Govt confirms Earthquake Commission review

Finance Minister Bill English and the Minister Responsible for the Earthquake Commission Gerry Brownlee today announced a legislative review of the Earthquake Commission Act 1993.

The Treasury-led review, which the Government foreshadowed last year, will draw from lessons learned about the operation of the legislation in response to the Canterbury earthquakes and other events over the past 20 years.

The review will focus on:

• What types of property the Earthquake Commission insures, including the structure and extent of EQC cover.
• How the Earthquake Commission prices its insurance.
• The institutional structure and design of the Earthquake Commission, including its roles.
• The financial management of the Crown’s risk exposure and how it should be financed.

“The Canterbury earthquakes were the most significant test of the Earthquake Commission model since its inception,” Mr English says.

“In light of the lessons learned from the earthquakes, the Government will review disaster insurance arrangements to look at where changes to existing policy settings are desirable.

“More broadly, the review is also an opportunity to consider possible changes consistent with other government initiatives, particularly the Better Public Services programme.”

Mr Brownlee says the review will seek to achieve the following objectives:

• Support the contribution of a well-functioning insurance industry to economic growth opportunities in New Zealand.
• Minimise the fiscal risk to the Crown associated with private property damage in natural disasters.
• Support an efficient approach to the overall management of natural disaster risk and recovery.
• Minimise the potential for property owners to experience socially-unacceptable distress and loss in the event of a natural disaster.

More than 10,000 earthquakes and aftershocks have been recorded in the Canterbury region since the 7.1 magnitude earthquake on 4 September 2010.

The Earthquake Commission has received more than 414,000 building claims and more than 93,000 land claims. It has paid out in excess of $3.3 billion and its total claims expense for the Canterbury earthquakes is estimated at around $12.2 billion.

“The review is expected to be forward-looking so will not affect the processing or entitlements of current Earthquake Commission claims,” Mr Brownlee says. “It is not intended to provide a management audit of the commission’s performance in Canterbury.”

“Having the Earthquake Commission’s cover has meant that through the multiple seismic events, insurance cover has been maintained for existing homes. Our high level of insurance penetration means that the economic burden of the recovery is well funded.”

The Treasury will establish a cross-agency group to oversee the review. It will include representatives from the Treasury, the Reserve Bank, the Earthquake Commission, the Ministry of Business Innovation and Employment and an independent policy expert yet to be appointed.

The review will consult industry and key stakeholders, and release a public discussion document in March 2013, inviting comment on proposed changes to the Earthquake Commission Act.

The Government intends to introduce resulting legislative amendments later in 2013.

Review terms of reference: http://www.treasury.govt.nz/publications/reviews-consultation/eqc

Media Questions and Answers

What will the review cover?
The review is a legislative review of the existing Earthquake Commission Act 1993, drawing from lessons learned about the operation of the scheme in response to the Canterbury earthquakes and other events over the past 20 years. The review will focus on:

• What the Earthquake Commission insures, including the structure and extent of EQC cover.
• How the Earthquake Commission prices its insurance.
• The legislation governing the Earthquake Commission’s set-up and operations.
• The financial management of the Crown’s risk exposure.

What are some of the possible outcomes of the review – could it mean less disaster cover for property owners in the future?
The extent of cover provided by the Earthquake Commission is one of the issues the review will consider. In coming to decisions on this matter, the Government will take into account feedback from homeowners, insurers, reinsurers and other stakeholders.

Will the review revisit the need to have the Earthquake Commission?
The review will start from the position that there is a case for a continuing Government role in the provision of disaster insurance. The review will not examine options such as closing the commission.

Will the review examine the Earthquake Commission’s performance in Canterbury?
This is a legislative review of the existing Act. Therefore, it will focus on how to use recent lessons to improve the policy settings and legislation of the scheme. The review is not intended to provide a management audit of the Earthquake Commission’s performance in Canterbury.

Will the review affect Canterbury households’ current Earthquake Commission claims and entitlements?
No. Property and land claims will be settled under the terms of the current cover and households’ entitlements will not be affected.

Will the review do anything to improve claims settlement in Canterbury?
The review is future focused. In other words, it will look at the Earthquake Commission we want to have in the future. It is not an operational review of the commission’s performance in Canterbury and will not identify ways to improve the current claims settlement. The review will draw on the claims settlement lessons being learned in Canterbury with a view to identifying improvements for future events.

When will any changes take effect?
At this stage, there is no target date for any changes to take effect. Until any new arrangements come into place, Earthquake Commission cover will continue to be available on exactly the same terms as it is currently.

Who will lead the review?
Treasury will lead the review, reporting to a governance group that includes officials from Treasury, the Reserve Bank, the Ministry of Business, Innovation and Employment, the Earthquake Commission and an independent expert. The independent expert will be confirmed after consultation with the insurance industry.

Will the public have the opportunity to offer views on the future of the scheme?
Yes. Next year, the Government will release a discussion document outlining proposed changes and inviting public submissions, before final recommendations are made to Cabinet. Any proposed legislative changes will also be subject to the Parliamentary select committee public submissions process.