The New Zealand Earthquake Commission (EQC) cap for residential building cover will double to $NZ300,000 ($286,617) from October next year as the Government takes on a larger share of the risk.

Minister Responsible for the Earthquake Commission David Clark says the higher cap will ensure private insurance cover remains available and affordable.

“In recent years insurers have moved to a risk-based pricing for earthquakes, making the cost of insurance more expensive for homeowners in areas like Wellington, Hawke’s Bay and Canterbury,” he said last week.

“Increasing the EQC cap should lead to reduced premiums for many New Zealanders as the Crown absorbs some liability and risk from private insurers.”

The higher cap will apply from October 1 next year for damage caused by earthquakes, tsunamis, volcanic eruptions, hydrothermal activity and natural landslips. Private insurers cover damage above the cap, which currently sits at $NZ150,000 ($143,308).

Insurance Council of New Zealand (ICNZ) CEO Tim Grafton says the cap increase is not unexpected, and the one-year transition period acknowledges the need for insurers and the EQC to re-arrange reinsurance.

“The new cap is a balance between the flat EQC rate every homeowner will pay regardless of the size, value or location of their home and the risk-based price that the private insurance market must send,” he told insuranceNEWS.com.au.

“It will mean homeowners in lower seismic risk areas will pay a higher EQC levy and have been receiving relatively lower risk-based pricing from private insurers.”

Mr Grafton says individual insurers will be working through the implications of the changes for the premiums they charge. Home insurance policies are for all perils, not just those covered by the EQC, and include flooding.

A public inquiry into the EQC conducted by Dame Silvia Cartwright recommended a review of the cap as one of a number of measures proposed to improve the organisation’s effectiveness.

Dr Clark says the change means the government, through EQC, will take on a greater portion of risk.

“New Zealand has one of the highest levels of residential property insurance in the world and we want to see this continue,” he said.

“We know from the Canterbury earthquake how important insurance is in helping communities to get back on their feet.”