New Zealand’s earthquake insurance model is systemically flawed when exposed to a large volume of claims, Vero NZ CEO Gary Dransfield says.

Calling for an overhaul of the system at a Trans-Tasman Business Circle function in Wellington, Mr Dransfield said there is no consistency in the terms and conditions of policies being managed by both the Earthquake Commission (EQC) and private insurers.

“The Canterbury earthquakes exposed weaknesses in the current EQC and private insurer hybrid insurance approach,” he said.

The state-owned EQC insures the first $NZ100,000 ($78,550) of residential building damage and $NZ20,000 ($15,700) of contents, then passes claims over to private insurers.

“Having a government insurer and private insurers responsible for claims from the same customer has made the Canterbury recovery extraordinarily complex and has reduced claims management speed and efficiency,” Mr Dransfield said.

Different models could substantially reduce the Government’s involvement in providing and administering insurance, with no involvement in claims management, or change the level of state and private insurer funding.

“Private insurers could write earthquake insurance up to a set maximum amount and the Crown could act as a virtual reinsurer and meet the costs of claims above a set cap,” he said.

His comments come after he had earlier rejected EQC Chairman Michael Wintringham’s assertion that there is an incentive for insurers to reduce their liabilities by shifting costs onto the state.

Mr Dransfield says the current EQC review should lead to reforms that deliver a resilient general insurance sector underpinning the country’s competitiveness.

Vero has paid out $NZ1.76 billion ($1.38 billion) in commercial and domestic property claims. Mr Dransfield says the company has begun a major strategic review to increase its competitiveness.