New Zealand’s Earthquake Commission (EQC) wants to introduce differential pricing to reflect risk. It also wants to drop its contents cover and review its coverage for damage to land.

It has also suggested automatic adjustments to premiums and the cap on cover.

In a ministerial briefing that recommends the Government consider the changes, the EQC says it should continue to handle the bulk of residential property claims.

The EQC currently handles household claims up to $NZ100,000 ($77,685) and passes claims to private insurers once they exceed the cap.

As the central claims agency, it has attracted public criticism for delays and disputes about reinstatement, but the briefing says consolidating most residential claims in a single entity is efficient and enables the EQC to reflect government policy.

It says giving private insurers more control, with the EQC acting as reinsurer, would be a significant financial risk to the EQC. “Without an assessment role, the EQC would need to vigilantly audit private insurer assessments to contain cost-shifting by the insurance industry.”

The trade-off for the protocols between the EQC and private insurers is the potential for disputes over assessment and repair strategies, and added complexity for customers.

The briefing acknowledges the Canterbury earthquakes stretched the EQC’s resources. It hired around 500 assessors.

The Government has announced a review of the EQC this year and increased premiums came into effect on February 1.

The briefing’s argument for differential pricing notes that private insurers increasingly price for risk in flood cover and this encourages consumers to mitigate risk.

“The higher prices imposed on some homeowners for historic decisions should be balanced against current inequities where low-risk homeowners subsidise those with higher seismic risk,” says the paper.

It recommends consideration of a differential premium based on floor size, construction type and whether managing land use can enable risk-based pricing in the medium term.

The briefing questions the rationale for the EQC providing up to $NZ20,000 ($15,500) of contents cover, saying it increases complexity for customers and has required disproportionate EQC resources during the recovery phase in Canterbury.

“Arguably, private insurance or self-insurance may result in more effective mitigation by homeowners than EQC cover does.”

The EQC recommends re-examining the rationale for land cover. It says this has been hard to effect in Canterbury because of the complex types of land damage.

It says homeowners pay no levy for the cover and it is hard to align the cost between those who bear the risk and local councils that make decisions on land use.

The Insurance Council of New Zealand (ICNZ) has raised concerns that the current process duplicates claims management between the EQC and private insurers and CEO Chris Ryan says the briefing airs some sensible issues “that need to be raised”.

ICNZ is waiting for the Government’s response but he says the EQC has been structured in a way that is unsustainable for the long term.

Mr Ryan says ICNZ does not have a position on the $NZ20,000 contents cover or pricing for risk.