New Zealand’s natural disaster insurance model is flawed because it requires the Government and insurers to continually fund and resource operations designed for rare events, according to Vero NZ CEO Gary Dransfield.

Given the Government’s commitment to a balanced budget and debt reduction, it is not sensible for it to operate a fully funded and resourced public insurance agency with a sole mandate to manage earthquake insurance claims, he says.

“This is the business of private insurers,” Mr Dransfield told a conference of the BrokerWeb group in Taupo.

Commercial claims have been settled much faster than residential claims in Canterbury, which insurers say is due to the extra layer of claims management added by the state-owned Earthquake Commission (EQC), which covers the first $NZ100,000 ($80,740) of residential damage.

The EQC has accused insurers of trying to shift earthquake costs on to it.

Mr Dransfield says the mix of the EQC and private insurance in claims management has added to the complexity and duration of the recovery “because the model is systemically flawed when placed under the stress of a massive volume of claims”.

The earthquakes led to 400,000 building and 94,000 land damage claims.

“There is no consistency in the terms and conditions of policies being managed by both the EQC and private insurers,” he said.

The EQC Act is now being reviewed. Mr Dransfield says several models should be considered and there must be clearer roles for the Government, the EQC and private insurers in natural disaster financing and management.

The EQC and insurers should be involved in a future disaster insurance model, but “a key issue is whether the Crown, through the EQC, should be involved in claims management”.

The review must consider the appropriate level and form of earthquake and other disaster insurance to be met by the Crown and insurers, Mr Dransfield says.

“Should the Crown provide the first level of insurance up to an indexed cap – or should it meet payments beyond a set level?”

The estimated $NZ30 billion ($24.2 billion) Canterbury earthquakes damage bill is more than the New Zealand Government raises in personal income tax annually and three times its company tax collection, Mr Dransfield says.

Local insurers and foreign reinsurers will pick up most of the cost. Vero has so far paid more than $NZ2 billion ($1.61 billion) in claims, which is about half its expected claims bill.