As I mentioned in my previous blog there are some very important questions for Labour to clarify and answer regarding their proposal to revisit the way we insure our homes and businesses in the future in relation to Labour’s new KiwiAssure. It is difficult to assess their ideas about KiwiAssure without having a more complete view of what it is they are proposing. At present the information is coming through in dribs and drabs, but based on what I have seen thus far I think it would be fair comment to make by people who suggest that for a government to simply own ‘another’ insurance company is hardly productive of any significant outcome in terms of national disaster preparedness. I count myself in that group. We need to know therefore, whether Labour proposes to simply offer insurance to anybody who wishes to purchase it from KiwiAssure or whether they’ll do the sensible thing and go the whole distance and make disaster insurance compulsory for every property and business owner under the proposed KiwiAssure scheme. As I have set out in my book (The Christchurch Fiasco: the Insurance Aftershock) there is a very good reason to operate a compulsory scheme for home and business insurance. A few of those reasons are as follows:
1. A compulsory scheme will ensure maximum financial input and therefore rapid growth of the Natural Disaster Fund which cannot be obtained if KiwiAssure is just another insurance company abstracting profits;
2. The elimination of profit, if not extracted from the scheme – gives a huge advantage in terms of the speed with which the Natural Disaster Fund will be replenished and would rapidly become more than capable of dealing with even the most substantial event;
3. All income and funds raised through premiums would not disappear ‘abroad’, but would remain within New Zealand;
4. We would not have to bail out undercapitalized failing private insurers such as AMI, Western Pacific and Ansvar;
5. From our recent experience we know that post disaster, foreign owned corporates will never have the empathy for the people of New Zealand;
6. It would provide the ability to control premiums and there is some potential for future reduction in premiums or dividends once the fund becomes well established and fully operational;
7. A national scheme would provide the government an on-going opportunity to negotiate directly with the reinsurers. This, in light of the fact that, with the apparent ever increasing adverse weather events worldwide, reinsurers will be looking to governments for indications of how they intend to respond and mitigate the damage done by these reoccurring catastrophes. In this scenario there will be no need for the ‘middlemen’. By cutting out the private insurers the government can deal directly with the reinsurers and control our own disaster preparedness more cost effectively;
8. The scheme would provide New Zealand with the opportunity to develop universal standards for damage survey, criteria for assessing and costing of that damage and the evaluation in terms of rebuild or repair – something which has been so sorely lacking throughout the recovery process post Canterbury earthquakes;
9. The permanence of the scheme would mean that the population could rely on a long-term, multi-term relationship with the elected government of the day and trust that catastrophe insurance does not become a ‘political football’ at election time;
10. As there exists a large body of knowledge in New Zealand to better understand the vulnerabilities and the consequences of living in an earthquake prone country, it is better equipped to calculate its risk than international re/insurers. Thus the chosen risk transference structures will be more transparent under my proposed scheme as there would be direct accountability to policyholders;
11. It would also avoid the uncertainty of capital markets in the current global environment and the potential for systemic risk.
If Labour do not seize this opportunity to take control of disaster management on behalf of the people, there may be some validity in Mr. Grafton’s (Insurance Council New Zealand) statement that with the proposed scheme Labour is ‘simply plucking low hanging political fruit’, (although Mr. Grafton appears to have overlooked the fact that the insurance industry grew the fruit which has become low hanging for the political taking. If they had done a decent job, there would be no fruit to pick!). Hopefully Labour’s ambitions extend somewhat further than that!
If it is true that Labour is simply picking some low hanging fruit there are still some questions that need to be asked. What does the Labour proposal encompass? What are the tasks and the responsibilities of KiwiAssure? In my opinion the answer to most of those questions will revolve around the efficiency of KiwiAssure in comparison with the abysmal performances of both EQC and the private corporate insurers. How can Labour convince us that KiwiAssure will perform better than EQC or Southern Response? There are more than enough insurers in New Zealand without the addition of yet another company which has no significant advantage and there would appear to be little point in going down this road, unless, of course, it is the first step in a somewhat bigger ambition. It might be quite sensible to create an insurer and get it working first, before establishing it as the only real estate insurer. Is Labour being a bit coy about this??
But my question to Labour in respect of what they have announced is in what way does KiwiAssure improve the situation in respect of national disaster management, it appears to add nothing if it is simply another standalone insurer- be it state owned and operated? And what about the role of EQC itself? Presumably EQC will continue to extract their levy and continue to provide us with the dismal performance that many of our citizens are still suffering, into our four year post-event. The practises of EQC now appear to be as corrupt and as inefficient as the corporate insurers. When I wrote my book it was my opinion that a restructured EQC might have been capable of managing the Natural Disaster Fund better, but in light of subsequent experience I believe that EQC in it’s present form should be abandoned altogether. Labour’s choice of KiwiBank might be a very good vehicle upon which to base an insurance subsidiary both equipped and capable to manage a Natural Disaster Fund and all the responsibilities associated with that task. Labour will need to address these issues before “selling” KiwiAssure to the public as the final solution to our geographic vulnerabilities.
However I don’t believe simply following the trend of bancassurance is enough (See https://thechristchurchfiasco.wordpress.com/2012/11/04/what-is-bankassurance-sometimes-spelt-bancassurance-2/). In fact there is a growing trend toward separating these functions out rather than integrating them further. The more integrated banking and insurance becomes the more at risk both systemically and financially the rest of us are!
I look forward to hearing more about Labour’s proposal and I trust they remain open to discuss and improve upon their ideas- after all- this affects each and every one of us and the opportunity is too good to miss!
~Future Proofing for a sustainable, participatory, democratic society.
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