Here in Christchurch we have been struggling with our insurance companies for well over three years. Through the often heart-breaking stories of affected Cantabrians, as regularly reported in the media, people have become aware that the way insurance companies have operated post quakes has complicated the recovery and the lives of many. Political parties have woken up to the idea that something has to be done to prevent such a fiasco from happening again. New Zealand First and now the Labour Party, at its recent annual meeting (in Christchurch this week-end) has placed the way we organise our insurance as a major item on their agenda. After the Christchurch Insurance Aftershock, the recent damaging earthquakes in the Seddon area, and the side effects of those earthquakes on our capital, as well as the recent prediction of a “9 percent chance of the rupture of a major upper South Island fault that will likely result in a 7.7 magnitude quake” (http://www.3news.co.nz/Civil-Defence-emails-reveal-earthquake-risk/tabid/423/articleID/319849/Default.aspx#ixzz2jWNyR3qn, it has become clear that New Zealanders can no longer leave these matters “to the market”. Today, even our politicians are finally realizing that the private insurance industry will be neither capable nor willing to meet the needs of the population in the face of further disaster. When I wrote The Christchurch Fiasco: the Insurance Aftershock and its Implications for New Zealand and Beyond, it was uppermost in my mind that a sovereign nation cannot continue to manage disaster the way this Government has approached it. I wrote:
“The whole fiasco demonstrates very clearly that catastrophe insurance is too important to be left to private insurers. It represents a major conflict of ideologies. Corporate entities are about profit and returns to shareholders. It is a mistaken premise to think that insurance companies will act either altruistically or with compassion. Privately owned, profit-based corporations are not philosophically oriented to look after the welfare of a community confronted with a disaster on the scale of the Christchurch earthquakes. Insurers will always give priority to their financial bottom-line and seek to maximise profits and minimise payments to policyholders. The Christchurch experience demonstrates that ‘good faith’ is nothing more than a slogan”. Chapter 7, “Catastrophe Insurance: Why the Government Should Provide it”, page 169.
So I am gratified to note that at the recent Labour Party Conference, Hon. David Cunliffe announced his party’s intention to introduce a very similar version of my proposal (KiwiSure) which Labour has chosen to call KiwiAssure. Predictably, the Insurance Council chief executive Tim Grafton says that the policy is an ill-conceived step backwards. (see http://www.3news.co.nz/Labours-insurance-plan-panned-by-Insurance-Council/tabid/423/articleID/319857/Default.aspx#ixzz2jWRETvaG). His statement; “New Zealand already has a responsive, innovative and responsible private insurance industry and to suggest that further state ownership is the answer, begs me to ask what on earth is the question?” is of course, simply not true and would indicate that Mr Grafton has not been watching the news over the past three years nor listening to the people of Canterbury. The insurance industry (and the Government) have had ample opportunity to pick up their game and begin to deal with the people transparently and honestly- if you leave it to the market – the market will respond – Labour has responded and the industry will now reap its’ just desserts. Labour is to be applauded for a huge step forward and the foresight to realize that the Nation cannot rely on foreign owned corporate entities to keep our best interests in mind.
The major difference between my KiwiSure proposal and KiwiAssure as proposed by Labour appears to be the use of the existing KiwiBank facility, rather than a completely restructured Earthquake Commission. In this respect, I think Labour’s approach is both clever and efficient but it is not yet clear whether the proposal is a total disaster management proposal with continuous reinvestment into a national fund or whether it would be an amalgamated profit-centre with annual returns to the Government via KiwiBank? Kiwibank Limited is a wholly owned subsidiary of the state-owned enterprise New Zealand Post Limited. It is my personal conviction that any rational scheme must be financially compounded year on year under legislation which prevents any Government-of-the-day to co-opt the funds for any other purpose other than the management of disaster. In this respect the rapid growth of the fund is assured together with a reducing requirement for large premiums for government reinsurance. One of the problems in the past has been that respective governments have dipped into the Natural Disaster Fund whenever they have required additional funds – so the Natural Disaster Fund (read Earthquake Commission) was severely depleted at the time of the Canterbury earthquakes. Measures must be put in place to ensure that Governments are not able to use these funds for any other purpose than natural disaster. (See “Can New Zealand Afford another big quake?” http://www.radionz.co.nz/national/programmes/insight/20130616 ). If the scheme embraces the whole population and given that in the interim no major disaster occurs, then, within a relatively short timeframe, the scheme would be essentially self supporting and able to effectively manage even a very major event.
The likely election result of a, Labour, Greens and New Zealand First Coalition has an absolutely superb opportunity for Kiwis to truly run their own affairs in respect of both pre-disaster planning and post-disaster management without the interference of foreign corporates and private right-wing agendas. New Zealand First already appears to be on-side (See “New Zealand should Consider establishing a State insurer – Peters” http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11143113 –.) And I agree with his sentiments when he stated that Prime Minister John Key’s Government had not been “showing the leadership it should have shown, or has given the necessary directives to the insurance industry” since the earthquakes. It would now be encouraging to hear the Green Party comment favourably on Labour’s proposals.
From the point of view of disaster management, it seems unnecessary that KiwiAssure would initially waste both the effort and the finance on provision of motor and home contents insurance, although including these in the mix would provide for sufficient country-wide staff with the required skill sets ready to cope with a major catastrophic event. For the time being I would suggest leaving motor and content insurance to the market. The issue of catastrophe insurance is urgent and consequently it would be better to start by perfecting the management of our major concern, which is both commercial and residential real-estate insurance together with the coverage of business interruption insurance. When those aspects are fully operational and under control, an extension of the scheme might then be implemented.
On a personal note, now enduring my fourth year of tribulation at the hands of a foreign private insurer (IAG), it is my conviction that the only satisfactory solution will emerge when we Kiwis do it for ourselves and KiwiAssure is to be commended for taking the first steps toward this outcome. In my next blog I intend to address some outstanding issues of the Labour proposal and ask some of the questions that require further debate.
- Labour’s plans for NZ-owned insurance company (radionz.co.nz)
- Cunliffe announces new Labour insurance policy (stuff.co.nz)
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