

    It was good for their kids.

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    • Andrew, until you have read what I wrote it is difficult to have this conversation. Yes reinsurance is required for the initial years but can slowly be reduced as the Natural Disaster Fund grows with premium contributions and interest. And I reiterate that for many cutting losses of several hundred thousand dollars is simply not an option.

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  7. Though I haven’t read your book, you seem to be advocating an insurance scheme paid for “by others.” I seem to recall the late Baroness Thatcher explaining the problems of people expecting “somebody else” to pay for things, when that “somebody else” is you. This aside, there is nothing new in private insurers struggling to cope, let alone governments and the like. There are still towns with completely uninhibited neighbourhoods after Andrew, let alone countless thousands who’ve left New Orleans and area after Katrina. What we need to understand is it took decades to build Christchurch in the first place, and as difficult as it may be, those in the red zone areas need to move on. Whether this is a loss or not, some of my family’s younger members have gained immensely by cutting their losses, moving on and providing a stable and stress-free environment for themselves and their preschoolers. It’s difficult to bear, but in the long run it will be so much worth it.

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    • Hi Andrew,
      I am advocating an insurance scheme paid by you and me- which is exactly what happens now – only in this scheme the money stays on-shore. I think most of us understand that it will take another 20 years at least to rebuild Christchurch -‘cutting your losses’ is not an option for many and it is precisely why we need a different system- cutting your losses to benefit a foreign owned insurance industry is not what most of us paid our premiums for. Your suggestion produces annoyance for me as this is exactly what the industry hopes people will do. Leave it long enough, make it unbearable enough and people give up. This is not the kind of system New Zealanders thought they were signing up for when they bought their insurance policy. I think most Cantabrians would have difficulty with your response. Read in today’s Press how most Cantabrians feel about what has and is happening here. The Article is entitled ‘Aftershock of depression, anger still felt”. Your reference to other places and other situations does not make any of those scenarios more acceptable or provide justification for what is happening here.

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  8. Plunder or blunder? Freudian slip!!!

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