New Zealand Finance Minister Michael Cullen has suggested making property insurance compulsory following revelations of high levels of underinsurance in areas affected by recent floods.

Dr Cullen says the compulsory scheme would involve a surcharge on property rates following the devastation caused by recent flooding in Manawatu and Bay of Plenty.

Insurance Council of New Zealand CEO Chris Ryan told Sunrise Exchange News yesterday that compulsory insurance is a good initiative because up to 60% of homeowners in the worst-hit flood regions are uninsured and they expect the Government to cover their losses.

The Government has also announced that it plans to widen its Earthquake Commission (EQC) scheme to include floods and other natural disasters. The EQC is a statutory corporation to help homeowners recover from the effects of earthquakes and land slip. It obtains funds through a levy on insurance premiums, but the Insurance Council estimates that about one-third of property owners don’t have policies and therefore don’t contribute.

The proposal to review the EQC scheme has been welcomed by IAG’s NZ operations, which control 40% of the market. CEO David Smith says IAG research indicates affordability as the main reason for people not taking up insurance – something insurers and governments need to fix.

He says communal relief funds are an inadequate solution because they double-tax people who have taken out coverage, and a low-cost, no-frills policy might be a good option.