New Zealand has to re-examine whether it is practical to continue to expect the Government or insurers to get properties back to the condition they were in before disaster struck, the Insurance Council of New Zealand (ICNZ) says.

CEO Tim Grafton believes the time has come for a national conversation about this and the sharing of risks in a country that Lloyd’s has ranked as the second-most exposed to natural catastrophe losses.

“The expectation among New Zealanders is that they be returned to their pre-catastrophe state after an event and that it is either covered by the private market or by the government,” Mr Grafton told insuranceNEWS.com.au.

“While we enjoy very high levels of insurance penetration, and a very low protection gap which is a very good thing to have, there is no other country I know of where there is that guarantee in place.

“The question is how realistic is that, how sustainable is that, when we are going to be living in a world where there will be increased risk due to climate change, increased frequency of extreme weather event losses as well as underlying seismic risk?

“We need to be reducing risk and maintaining the affordability of insurance. Therefore there needs to be a wider debate around what it is that we all as a society and individually contribute to reduce that risk, because the focus is on assuming that all risk will be fully covered either by the private sector or by government. And that is not realistic.

“The private market does not cover all risk and will price high risk accordingly, which raises affordability issues and creates moral hazards for government.”

The ICNZ’s call for a rethink comes amid an ongoing public inquiry into the Earthquake Commission (EQC) headed by former governor-general Silvia Cartwright, who is expected to submit an interim report to the Government by the end of June.

The inquiry aims to learn from the experience of the Canterbury quakes and ensure the EQC remains a relevant vehicle to handle future events.

It will also examine the pilot process introduced after the Kaikoura quake, when insurers acted as EQC agents, getting involved earlier in the process and reducing duplication.

“The Government needs to sit back and say what its tolerance for risk is, what it will take and what it believes is the amount it needs to be providing to citizens through the EQC – but the EQC does not cover a lot of the climate change events,” Mr Grafton said.