The Insurance Council of New Zealand (ICNZ) will raise the issue of affordability with the Government amid growing concern that the trebling of the earthquake levy and any increase in fire service taxes will lead to underinsurance.

CEO Chris Ryan says the council is concerned that the increased cost of insurance will lead to a reduction in cover.

“The levels of taxes and other levies attached to private insurance premiums will need to be reduced,” he said.

The Earthquake Commission (EQC) levy on householders trebled in February, the GST tax rose from 12.5% to 15% in 2010 and the fire service levy, which funds 95% of the fire service, may be increased. The levy is calculated on all property-owners at NZ7.6 cents per $100 insured, and vehicle rates start at $NZ6.08 per vehicle.

Mr Ryan told insuranceNEWS.com.au he expects insurance affordability to form part of the discussion about the restructure of the Earthquake Commission.

Cabinet is expected to receive a paper in the next two months on reform of the EQC, but the Government has already indicated it will not undertake major change until the rebuild of Christchurch is well under way.

“Our approach to Government will be that it needs to make sure as many people as possible are covered by the EQC and insurers, because if they are not the government will be incurring the liability,” Mr Ryan said.

Outgoing ICNZ President and Lumley NZ CEO John Lyon says the 18 months from the September 2010 quake that began the series has been the most challenging period in the history of the country’s insurance industry.

“We have faced incredible operational challenges in the most stressful of conditions and we have had to deal with unprecedented financial losses, all the while in an environment full of volatility and rapid change,” he says in ICNZ’s annual review.

Mr Lyon says the earthquakes have highlighted the value of insurance in helping economic recovery, but earthquake risk cover has changed forever.

“Many risks will be unable to attract full insurance cover, and this development will require collective dialogue between banks, government, insurers and business groups, to ensure that economic growth continues in earthquake-prone regions.”

He says the challenge will be to find a balance between building standards and cost effectiveness because excessive standards will restrict development.

Mr Lyon warns that catastrophe modellers will review their models for New Zealand risk within the next two years. This could lead to a further round of earthquake insurance cost increases when reinsurers use the data to price risk.