Natural Hazards Insurance Bill

Thank you, Madam Speaker. This bill is really bringing to light the Cartwright recommendations for natural hazards around reducing the impact of the trauma of natural hazards but also mitigating the risk to the Crown or the exposure, and it is also enabling the Crown to get involved in the transfer of reinsurance for risks that fall outside of the bill.

At the select committee process, the main changes that we made were around the scope of the research and education functions but there were also clarifications that those reinsurance matters would lie outside of the bill. There were a number of technical changes, modernisations, and improvements—for example, we spoke quite a lot around drains, walls, retaining walls, bridges, culverts, and so on, trying to work out where the lines would fall around liability and compensation. I just want to thank the independent adviser for his really good advice as we worked through those issues.

There were a couple of areas where, as a committee, we wanted to increase the rights or the protections, if you like, for those who would be insured. One was around the commission being required to settle claims as soon as practicable, rather than within one year. Secondly, there was a provision that enabled the commission to recover moneys paid in error, and there was an assumption that this would be perhaps because of the withholding of information from a claimant when, in fact, it could be possible that new information could come to light. So we recommended that some natural justice prevail there in the event that the claimant wouldn’t have an enduring liability in the event that there would be a cap to it. Finally, we suggested getting rid of a one-off charge to enable cover to continue after a claim is settled.

So those were the changes. It was a pretty thorough investigation. I’d just like to commend Minister Dr David Clark, who’s sitting next to me, for shepherding this through. It’s really important, given that we have increasing natural hazards with climate change, and so New Zealanders can be assured that we still have a robust system that is going to work when these unfortunate events happen. I commend it to the House.

Oh, thank you, Madam Speaker. It is a pleasure to speak on the Natural Hazards Insurance Bill.

Actually, on Monday 14, that was the sixth anniversary of the Kaikōura earthquake, which was the genesis, I guess, of a lot of the changes in this bill. After the Christchurch or Canterbury earthquake sequence, there were significant issues with people having to go through two steps. First of all, they had to establish that their claim was outside of the $100,000 cap from the Earthquake Commission (EQC), and often they took forever to get through that process. Then, if it was above that cap, that triggered a claim going to the insurance company, where, of course, they were at the back of the queue there to go and get their claim processed—hugely stressful for people uncertain, and a bureaucratic nightmare, quite frankly.

After that sequence and as a result of the Kaikōura earthquake, the insurance companies and EQC came to an agreement amongst themselves where the insurance companies would process the claims: one claim only and you don’t go back to the back of the queue if you didn’t get through when you eventually got over the $100,000 cap. That is in this piece of legislation. That is how it has worked its way through practical, on-the-ground experience. That made a significant difference in the user interface with insurance companies and with EQC, smoothing that process. And it’s greater to have that in this bill, formalised now, rather than just being a side agreement, effectively. So that is a magnificent part of this bill, I think, even though it hasn’t really been touched on by anyone else, as far as I’m aware, in this debate.

I think that one of the things that most of us on the Finance and Expenditure Committee spent a bit of time getting our heads around is the issue of landslips. When a landslip starts and when it ends can be quite important in the rules. I think we’ve done a pretty good job on that. It’s the nature of these things, I think that, as demonstrated with the Canterbury and Kaikōura earthquake sequences, these things are like a great battle plan—they’re very good until the first shot is fired, and then you find out where all the weak points are. I think there’s been a really good job done on this bill, but there will inevitably be issues that will come up in the future.

The issue of volcanic events, which we now extended an event from 48 hours to seven days—I think New Zealanders have forgotten about the risk of volcanic eruptions in New Zealand. The risk of a Hikurangi subduction zone rupture, which is just sitting out off the coast over there behind you—that is quite high, but it’s an equal risk to volcanic eruption in Auckland. So that is something that Aucklanders seem to forget. They look quite smugly down at people in Wellington, thinking they should have all the risk. Well, actually, there’s quite a bit of risk up there, not to mention Lake Taupō—I think the estimate is something like 3 metres of ash here in Wellington should that event happen. So there are massive risks in New Zealand.

Look, there’s a lot of talk about climate change, and I accept there’s a climate change risk. But, actually, New Zealand’s biggest risks are the catastrophic events that happen from earthquakes, tsunamis, and volcanic eruptions. There’s no doubt that this will need to be updated again in the future.

There are a lot of issues, as I was mentioning around landslips before, about retaining walls, and it’s been a lot of heartache. We heard evidence from people in the select committee about the ongoing nature of trying to fix their retaining walls and not actually having the ability to access their homes unless the retaining wall was fixed. We are now going to an undepreciated value with a limit of $50,000 per dwelling for a retaining wall, and $25,000 per dwelling for bridges and culverts. That is something that comes up from time to time and will be a significant help, anyway. Obviously, in some cases, that will not be enough, but we can’t cover every eventuality with these sorts of socialised funds.

I note that the previous speaker, Ingrid Leary, mentioned that reinsurance could cover things outside the bill, and I think one of the things we talked about in select committee was flood insurance and flooding, and my concerns—in particular, that we don’t try and replicate the flood re example in the UK, which ends up locking people into their flood-prone homes by having a social type insurance, like EQC, which is, I think, what some of the members on the other side have in mind: to extend the commission’s cover to those sorts of events. I don’t think that we should be going there. I think it would be far better that we got together with the insurance companies, councils, and central government and help where necessary to relocate those people away from that flood risk, rather than locking them into their flood-prone homes, which has been the case where these types of schemes have been introduced overseas.

I think that the Privacy Act implications—we discussed quite a bit about that and we can understand why EQC would like to gather information from people affected in events and keep that information for future use, as well as identifying all sorts of other learnings that could be helpful in the future. There are a lot of Privacy Act implications around that, so we discussed that at length. I’m pretty comfortable that we landed in a good place.

We extended the implementation of the bill. The insurance companies were very concerned about the amount of time it will take them to rejig their contracts. They needed time to get their systems in place, I think. Well, it’s a bit of a compromise; it’s not quite exactly where they wanted to be, but we’ve got it in a fairly good position, I think, anyway.

The disputes resolution—well, by its very nature, homes are most people’s biggest and single investment. When they have an event when there’s significant damage done, they are thrown into a position, often, where they have to get into negotiations to get things—their insurance settled or EQC settled, and then the construction done and reinstate their home, if that’s what’s going to happen. It’s a really stressful time for people and there are a massive number of disputes that come up—sometimes they’re quite valid; sometimes they’re not. But there’s a lot at stake for people. The last thing we really want is to have people spending a lot of money and enriching the legal profession, and, really, at no gain for the people involved.

The change—up now to a $300,000 EQC cover—doesn’t come without implications. Those people living in low-risk areas are actually going to pay quite a lot more. There are more losers than there are winners in that change, quite significantly so. So, yes, the costs for people for their earthquake cover, which includes all losses, in Wellington and other places like Marlborough, where I live, which are considered quite high risk—the costs of their insurance will go down, but the vast majority of New Zealanders actually live in lower-risk areas and their cost of their insurance goes up quite significantly. So it’s really an unfortunate thing, but you have to make a judgment somewhere along the line. But I think it hasn’t come out as has been sold by the other side of the House. On this side, we realise that those costs are going to fall on people who are living in relatively low-risk areas. So, with that, I commend the bill to the House.

It’s a real pleasure I stand to take the final call in this reading of the Natural Hazards Insurance Bill. And it’s interesting to listen to Mr Stuart Smith talk about the fact that, for someone, Earthquake Commission (EQC) premiums might not relate exactly to their risk. I can tell you that in Christchurch pre-2011, people didn’t think it was particularly high risk and yet billions upon billions of dollars had to be forked out of the EQC fund to rebuild and repair homes in Christchurch. So I think we’ve got to be a bit cautious about sort of not spreading the risk across all of New Zealand.

Look, there are some big changes here, the lifting of the caps is the most obvious one and it’s a really good one because certainly, when the EQC framework was designed, the cover was expected to be that of a modest dwelling. Well, $300,000 doesn’t come close to the cost of rebuild of a modest dwelling now, but it’s a much more substantial contribution than the previous was. It certainly will cover most natural damage claims. But what I do actually want to identify from my time working for quite a long time in this space as a lawyer for homeowners, is the fact that this is a bill which goes through in detail and sorts out all of the little problems that hold up issues. I can remember sitting with a plan of university halls of residence with coloured pencils and markers, marking out which units looked like dwellings and which ones didn’t. It was a laborious task that took months of negotiations with EQC. Well that’s just one of the things that this bill makes clear so that that kind of problem won’t arise again.

Boarding houses, what’s happening when a house is being renovated, common and shared property, part-commercial part-dwelling properties—all of these things which can take a lot of time if you don’t have clear rules in advance. This has been worked through, and I must say I was on the Finance and Expenditure Committee when the bill first came before it, and after being moved on to other jobs I’ve taken the opportunity to sit on the select committee from time to time. The committee did a great job in going through, in detail, a lot of these difficult points that a lot of people will never take any notice of, and, in most people’s lives, won’t arise. But in a large natural disaster, getting the law right at that level of detail is absolutely critical. It will save time, it will save grief and anxiety, it will save money, and it will give people back their homes sooner and better. That’s a great thing. I commend this bill to the House.

The question is, That the amendments recommended by the Finance and Expenditure Committee by majority be agreed to.

Amendments agreed to.

Motion agreed to.

Bill read a second time.

I declare the House in committee for consideration of the Māori Purposes Bill, the Remuneration Authority Legislation Bill, and the Statutes Amendment Bill.