The recent data published by the NZ Insurance Council (NZIC) about the residential repairs and rebuilds are an interesting read.
At first sight the data sketch an optimistic picture, but statistics require “close reading” in order for us to understand exactly what information we are looking at. On March 1st 2013, I posted a guest blog on the Christchurch Fiasco website dealing with the latest figures on the residential rebuild as presented by Michael Wright in the Christchurch Press. In comparison with those statistics we now seem to have a more accurate account of the number of damaged homes in the greater Christchurch area, some 172,100 (over and under cap)! That is 61,241 more than I calculated in February 2013. It shows that the property problem is actually bigger than I anticipated at the time. As a consequence of this rise in numbers the number of properties managed by EQC and the insurers has also gone up: today 147,100 properties are “under the cap” and 24,660 “over the cap”. These figures represent a significant change from those we were provided with in February 2013. The first conclusion is that we probably now have better data to draw conclusions from today- which is a gain. It also reveals that the number of properties damaged by the Canterbury earthquakes is much larger than initially thought. An explanation for this jump in numbers could be that in February 2013, some two and a half years after the initial quake in September 2010, many properties were still waiting to be assessed. This prolonged delay came as a shock and at the time caught the attention of the media. Hence, when the EQC claims management system was exposed by a whistleblower in April 2013 (See http://www.stuff.co.nz/business/rebuilding-christchurch/8469811/EQC-privacy-breach-affects-83-000), Ian Simpson (EQC chief executive) had to apologize publicly and promise to get all outstanding claims properly assessed within a 6 month period. (Seehttp://www.3news.co.nz/Keeping-EQC-to-its-word-in-Christchurch/tabid/817/articleID/306947/Default.aspx#.UnlVEcr2-os). This may account for the substantial rise in numbers.
As of 1st of October 2013, we now know that by the end of the third quarter of 2013, 24,660 properties were insurer-managed; that is 6,160 properties up from the February 2013 statistics! Of those 24,660 properties some 41% have had their claims resolved. How have the insurers resolved those claims? They did so by rebuilding 650 properties (3% of 24,660), repairing 590 properties (2% of 24,660) and resolving 8,760 properties “externally” (36% of 24,660). “External resolution” refers to any situation in which the loss incurred is resolved outside the project management office controlled by the insurance company. This means that the resolution for the property is no longer under the insurance company’s remit. This includes cash settlements and house reinstatements. On the basis of these figures we can draw more conclusions. First of all, that up through to the third quarter of this year the insurance companies have had a 5% direct, hands-on involvement in the repair/rebuild of residential properties. This in sharp contrast to the 36% of properties in which an external solution was achieved. Offering cash settlements or house re-instatements means that the insurance companies walked away from any direct involvement, mitigating any future risks for themselves and leaving the property owners to deal with the aftermath of that resolution. This is a trend we are also seeing in EQC repairs. In the report prepared by the Controller and Auditor-General, Earthquake Commission Managing the Canterbury Home Repair programme, the writers state that “In our view, increasing the use of cash-settling to meet this deadline could be counter to the objectives of the home-repair programme if it contributes to cost inflation or the offer to cash settle is made to a homeowner who does not have the capacity to manage repairs on their own.” “As at August 2013, the home-repair programme would need to average about 2250 repairs each month to be completed by the end of 2014. This calculation assumes that EQC will not cash-settle large numbers of remaining claims. (See http://www.oag.govt.nz/2013/eqc/2013/eqc/docs/oag-earthquake-commission.pdf).
We now have enough information about the aftermath of those kinds of settlements. They often leave the property owner many hundreds of thousands dollars out of pocket, unable to rebuild their home ‘like for like’. I suggest you read the recent guest blogs by Arian Cowie and Kevin Seque on this matter.
As property owners have become aware of this “settlement” tactic and other external resolutions of the insurers, the number has dropped considerably amongst the category of properties “with the resolution still in progress”. In only 2,600 cases external resolutions are being sought; that is only 11% of the 24,660 properties in comparison to the 36% of the properties which had their claims resolved in the third quarter of this year. In line with this lower outcome for external resolutions the figure for insurers managed repairs and rebuilds has gone up considerably. Insurer managed rebuilds in progress went up to 3,840 properties (16% of 24,660) and insurer managed repairs in progress went up to 4,490 properties (18% of 24,660). Added together the insurer managed repairs and rebuilds comprise 34% of the properties with resolution in progress i.e. not yet completed.
Insurers involved in the Canterbury rebuild add the number of properties which have had their claims resolved and the ones with resolution in progress together, claiming that 87% of their over the cap residential property claims have been either fully completed or have an agreed resolution in progress. On the basis of this percentage the insurers say they are on track to meet their 2016 deadline when all earthquake claims are set to be resolved. But when looking at the number of claims resolved by the end of the third quarter of this year, the 1,240 repairs and rebuilds done represent only 5% of the 24,660 claims. The 34% of insurers managed repairs and rebuilds in progress may well present the insurers with a big problem. In numbers the 8,330 repairs and rebuilds in progress as opposed to the 1,240 repairs and rebuilds done means that that in the forthcoming two years the insurers have to do nearly 7 times more repairs and rebuilds than they have done through the 3rd quarter of this year. It is not going to happen in the timeframe insurers have set for themselves. This for obvious reasons I mentioned in my previous blog. Repairs and rebuilds will pose more difficulties; they will be more complicated and will need more redesign work. Managing insurers will be confronted with complicated consent procedures to meet the revised building codes and during that period building costs will continue to rise and labour will become more scarce.
We haven’t mentioned the 3,420 properties (14% of 24,660) without confirmed settlements options which include 540 properties without any kind of offer yet. Nor is there mention of the numbers of people involved in legal proceedings- of which there are at least 250 homeowners. I take it that all these 3,420 properties will be resolved in one way or another. If we take the line that most of these properties will eventually be “insurer managed” repairs or rebuilds, the insurers would have to do nearly 9 to 10 times as many repairs and rebuilds in the years 2015/2016 than the insurers achieved through the 3rd quarter of this year. That means that the insurers will need to do well over 300 repairs/rebuilds a month till the end of 2016 (39 months). The Insurance Counsel figures state that in the last three months of this quarter they completed 540 repairs/rebuilds which equates to 160 repairs/rebuilds a month. (See ‘We’re on track say insurers’, Ashleigh Stewart, The Press, Nov 4, 2013). If they are to achieve these figures -as of today the insurers will need to double their efforts otherwise they will not meet their 2016 target. In turn we, the affected public, will keep track of whether the insurance companies actually deliver on the goals they have set for themselves. Otherwise their statistics are just another smoke screen.
- Brownlee defends EQC performance (stuff.co.nz)
- Auditor-General says EQC inconsistent in Canterbury (radionz.co.nz)
Herman Meijburg, West Melton, November 5th, 2013