Better building standards and innovation in construction are saving lives in earthquakes, but they are also raising the question of how much insurers should contribute to replacement buildings.

Insurers, councils and building owners have wrangled with the issue in New Zealand, where the cost of replacing commercial buildings has risen after earthquakes.

Insurance Council of New Zealand CEO Chris Ryan says the issue was resolved fairly quickly and amicably after the first Christchurch earthquake in September, but he assumes “all bets are off” following the more devastating second quake.

The issue arises because building owners insure for replacement cost but then find councils introduce higher building standards post-event that make rebuilding more expensive.

After the Gisborne earthquake in late 2007 rebuilding stalled for months while insurers, the city council and property owners argued who should cover the cost.

After the September 4 Christchurch quake, the Christchurch City Council wanted rebuilding to be up to 66% of newer earthquake resistance requirements but eventually agreed with insurers that 33% was fair and reasonable and the council would decide on a case-by-case basis if a stronger standard was needed.

However, the extent of the damage and deaths from the February quake mean this will be up for review. The impending inquiry announced by the Government will cover building standards.

It has been estimated that one-third of the CBD buildings and about half of the city’s historic buildings will have to be demolished.

Engineers doing rapid assessments – a form of temporary safety assessment for emergencies – have given nearly 1500 buildings a red or yellow sticker, red being unsafe to enter and yellow enabling some temporary access, such as allowing people in to collect possessions.

There have been suggestions that the city was too unwilling after the first quake to allow some of its historic neo-Gothic style architecture to be knocked down. But following the loss of life and with many buildings now beyond repair, it is assumed citizens will be prepared for a discussion on how a new Christchurch can emerge from the rubble.

Other NZ municipal authorities will closely watch the outcome of the government inquiry, as moves to raise building standards could be adopted more widely. While it is mandatory for owners of old buildings to upgrade to 33% of current design level, the NZ Society for Earthquake Engineering recommends raising this to 67%.

NZ has introduced higher earthquake building standards every decade since the 1960s, and the most recent building standard dates from 2004.

New buildings constructed to the latest standard generally stood up well in Christchurch, but others that had been “seismic retrofitted” to make them stronger did not.

There is also likely to be debate about whether the first quake weakened buildings and caused the damage from the second quake to be more severe.

Mr Ryan says some property owners have been underinsured for replacement to modern standards, and it might be appropriate for owners to get a revaluation every year or two, or on renewal.

“The issue going forward for insurers, brokers and clients will be in making sure that the insured client has the latest valuation on their properties so they can rebuild up to the required building code and if that is in place there is no problem.”

One insurer told insuranceNEWS.com.au the insured values of many damaged and destroyed Christchurch homes would not meet a higher building cost and some affected owners might not want to rebuild.

He says this is an issue that goes beyond insurers and the city council to national government level as it could affect confidence in the city’s capacity to recover and the strength of the national economy.

However, Mr Ryan says it may not be an issue for insurers if the city rebuilds to only two or three storeys and uses timber or some of the more flexible modern building materials rather than stone.

“So many things are up in the air at the moment,” he told insuranceNEWS.com.au. “These are such early days.”

He says reinsurers will expect insurers to stick to the letter of the contract rather than make ex gratia or discretionary payments, and that Christchurch is such a big reinsurance event it will limit insurers’ ability to be flexible.

But he is also confident that insurers and the council can find a solution going forward if higher building standards are required.

And there is a longer-term upside to the issue, highlighted by a similar problem tackled by insurers in Australia.

Homes destroyed in the 2009 Victorian bushfires had to be rebuilt to higher fireproofing standards, and cyclone-destroyed homes in Far North Queensland have also been rebuilt by insurers to be cyclone-resistant.

While the past bushfire season in Victoria has been very quiet thanks to record rains, Innisfail in Far North Queensland – which was flattened by Cyclone Larry in 2007 – was hit last month by the far stronger Cyclone Yasi.

Loss adjusters say buildings destroyed by Larry and reconstructed to modern standards proved far more able to withstand Yasi’s category 5 winds.