Earthquake Commission Amendment Bill

Thank you, Madam Chair. Well, in Part 2 I want to concentrate on Supplementary Order Paper (SOP) 156 in my name, which actually sets out a process and would add in new clause 11A, which states: “(6) An insured person’s private insurer—(a) may be given notice and be delivered a claim and particulars under subclause (1) by the insured person; and (b) for any claims that are received under paragraph (a), is to be considered as having been appointed an agent of the Commission—”. This is, effectively, putting in what was the memorandum of understanding (MOU) between the Earthquake Commission (EQC) and the insurance companies which was brought in for the Kaikōura earthquakes. It was brought in hurriedly; it worked extremely well. In fact, the claim rate was far faster in Kaikōura than it was in Christchurch, albeit that Christchurch was a more complex series of events rather than a single one.

However, having said that, under the MOU, that allowed for the insured just to contact the insurance company and everything else would fall into place. There are, of course, the issues of getting your claim settled, but that’s always the case. However, in Christchurch, what was required was a claim to be registered with EQC, to contact your insurance company, EQC would then check you were insured, and then you would go through the process where the claim was assessed. In some cases, some claims are only now being passed on to insurance companies as being over cap. Then, once the claimant is informed that they are over cap, they then go to the back of the queue with the insurance company—an unnecessary, bureaucratic step that really was pointed out by everybody—everybody agrees it’s unnecessary and not really workable. You can understand why it was set up that way in the beginning. However, we’ve learnt a lot now and some of the claims—I’m going to go through some of the issues.

But, first of all, I want to point out in the letter of expectations that was sent by the Minister, the Hon Dr Megan Woods, to the Hon Dame Annette King on 6 March 2018. I’m just going to quote from that: “I recognise that EQC is trialling a new approach with private insurers to respond to the Kaikōura earthquakes and I expect a detailed report on the board’s review of this pilot.” Now, there has been a report that’s come back and said it was a very good operation in the way it worked. Then she goes on to say: “I expect [the] EQC to work with the wider insurance industry to ensure that if another significant natural disaster event were to occur, there is a commitment to ensuring that appropriate mechanisms are put in place as a priority to ensure that claims can be resolved in an efficient and timely manner, prior to any legislative change that may be made.”

That’s good. It’s got great intentions. It wants to move on with the process. So why isn’t it in this legislation? Well, of course, they’ve got a review, which Dr Webb just referred to earlier. That will come out and say exactly the same thing: that we need this in the legislation and we’ll have to wait an undetermined amount of time to have this other bill come up, but, unfortunately, mother Nature doesn’t wait for bureaucratic processes. Mother Nature could throw another disaster at us, whether it be a tsunami, a major event like Edgecumbe, or a Kaikōura event or a Christchurch or Wellington event—something of that nature. Then we have people scurrying around trying to come up with an MOU and move on into the process. I think that’s a totally unnecessary waste of time.

My SOP will cover that off. It slips into the bill very seamlessly and achieves exactly what is needed. Interestingly, I contacted the other parties on this and the Greens said, “Well, yeah, we think it’s a great idea, but the Minister would like to wait for the new legislation.” I got an even more glowing response from New Zealand First. They say it’s a good idea but their hands are basically tied. So I want to go through—Madam Chair, with your indulgence—the responses I’ve gone through. The Government and EQC came up with reasons why this would not work and what the issues were.

They came up with five areas they had great concerns with. The first one is that there would need to be robust audit and accountability mechanisms to manage the financial costs and risks of outsourcing claims handling. An absolutely valid response and a valid concern that EQC might have; however, all insurance companies have reinsurance and they have the same issues they have to go through. They have to be audited and accountable to the reinsurers, because they’re acting as agents, effectively, for reinsurers. EQC also acts as agents—it has reinsurance as well. So this would actually work in the same way it does with others, so it really just seems quite strange that that would be thrown up. Under the MOU, EQC in the Kaikōura event had an opportunity at any time, by providing reasonable notice, to audit, observe, test, or inspect any information to ensure insurers complied with their obligations under the MOU. So all of that’s laid out there in those MOUs, and the Supplementary Order Paper would ensure that EQC entered into those sorts of arrangements. So that is a non-issue. It’s just simply spurious.

Their second concern was that they would need clear agreements about the quality of service provided to EQC claimants, as well as ongoing accountability arrangements. I think a lot of people in Christchurch would think that was quite ironic coming from EQC, quite frankly. But, none the less, it is something that should be tied off in an MOU or in the contract that they would negotiate with the insurance companies. Once again, that was already covered under the MOU in the previous arrangement. So it’s quite easily accounted for within my SOP. I think, really, they are raising red flags that are not needed at all. Insurers acted as EQC agents, as I mentioned, and in accordance with the Earthquake Commission Act and guidelines provided by EQC—so worked within EQC’s own guidelines. Quite a spurious claim, yet again.

Actually, after the Kaikōura earthquake, there was a 70 percent customer satisfaction with insurance claims, and that’s compared to 43 percent with the Canterbury earthquake sequence and 51 percent with the non-Canterbury earthquake disaster sequences. People are always unhappy with their insurance companies, but, in the long run, 70 percent customer satisfaction is a pretty damn good number, I think.

Their third concern was there are robust arrangements between EQC and private insurers for sharing relevant customer and claims data in a timely and secure way. Well, under the MOU, insurers would first obtain a privacy waiver from a customer to allow information sharing between EQC and the insurer—so that was already in place—and that insurance could also seek exemptions under section 54 of the Privacy Act in respect of certain information sharing. All of that was covered under an MOU. It all could be arranged under my SOP, so it’s a fine piece of legislation—it’s not too late, Mr Webb. I can see he’s wavering.

The fourth point was that the insurance industry has the ongoing capability and quality of preparation to manage future events, particularly large-scale events. I mean—come on. The insurance industry has a far larger standing army than EQC will ever have, and it has international links to other insurance companies around the globe. They are in a far better position to gear up for large events than EQC is. We’ve seen that in the past. That’s why the MOU was signed in Kaikōura—because it was recognised. I’m simply building on that.

The final point was that there are appropriate and robust arrangements, either with insurers or elsewhere, to replace any loss of adaptability or flexibility in natural disaster response as a result of EQC no longer directly participating in claims handling. This is nothing more than patch protection by EQC, and the reality is, we deserve better than that. New Zealanders deserve the best service that they can get. This SOP actually will ensure that, and I implore the members on the other side of the Chamber to see some good sense and get in behind it. Thank you.

Thank you, Madam Chair. It’s a pleasure to take a call on Part 2 of the Earthquake Commission Amendment Bill, and I want to make a couple of comments before getting into one or two of the details I want to talk about. Obviously, we support this bill. It’s a piece of legislation that gives a little bit more power to the Earthquake Commission (EQC), and it certainly will ensure it’s shored up in there for future generations.

The EQC is unique by world standards of insurance, and because of the nature of our geology and the way this country’s shaped, it’s a pretty essential part of the protection of our citizens, basically, or our citizens’ privilege to live in New Zealand and to both borrow money and ensure that they can house themselves. Obviously, when you’re borrowing money to house yourself, these insurance factors are very important, and given that, a little like Australia with their fires, we do have earthquakes as a challenge for our insurance industry, it’s most essential that we have a very secure and sound insurance base to ensure that those people can continue to borrow money and continue to own houses and to carry on with their businesses.

I just want to talk about a couple of things. One is the lift in replacing the $100,000 monetary cap with $150,000. In my view, that’s a very good move, and I think it’s essential, really. It’s also sensible because it, basically, sets us a level of guarantee, I suppose—for want of a better word—and the other one that I want to speak positively about is removing cover for contents. I don’t think there’s ever any need—and hindsight’s a great thing, of course—for cover for contents to be covered by the EQC. You can insure for that anywhere, pretty much, under any circumstances. So I think that those two moves are both good ones.

I did want to spend a little bit of time just on Mr Stuart Smith’s Supplementary Order Paper (SOP) 156, because I think—like he does—that it’s a very sensible way of dealing with this stuff. When you think of the challenges that the first Christchurch earthquake caused with respect to the inspection of damage and things like that, it was a massive challenge for the EQC to put insurance assessors on the ground, and insurance companies are equipped for that. They weren’t entirely equipped for that prior to Christchurch, but many of them—well, many of them were, actually. Since then, they’ve all, basically, got themselves up to speed and can deal with these disasters very quickly, and Kaikōura, to some extent, proved that.

I think that the eminently sensible thing about that SOP is the fact that if you use the complementary strength of the private insurance sector, they could manage all of this stuff pre-EQC very easily, and EQC then just becomes, effectively, an administrator and, I suppose, to some extent a bank—well, an insurance company in this case, I guess. But I just think it’s so sensible and I don’t understand why it’s not included in this bill. I’m sure that if it doesn’t get proposed today, it will be included in the very near future because of the sensibleness of it. The opportunity it provides for the rationalisation of the industry and consistency as well—because those insurance assessors that are out in the street every day are very good at their job. They do things very quickly. They understand it well, and they don’t have to be retrained every time another event comes along.

So the industry now—it didn’t before Christchurch, but it does now—has the capacity, in my view, to support this type of activity. It would mean that the EQC could concentrate on their core business, which is basically to, effectively—and I’ll use the term “bank” again—use it to run a bank that then underwrites the ability of New Zealanders to get insurance, and that’s its key role. Its key role is not to then inspect and worry about the damage that’s been created as a result of a disaster, because that’s always dealt with by the insurance company concerned.

The other issue I want to touch on briefly is the fact that there are a large number of New Zealanders who don’t insure, and that’s a major challenge not only for this piece of legislation but for almost every piece of legislation we put through this House, because it doesn’t matter whether you’re levying the industry or what you’re doing, if you’ve got a percentage of the people that aren’t participating, it becomes a major challenge for the Government and for governing bodies because someone’s then got to prop up that damage. Someone’s then got to support those people that don’t get to the post.

So that’s really my contribution to Part 2. Madam Chair, thank you.

Thank you, Madam Chair. I just wanted to speak to Supplementary Order Paper 156 of Mr Stuart Smith and, as he’s pointed out, the Government doesn’t support that. That’s not to say that what was done in Kaikōura was not a good innovation. However, the fact is that it’s not necessarily a wise thing to ossify that into legislation.

This is, essentially, an operational matter, and we know that one of the good principles of legislative design is to ask: is legislation the only remedy? The fact of the matter is that that’s not the case, and it’s a much better idea to take an approach that says let’s continually innovate with ways in which we can best deliver the service of the Earthquake Commission (EQC) to homeowners. Whilst this has been used in Kaikōura, there are still other innovations that EQC is undertaking. The Greater Christchurch Claims Resolution Service is another example of trying something new that seems to be working.

So look, as Mr Smith pointed out, this bill is simply making some straightforward changes that were easy to do and very obvious, and that’s what we’re doing here. An amendment like this brings in a new complexity. I mean, for example, it automatically and by default appoints an insurer as an agent of EQC, whether or not there’s another agreement in place. Now, we can’t make an insurer agree, so that would be a real concern to go down that road. So look, yes, there were some good improvements in the Kaikōura model, but not appropriate to put in this piece of legislation.

The protocol in Kaikōura was itself renegotiated recently. That can happen again and again. It must be remembered that there are a number of different insurers with different capacities and that what might be appropriate with IAG might not be appropriate with a much smaller insurer, so we need to have an insurer by insurer approach. Again, we need to make sure that what we’re putting in place doesn’t have unintended consequences and that if it needs to be adjusted or unwound, we can do that, and once it’s in legislation, that wouldn’t be the case.

So yes, the Government will consider what has happened in Kaikōura in the review being undertaken by Dame Silvia Cartwright, and that is where that should really take place. So yes, it’s been useful in the Kaikōura earthquake, but no, it’s not an appropriate place to put that into this legislation, to essentially fix it in place and stop any improvements of it. Let’s have a wider look at how EQC works and make sure that if we’re making these changes, there aren’t any unintended consequences, and that’s the next piece of work: to make sure we have the best possible insurance and EQC response for the next event. Thank you, Madam Chair.

Thank you very much, Madam Chair. I’d like just to take a short call on Part 2, particularly the issue about caps. Now, in this piece of legislation we’re talking about lifting the Earthquake Commission (EQC) cap from $100,000 to $150,000, and so for those people who may be listening today or who may be in this House who haven’t been involved in a natural disaster, I’d just like to explain that the cap determines the responsibility of the Earthquake Commission in terms of paying out insurance and where that is passed on to the responsibility of insurance companies. So it determines who pays and, actually, who pays beyond the earthquake insurance and the insurance companies, because, of course, those companies are reinsured as well.

The cap is the first part that in this case, under the Christchurch earthquakes and the Kaikōura earthquakes, was $100,000 plus GST, and then, after that, it passed over to the insurance companies. So it was a gateway, and there was a huge amount of debate around this gateway—this $100,000—because I think the issue was that, as a gateway, it became a bit of a bottleneck. So a lot of people were very concerned—“Would I be dealing with the Earthquake Commission, because the amount of insurance I needed was less than $100,000, or would I be dealing with my insurance company?”—and to get through that gateway was the first decision that had to be made before people went on and got some action out of the insurance companies.

Of course, this was further complicated in Christchurch because there were multiple seismic events, and in lots of cases the $100,000 started again. So there were incredibly complex issues. It was complex for the people who were insured, it was complex for the Earthquake Commission itself, and it was complex for the insurance companies, but it was also complex for the reinsurers. By lifting it to $150,000, at least you move it a little bit further out, and it makes it a clearer situation to have happen.

So, generally speaking, of course we support it. This was part of the discussion document that we started back in 2012, and this is one of the first recommendations to increase the cap. Originally, that $100,000 cap was settled right back in 1993, and, of course, costs have escalated since then.

So that deals with the cap. But I’d also like to talk about Stuart Smith’s Supplementary Order Paper (SOP) 156, and this is about how you organise earthquake claims in the future. It’s relevant to the cap because, as I’ve said, the Earthquake Commission was the gateway to making a claim originally in Christchurch—and it still is now, under this legislation—but what Stuart Smith is introducing is another method, and this is a method that we learnt from Christchurch. It was a method that has been tested in Kaikōura and it has tended to work well. What Stuart Smith is putting in his SOP are the results of the learnings from Christchurch and some of the things that have worked well in Kaikōura. So what he’s suggesting is that instead of the Earthquake Commission taking that claim, working their way through it—whether it’s $100,000 or not—and then, after that time and past that bottleneck, passing it on to the insurance companies, the insurers’ private insurers begin the claim, and if that claim is under $150,000—it would be in this case—then it goes back to the EQC.

So it’s turning the whole process round the other way. It’s giving the process, to begin with, to the insurance company—who has the biggest exposure, generally speaking—and then passing it back to the EQC if it’s only a small claim. I think that makes good sense. It makes good sense simply because everybody does have an insurer in New Zealand—actually, that’s because the EQC gives them the first amount of money, and we’ve already talked in the past about how fortunate we are to have an Earthquake Commission, because people are insured. So that gives them the opportunity to work with the insurance company. They have the resource, they have the experience, they have the expertise, and they can start that claim. We believe that that would be a much more streamlined process, and it has actually proved to be in Kaikōura.

So I’m very keen to see this SOP supported. I think it’s the right thing to do.

Thank you, Madam Chair. I too want to add my support for Stuart Smith’s Supplementary Order Paper (SOP) 156. As I’ve been sitting in the back here listening to the discussion around this SOP, I hear words like “by adding this SOP into the bill, it will add more complexities to the bill.” I don’t think it will add many complexities, if any complexities, actually. What the SOP is trying to do, which worked well in Kaikōura, is trying to actually help the Earthquake Commission (EQC) with the number of insurance claims that they got, as an example, through the Christchurch earthquakes. This memorandum of understanding (MOU) with the private insurers is a good stance to take. If it worked in Kaikōura, then it should be able to work everywhere else in the country. At the end of the day, when we in Christchurch have to sit and listen to constituents’ complaints around not having their EQC claims settled in a timely manner, whereas their insurance companies could have come in and helped out with that process because of what’s happened, I think that this is a very sensible, well-thought-out SOP to be included in the bill.

When we start to look at EQC, it should not be about EQC being everything to everybody. I think that if we’re going to be effective for the people of this country, organisations like EQC should be able to reach out and get as much help as they can, because at the end of the day, when somebody’s property is broken, when they are in stress, they need that help immediately. They don’t need to sit there and wait and wait and wait for their claim to come forward through EQC; they need to be able to move forward and move forward rapidly. I think that’s what happened in Kaikōura, and it would’ve been great to have happened in the Christchurch earthquakes, as well. However, we live and we learn with all the processes that are going on.

As I look at this SOP 156, it states “After clause 11 (page 7, after line 29), insert: 11A Schedule 3 amended: In Schedule 3, clause 7 … (6) An insured person’s private insurer—(a) may be given notice and be delivered a claim and particulars under subclause (1) by the insured person; and (b) for any claims that are received under paragraph (a), is to be considered as having been appointed an agent of the Commission—(i) under subclause (5); and (ii) under section 73(1)(d) of the Crown Entities Act 2004; and (iii) subject to any other agreements between the Commission and the private insurer. (7) Any claim delivered to an insured person’s private insurer under subclause (6)(a) is to be deemed to have been delivered to the Commission under subclause (1) or (2).” That is a very good schedule. It doesn’t upset the current bill. It adds robustness to the current bill, and that’s what we’re looking for. As parliamentarians, as legislators, we are looking for robust pieces of legislation, and this particular SOP will give it that robustness.

I was very interested in hearing what Stuart Smith had to say around a letter that he read out around robustness of audit systems and accountability systems to manage claims—that EQC MOU with private insurers—and I agree with him. The reinsurers have really good systems—really good systems. I have a cousin-in-law who used to work for a reinsurer, and he is quite an anal person, actually, being an accountant, but he actually said to me, over the Christchurch earthquakes, because he was still working for a reinsurer at the time—he said so many good things could’ve happened. However, they didn’t. So he is quite happy. I’ve shared some of the information with him, and even though he lives in Ireland, he said that it’s a good way forward: clear agreements of quality of service from the private insurer. And they do. We’re with FMG, my husband and I. We have a business, and the FMG proposals with us, the insurance—they are actually very responsive. They respond within hours of our claims being received.

So I can only see good coming out of this SOP. I would encourage the other side—the Government and support parties—to support Stuart’s SOP 156. It’s not written as an intervention or anything; it’s written from experience.

Thank you, Madam Chair. I’d like to start, actually, with a comment that this is the first time that I can recall, in my time in Parliament, that there are no advisers present. I’m not quite sure what the reason or the need is for that. Perhaps we have an all-knowing Minister! Or perhaps they’re trying to tell us something? But I’ll leave that with you.

I’d just like to respond to Dr Webb’s contribution. He made a comment about my Supplementary Order Paper 156 and that insurers might not agree with it. Well, I’m pretty sure he sat on the select committee that heard all the evidence, and they were universal in their praise of the memorandum of understanding (MOU) arrangement and did want it in legislation. So I’m not quite sure where he might get that view from. I’m sure he would appreciate that, in legislation, you don’t have to please everybody. If we tried to please everybody, we wouldn’t get any legislation passed. So I don’t think that’s a very valid point. He did say that legislation is not always the answer, making the point that, clearly, an MOU might be sufficient and we could go out on an ad hoc basis from time to time and sign up these MOUs. Well, that’s not what the insurance industry wants. It’s not actually what the policy holders want, either. They want a seamless operation of the Earthquake Commission (EQC). They and their insurers want to know when they’ve had a natural disaster. They’ve got enough on their plate without having to worry about other arrangements to be made. And I’m very concerned that it would take that attitude.

I want to now turn to the cap and lifting the cap from $100,000 to $150,000. It’s absolutely obvious that lift is required in the cap, and we saw quite a bit of work done through the select committee process. It was an original recommendation in the work that the previous Government did: that the cap be lifted to $200,000. But when we looked at the shifting of the risk—because, effectively, you’re shifting the risk between EQC and the insurance industry, and if you put too much on the insurance industry, they’re getting a free ride. If you put too much the other way around, EQC is getting a free ride. It’s a balancing exercise and, on balance, $150,000 was the best, and the removal of the contents insurance is absolutely also the right thing to do. And I think everybody who’s had an EQC claim would recognise that when you’re dealing with an insurance company, they are dealing with these things all the time. EQC is not set up to, as I said before, have a standing army to react to these sorts of issues; whereas insurance companies are dealing with claims every day. It’s not their first rodeo; they know what to look for and how to get through these processes smoothly with the best outcome for everyone.

But I do think that Dr Webb made a valid point that legislation isn’t always the answer, and so my question to the Minister in the chair is “Can the caps and the building amount per square metre not be in regulations rather than having to go into legislation every so often to try and catch up on the inflation component when that could be done by regulation?” We saw a bill yesterday on medicinal cannabis giving carte blanche ability in the regulation-making power. Surely, a simple thing like lifting the cap from $100,000 to $150,000 and then, at some point in the future, lifting it up again as inflation moves on and the building amount, more importantly, per square metre changing as inflation dictates over time—you would think that would be far simpler to be managed in a regulation-making power situation rather than having to go through the costly and timely procedure, which will always be late. You won’t do it ahead of time. Parliament doesn’t legislate well ahead of time. So we will always be behind, whereas using regulations, that would be a far simpler, more reactive process and we wouldn’t end up getting things so out of whack over time, as we have done with this, because it’s quite some time since that occurred.

The question was put that the amendment set out on Supplementary Order Paper 156 in the name of Stuart Smith to Part 2 be agreed to.