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Wellington taskforce calls for $NZ400,000 EQC cap

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A Wellington Insurance Taskforce recommends the Earthquake Commission (EQC) cap be more than doubled to $NZ400,000 ($374,348) to address affordability and availability issues, in a proposal opposed by insurers.

The taskforce, which will submit recommendations to Finance Minister Grant Robertson by the end of the month, also urges building reforms, more transparency from insurers on premiums, an investigation into the role brokers play in setting premium levels and a portal to make property risk information available to the public.

The EQC residential buildings cap was increased to $NZ150,000 ($140,381) from $NZ100,000 ($93,587) in July as part of recent reforms. Private insurers provide cover for damage above the cap and also handle contents.

“It became clear that this is the right time for the Government to investigate increasing the EQC cap to $NZ400,000 in tandem with other mitigation measures,” Taskforce Chairman and Wellington Mayor Justin Lester said.

The taskforce includes representatives of GNS Science, Engineering NZ, body corporates, property developers and the Insurance Council of New Zealand (ICNZ). It held its last meeting yesterday.

ICNZ says recommendations are yet to be finalised and it opposes the proposed cap increase.

“It would require the entire country to be levied to address a small, but as yet unquantified, affordability issue. This is quite disproportionate to the problem when direct Government or even local council assistance would be the most appropriate, targeted response,” CEO Tim Grafton said.

“Second, it would dramatically remove private insurance competition and the benefits that brings to all New Zealanders.”

The proposal would mute risk-based pricing signals, which could create perverse outcomes such as poorer building quality, and would add to the Government’s liability, ICNZ says.

“The taskforce has met just three times and undertaken very limited deep or broad analysis,” Mr Grafton said.

“ICNZ and insurers have separately engaged with the Treasury to provide as much information as possible to inform decision-making and have discussed a wide range of options to address the as yet unquantified unaffordability issue.”

Insurance Brokers of New Zealand CEO Gary Young says the group has not been invited to participate in taskforce meetings and it is “ironic that they have just realised brokers play an important role” in the marketplace.

“The reality of the situation has to be faced up to. There needs to be a greater understanding of what role insurance can play. Better information on risk and hazards would certainly help the public in this respect,” he told insuranceNEWS.com.au.

“Wellington is still well off in terms of insurance availability compared to similar earthquake risk areas such as California or Japan. As an area of high risk it has to be accepted that risk mitigation plays an essential role alongside insurance in protecting property.”