Wellington, long regarded as having New Zealand’s highest seismic risk, could suffer at the hands of insurers and over-regulation in the wake of the Christchurch earthquakes, NZ Reserve Bank Governor Dr Alan Bollard says.

In an address to a Rotary forum in Wellington last week, he said earthquake insurance coverage could become much more limited, more expensive, and more restrictive in Wellington.

“Already we are seeing big increases in reinsurance premiums, tighter covenants, high excesses, and a move from full replacement to indemnity policies,” he said.

This is despite more stringent building codes having been previously introduced in the capital.

“Wellington might be expected to be more resilient, in that many of the buildings have been built or altered with earthquakes in mind,” Dr Bollard said.

“These standards are now being reviewed in the light of Christchurch, and will likely be increased, requiring significant further upgrading in Wellington.”

But Dr Bollard says the challenge will be to “avoid a costly regulatory over-reaction to a one-off event”. Preparing for unlikely but highly damaging events “might be constraining in terms of activity and prohibitive in terms of costs”.

But he says such considerations have to be balanced against New Zealand’s geographical and economic isolation.

The reinsurance market “has worked as we would hope”, with renewals generally available despite higher retentions and premiums more than doubling in many cases.