Natural Hazards Insurance Bill

I present a legislative statement on the Natural Hazards Insurance Bill.

ASSISTANT SPEAKER (Ian McKelvie): That legislative statement is published under the authority of the House and can be found on the Parliament website.

I move, That the Natural Hazards Insurance Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill.

New Zealand has the world’s second-highest natural disaster costs in the world as a proportion of GDP. It’s one of the reasons we’re called “the Shaky Isles”. On the flip side, our natural hazards insurance scheme supports us to have one of the world’s highest rates of residential property insurance. For a multitude of reasons, it’s crucial New Zealanders can continue to get affordable insurance cover, and their compensation paid when it’s due, as quickly as possible. Insurance is fundamental to helping communities recover after an event. Compensating policy owners for the damage caused by a natural hazard means they can repair their home and move on with their lives.

After the Canterbury earthquakes, this wasn’t always the case. So we have taken the time to learn from the Canterbury experience to ensure no one needs to be traumatised again by the claims process. The Natural Hazards Insurance Bill builds on the important lessons we’ve learned during the past decade. It streamlines the current Earthquake Commission Act and incorporates many of the recommendations from Dame Silvia Cartwright’s public inquiry into the Earthquake Commission (EQC). I want to, at this point, put on record my thanks to Dame Silvia for her very comprehensive report and well-considered recommendations, which have provided a fantastic platform for futureproofing the scheme. Dame Silvia made 70 recommendations in her inquiry. I’m proud to say that 49 of these have been completed or are close to completion, including 10 recommendations being completed by the passage of this bill itself.

Two inquiry recommendations were to change the name of the Act and the scheme’s administering organisation to recognise natural hazards insurance being not just about damage caused by earthquakes. The name “Natural Hazards Insurance Bill” acknowledges the scheme also covers damage caused by landslips, volcanic eruptions, hydrothermal activity, and tsunami. Therefore, I would also like to introduce the House to Toka Tū Ake - Natural Hazards Commission. The Earthquake Commission has changed significantly from the small, 22-person organisation it was in September 2010. It has now evolved into a modern, forward-looking, and resilient organisation. The recommendations made by the public inquiry have been embraced by the staff, none more so than identifying a name for itself to better reflect its role and place in New Zealand. Toka Tū Ake represents the foundation from which we stand strong and revive together.

The people of Canterbury told the public inquiry of difficulties they had working with EQC. We don’t want this to happen again; so the bill proposes a code of conduct defining the rights of claimants. The code will be published as part of the statement of performance expectations, and claimants will be able to have their issues heard.

The inquiry also recommended a dispute resolution service be available to claimants when they were unable to reach an agreement with Toka Tū Ake. The bill requires Toka Tū Ake to participate in dispute resolution as an alternative to the court action many Cantabrians felt forced to take. We don’t want claimants feeling they need to pay to resolve issues they have. Many features of the current scheme are not changing, such as cover being attached to private fire insurance policies. EQC will remain a Crown entity, and the Crown will guarantee the scheme. Toka Tū Ake will continue to have a strong role in education, in research, and information regarding natural hazards.

So what are we proposing to change, in the bill? The bill introduces a range of measures to update the financial governance of the commission to reflect modern practice and to require at least a five-yearly review of the scheme’s key financial and risk management settings. Many of those living in mixed- and multi-use buildings across Canterbury—and, again, in Wellington, following the Kaikōura earthquake—had a difficult time resolving multiple insurance claims for damage in their building or complex. The bill proposes rules that are clearer and easier to determine the amount of compensation to be paid. Changes proposed will make it easier for people with retaining walls, bridges, and culverts to understand what compensation they could receive if these are damaged. There’ll be caps of $50,000 per dwelling for retaining walls and $25,000 per dwelling for bridges and culverts. This allows people to purchase further cover if, for example, their property has considerable retaining walls.

The bill clarifies regulations relating to repairing buildings and land following a landslip or other land damage. It also sets a date for the increased EQC cap of $300,000 to come into effect. Increasing the EQC cap should lead to reduced premiums for many New Zealanders as the Crown absorbs liability and risk from private insurers. This change means the Government, through EQC, will formally take on a greater portion of risk, although as the AMI example in Canterbury shows us, the Crown is often on the hook either way. I’d expect to see insurers reflect reduced risk in their pricing for residential property insurance purchased by New Zealanders after October 2022.

The bill proposes the Act come into force on the latter of 1 December 2023 or 12 months after Royal assent. And that ensures there is at least a 12-month gap between enactment and entry into force. The bill also provides for the Governor-General to be able to, by Order in Council, defer commencement.

In closing, I do want to acknowledge the work that’s gone into this—particularly with officials at both the EQC and Treasury, working together constructively, agreeing many things, disagreeing other things, and seeking clarification from the responsible Minister. A huge amount of effort has gone into getting the technical detail right, to looking at how claims have been settled customarily, to ensure that the rules are clarified to the extent possible, to ensure that the process can be as simple as possible for those who are trying to recover in the face of a significant natural event.

I recommend the bill to the committee and look forward to them working on it and working through the detail to ensure that this scheme continues to work for New Zealanders in the future. It gives me great pleasure to commend the Natural Hazards Insurance Bill to the House.

Thank you, Mr Speaker. This is a very timely bill, and one that I think the National Party will enjoy working through with the select committee process. It has enormous advantages in it for New Zealanders. While it’s true that, in 2010, the Earthquake Commission (EQC) was a bit of a sleeper—that no one had ever really thought we’d ever face the problems that it faced, both in September of 2010 and then February of 2011—that is no particular excuse for them not being ready for those sorts of events in the future. But the Minister said there were 22 people working for EQC in September. It’s grown by four. My recollection is that they told us 18, but whatever, it was a very small group of people. It had been quite an easy task for them to operate, over the 17 years the Act had run, without any particular consideration of the need for change.

The organisation did swell by quite a few—to, I think, over 1,800 people eventually working for it in a relatively short period of time. When any organisation has that sort of growth over a matter of months, there is inevitably going to be some problems. I think it’s worth remembering, though, that the total number of claims that were dealt with as a result of the Canterbury earthquakes was in excess of 700,000—spread across land claims, building claims, and personal property. I think their decision that was made, eventually, to remove personal property—so, in other words, breakages that you get around the house, etc.—from the EQC coverage was the right thing at that time.

What has always been difficult has been the issue of land claim and the extent to which there should be coverage on the built property as well; then, of course, the breadth of which coverage should be administered or available, depending on the type of natural disaster that might have been experienced by someone. It is a very good scheme and well worth holding on to—quite unique in the world—and the only scheme, that I’m aware of, that actually does cover land damage. While there is a problem with how you might define that, it is enormously valuable. One of the things that I think it’d be worth the Finance and Expenditure Committee teasing out a bit further, notwithstanding the fact that officials have clearly done quite a job among themselves in debating these issues, will be whether or not those amounts, those caps, for retaining walls and for bridges, etc., are sufficient.

If one were to take a city like Wellington, many dwellings cannot exist without their retaining walls, and those retaining walls might be both forward and back of the property, or to one side—whatever it might be. If the property cannot be repaired without the retaining wall being repaired, I think there’s a real question about how much should be embodied in the whole of that cap coverage. No one will ever get this totally right, and it would be a good idea if we could have enough time at the select committee to go through all of the circumstances that people have had to deal with in the extraordinary events of Christchurch.

It’s worth noting, too, that of that large number of claims—that very large number of claims—over 160,000 of them were repaired through the EQC process. So they were houses that were damaged up to the then cap of $100,000. Yes, there were circumstances in that that were difficult for some people, but the vast majority managed to get their lives back together relatively smoothly. One thing I’ve always said is that EQC can’t go away, nor can the natural hazards arrangements that will come after this. They’re there permanently, and those claims don’t shut. And that, I think, has been a cause of quite a bit of difficulty for successive Governments as they’ve dealt with those particular issues. But I think it’s important that that remains one of the open aspects of this type of coverage. EQC was one of the biggest purchasers of reinsurance of any company in the world. It’s something that perhaps we struggle to get our heads around. We’re only covering 5 million people. We’re covering the dwellings that exist across the country that number only in the few million. But, none the less, because they were one big buyer, they were able to buy very, very well.

The argument always against raising the cap from initially $100,000, then to the $150,000, and then to the $300,000, as proposed in this bill, was that it would mean that the Government agency was subsidising the private sector—the private insurer who picks up the balance of that. That is the sort of nonsense argument that Treasury needed to be completely debunked on. The reality is that the cost of that insurance is the cost of that insurance, no matter who buys it. It’s arguably more expensive for private companies to buy smaller chunks to cover that first $300,000; so I personally welcome that new figure.

But I do offer this caution: in 1992, when the legislation first came into the House for the 1993 Act, $100,000 would pretty much replace, quite easily, the average home in New Zealand. That is not the case with the $300,000 proposed in this. When you look at the cost of building these days, you look at the cost of the average home, and you look at the price of new builds, then you know that we’re possibly not even at the halfway point with that particular figure. So it will be interesting to hear through that committee process from officials as to how they’ve managed to come to that figure and justify that figure. Remember too that the reason that the EQC was structured the way it was in 1993 was because the insurers of the day had decided they weren’t going to cover New Zealand for earthquakes any longer. That, I think, is an ever present threat. But, even with the huge costs that have been met by insurance as a result of Canterbury and Kaikōura and other smaller tremors around the country and other events around the country, the reality is that it remains a very good market for insurers because of that deep penetration that we have in our market.

It’s worth noting that, when there was the proposal for the Government to buy out properties that were so badly damaged they were difficult to repair, if at all, or couldn’t be repaired and where the land was so badly damaged it couldn’t be built on again, the expectation was that up to—working on international figures—15 percent of households might be uninsured. In the event, it was under 2 percent—quite an extraordinary thing. That indicates that New Zealanders do value their properties, and it reinforces the obligation that falls on a Government to ensure that there is a structure in place that will give people the sort of surety that they need.

The questions that will come into play here will be that question I raised before—the question of: is the coverage amount enough for the retaining walls and bridges and other ancillary structures around a home that might actually be the reason why the home is able to be built in the first place. Then, of course, that big discussion about the level of coverage at the current rate looking to be less than 50 percent of the cost of a new house. But, none the less, all of that might be quite reasonable. We look forward to the select committee process and participating fully to get a better bill, a better legislative arrangement in place for New Zealanders wanting to protect their assets.

ASSISTANT SPEAKER (Ian McKelvie): Members, the time has come for me to leave the Chair. The House is adjourned until 2 p.m. next sitting day.

Debate interrupted.

The House adjourned at 10.02 p.m.