A political scrap has broken out in New Zealand between the Government and insurance industry over the prospects for long-term reinsurance.

It follows widespread claims that Christchurch residents in the so-called red zone feel “demeaned, ripped-off and let down” by the insurance industry in the wake of the earthquakes and more than 8500 aftershocks.

Insurance Council of New Zealand CEO Chris Ryan says major reinsurers have reassessed New Zealand’s risk and their coverage in the future is not assured.

“While it is a fact that all the major insurers in New Zealand currently have reinsurance cover for at least the next 12 months, beyond this 100% reinsurance cover is not a guaranteed feature of the insurance landscape,” Mr Ryan said.

He says New Zealand’s tiny 0.2% market share combined with its seismic risk constitutes a threat to sustainable long-term reinsurance coverage.

But Prime Minister John Key says Mr Ryan’s comments aren’t reflected in discussions the Government has had with insurance companies.

“We believe they remain committed both in the insurance and reinsurance market in New Zealand,” Mr Key said.

Earthquake Recovery Minister Gerry Brownlee has gone a step further, accusing Mr Ryan of “scaremongering”.

“Until you have individual insurers stepping up and saying they no longer want to be in our market, I don’t believe the Insurance Council’s position is credible,” Mr Brownlee told reporters at a press conference.

Mr Brownlee had met with global reinsurers in Europe and was confident they would continue to offer coverage for natural disasters in New Zealand.

“I think it’s very important we don’t over-hype this,” he said.

At the heart of the dispute is the possibility of the Government having to become involved in the New Zealand insurance market if it becomes unattractive to the European reinsurers who currently support the sector.

Last week the country’s opposition Labour Party leader Phil Goff said the Government should become the “insurer of last resort” if reinsurers fail to return to the market next year.

Labour’s new earthquake policy proposes to “resolve the insurance standoff and as a last resort be prepared to intervene in the insurance market on a short-term basis to get the market functioning again”.

While Mr Key has dismissed Labour’s policy package, he has also not ruled out entering the market if necessary.