Recently this item was referenced in an article in The Press. Below is my précis of that report with a focus on the residential response rather than business.
In the report a comparison is made of the following earthquakes: Chile, February 27, 2010; New Zealand, February 22, 2011 and Japan, March 11, 2011 and the article compared the facts, coverage elements, policy features, and practical considerations in relation to each event.
The findings include:
How Prepared were the countries?
Japan: previous earthquake was in 1995 and Japan was relatively prepared – they have a good early warning system and have a National Disaster Prevention Day every year. Nevertheless the size of the event (earthquake, tsunami and reactor meltdown) was unprecedented and greater than Japan had prepared for.
Chile: last major earthquake was in 1985. There was confusion over the tsunami alert and logistical complications around dealing with so many losses.
New Zealand: the least prepared despite being an earthquake prone country.
Loss Adjustor Performance?
Chile: there are strict regulations in place for the management of claims. Loss adjustors are licensed and are the final arbiters. Reports have to be issued within 90 days of the claim and strict timelines are in place if there are any objections to the reports. Support was provided by international adjusters but language was sometimes an issue.
Japan: no regulations covering adjusters but insurers tend to only employ adjusters who have passed the General Insurance Association of Japan qualification. But there was a shortage of adjustors.
New Zealand: no regulations covering loss adjusters and firms had reduced staffing because of the absence of catastrophes. Despite major international firms providing adjusting staff, this caused problems due to the short time fames that these people were present in New Zealand. They would typically hand the file on to others, with the result that policyholders had to deal with four or five adjusters.
How Quickly were Losses investigated?
Chile- quickly- i.e. less than a month.
Japan – took a month for investigations and inspections to begin, complicated further by the Nuclear issues.
New Zealand – delays due to the huge increase in the value and volume of the claims. There was also a shortage of adjusters and experienced engineers.
Price Gouging is defined as the process by which contractors take advantage of the circumstances and profit.
Chile and Japan – this did occur and led to clients having to negotiate with insurers and adjusters.
New Zealand – saw a huge increase in demolition costs. “Prices of rebuilding have not yet increased as much as people assumed. However, rebuilding is slow starting and construction cost escalations seem inevitable at some time, as demand exceeds supply.” There has been intense competition for undamaged buildings which led to a massive increase in rents.
This occurs in a situation where the loss adjuster’s reserve increases, which becomes an issue for insurers and can later impact on the claim due to the insurer’s internal reporting process. A loss adjustor’s reserve is the adjustor’s ‘realistic expectation of the likely extent of all costs following the initial investigation. As the claim progresses it is likely that the reserve is altered.
Chile : reserves reduced i.e. the expectation of losses reduced.
Japan: no issues
New Zealand: earthquake claims have risen steadily. Buildings which were thought to be minorly damaged initially, later become uneconomic to repair. The exchange rate has also influenced the creep due to the strength of the NZ dollar and the weakness of the US dollar.
Government Intervention? “Clients cannot do anything about government intervention, but it can have a real impact on their claims.”
Japan: Government closed highways leading to Tokyo; implemented a power saving plan and redirected power from commercial to residential areas.
Chile: the intervention of the Superintendent of Insurance provided pressure on adjusters to settle and adjust claims as quickly as possible. There was also a push for transparency of information.
New Zealand: Canterbury Earthquake Recovery Authority (CERA) was set up and given emergency powers including land acquisition, demolition of buildings and the creation of a CBD cordon. The Department of Building and Housing altered the hazard rating of the region. Government also gave the Earthquake Commission the mandate to handle claims, ultimately leading to delayed claim resolution.
“The challenge is to get insurers to treat a client as a client, and not as part of their portfolio, although this can be easier said than done.”
David Pigot, Chairman of Global Claims Practice (Marsh) – states that the report compares and contrasts three of the five most expensive earthquakes ever – Chile, Japan and New Zealand – over a 13th month period of factual analysis and then compared the elements of coverage and policy features and practical considerations – i.e. how did the loss adjustors cope and what was the preparedness for earthquakes in those countries. The length of time it has taken to settle claims in NZ was a point at issue – In Chile most claims were settled in 12 months, in Japan in 18 months but in New Zealand it has been much more of a challenge and there are still a significant number of claims outstanding after three and a half years! Collectively Insurers have paid out 65 billion dollars over the three earthquakes – money which is critical for the reconstruction and renewal of those cities.
Please remember that the following Statistics are based on Marsh’s client Base.
Speed of Which Claims Were reported for Marsh Clients?
Chile – nearly 75% in one week
Japan – 90% within the first six weeks
New Zealand – 40% within four months
“New Zealand was the least prepared of all from an insurance perspective. Although the country was conscious of earthquake risk and had a long-standing insurance scheme run by the Earthquake Commission (EQC)…”
So my question is – who’s looking? Who’s making improvements? Why aren’t we hearing anything about what is being done? The Insurance Council is not telling us what the insurers are doing to improve the situation for the future. Whatever happened about the review of EQC? All these questions and so much more work to be done…..
It is very clear that the system needs massive change and insurance company response times need to be legislated as they are in Australia.
~ Future Proofing for a sustainable, participatory, democratic society.