Natural Hazards Insurance Bill

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

That legislative statement is published under the authority of the House and can be found on the Parliament website.

💬 Hon Dr DAVID CLARK: I move, That the Natural Hazards Insurance Bill be now read a second time.

This bill replaces the Earthquake Commission Act 1993. The past few years have reminded us how important access to affordable and available disaster insurance is. The Earthquake Commission (EQC) scheme has helped contribute to very high rates of household disaster insurance, and it is vital that this continues. The scheme also needs to meet or exceed community expectations regarding the fair and professional treatment of its claimants and contribute to wider Government policy and priorities in natural hazard risk management.

The Natural Hazards Insurance Bill builds on the important lessons that we’ve learnt over the last decade. It modernises and streamlines the current Earthquake Commission Act and incorporates many of the recommendations of Dame Silvia Cartwright’s public inquiry into the Earthquake Commission. Members across parties recognise the importance of this bill and what it will mean for communities that might have to wrestle with recovery from natural disasters.

At first reading, the bill received cross-party support for referral to select committee. The Finance and Expenditure Committee have now considered the bill and reported back to the House with recommended changes that strengthen and clarify the bill’s provisions. The committee’s report recommends unanimously that the bill be passed. The committee also recommends all amendments unanimously except for one in clause 2 regarding commencement, which is recommended by majority. I acknowledge the valuable and important contribution that members on that select committee have made to the bill’s progress in the House. I also want to acknowledge submitters.

Before I outline the key points raised in submissions and how the bill responds to those, I want to be clear about what the bill does and does not do. The bill is intended to respond to the recommendations of Dame Silvia’s public inquiry into the Earthquake Commission and to clarify and modernise the current Earthquake Commission Act. It retains all the core features that help make the current scheme a success—capped coverage of residential buildings and associated land through a levy-based system attached to private insurance policies. It also clarifies the commission’s objectives, functions, and obligations to claimants. It’s not intended to lead or implement policy on the Government’s role in managing climate change costs and risks.

Now, while Toka Tū Ake EQC does and will continue to provide cover for damage caused by hazards that will be exacerbated by climate change, it is premature for the bill to attempt to address those issues now. Similarly, it’s not intended to give the commission advocacy, regulatory, or veto powers over where houses are built or not built. These are questions best left to other parts of central and local government. However, the bill is intended to make it clear that the commission has an important role in research and education and in supporting other agencies through sharing information on risks and exposures.

The committee received 26 submissions from organisations and individuals. That’s resulted in a large number of technical amendments and some substantive ones. I wish to say a few things to the substantive ones that have come back from the select committee. Firstly, commencement: the bill as introduced would commence on the latter of 1 December 2023 or 12 months after Royal assent. Now, insurers made submissions that this time line was not achievable for them and sought commencement somewhere between 18 months and three years after Royal assent. I think the committee struck a good balance of extending the 1 December 2023 date to 1 July 2024. If the bill is passed this year, as I hope, the practical effect will be to provide insurers something over 18 months to prepare for the new Act commencing from 1 July 2024.

The majority of the committee also recommended retaining the alternative leg of the commencement provision, namely 12 months after Royal assent, as this provision would only start to apply if Royal assent occurred after 1 July next year and the near final bill is already in the public domain. I consider the 12-month alternative commencement provision to be appropriate. We want this bill to commence as soon as is reasonably possible so its benefits are available to homeowners affected by a natural disaster, but no one who knows how far off that next large event may be.

The reported-back bill also makes a range of amendments intended to improve claimant outcomes by providing certainty and predictability of cover and by supporting fair and timely management of claims. Now, these include further clarifying what’s a dwelling covered by the scheme, including clarifying the status of homes used for short-term accommodation, homes that are temporarily unsuitable for living in while they are under renovation, and large-scale residential accommodation like university hostels.

It also, amongst the amendments, is clarifying how potential imminent damage covered by the scheme is determined. There is quite a list, but I think it’s important to put them on record: extending requirements for the commission to consult interested parties in the development of the Code of Insured Persons’ Rights; removing a provision carried over from the existing Act that gave Toka Tū Ake EQC the option of charging an extra amount to continue cover following a claim; introducing a new provision regarding the commission’s recovery of amounts paid to claimants in error, including specifying some circumstances in which the commission cannot seek repayment of amounts; and requiring the commission to consult with claimants before exercising salvage rights to land or exercising its discretion to buy a damaged land site from a claimant.

The bill also clarifies that claimants whose claims are settled on a diminution of value basis cannot be subsequently penalised for failing to carry out a repair, as diminution of value settlement is predicated on repair being unfeasible, unlawful, or disproportionately expensive.

Lastly, the bill now requires the commission to settle claims as soon as is practicable rather than within one year of determining the amount to be paid.

I think the House will be able to see that the committee has done a good deal of work to further clarify the intention of Dame Silvia’s report. So as we go through these changes, I do want to again thank the select committee for its work. The bill also makes it clear that external animal housing like dog kennels, clothes lines, and outdoor cooking facilities like pizza ovens are not covered by the scheme. Restoring these structures is beyond the Government’s interest in restoring the essential parts of a residential building.

These changes build on key features of the bill as introduced and are intended to improve claimant outcomes and provide claimants certainty with what is covered by their insurance, where their statutory rights and expectations can lie, and how their claims dispute or conduct complaint will be addressed.

The committee also introduced additional procedural safeguards that apply if the commission exercises its powers of entry to a home or marae where the occupier’s consent has not been obtained. While this is a useful modernisation of the provision in the existing Act, this provision is expected, I think, to see very little use.

Lastly, a provision enabling commencement of the bill to be deferred by Order in Council has been deleted and the power to amend certain dollar amounts in the Act by regulation has been limited so that regulations can only increase the dollar amount above what has been legislated by the House.

Thank you again to the committee and the officials for their work, and thank you to the members of the public who provided submissions. It gives me very real pleasure to commend the Natural Hazards Insurance Bill to the House, and I thank parties across this Parliament for their constructive approach to the bill. Thank you, Madam Speaker.

Thank you. It’s a pleasure to talking on the first reading of the Natural Hazards Insurance Bill. It feels like the Punch and Judy show this morning, Dr David Clark and myself—

💬 Chris Penk: Dumb and Dumber.

—I’m just not quite sure which one’s Punch and which one’s Judy. But not Dumb and Dumber, Mr Penk, as I heard you mention there.

But, anyway, this is a good bill and, of course, National will be supporting this bill. And I don’t think we need to remind ourselves of the context for this bill—obviously, it’s come out of the traumatic earthquakes. But National kicked off the review of the Earthquake Commission, as it was then called, and asked Dame Silvia Cartwright, former Governor-General, to lead that review. She came up with 70 recommendations, and this bill encapsulates a lot of those recommendations.

Interestingly, in the process—and I sit on the Finance and Expenditure Committee—we did look at the new definitions of these traumatic events and we redefined “earthquake”. “A sudden, rapid breaking and shifting of rock beneath the earth’s surface that results in ground shaking”—that was the original definition; we thought that was slightly unclear so we made the definition more generalised. We talked about floods—it was defined as “inundation of normally dry land by water due to storm, storm surge, [or] meteotsunami, or the escape or release of water from its natural confines,”. So we just thought that needed to be tidied up a little bit so people could actually understand all that. And a storm event is a “ ‘violent disturbance’ [in] the earth’s atmosphere.”

So the first thing is we’ve made it slightly more user-friendly for people. But there’s some very significant parts in this bill, and I think the first one is we’ve widened the definition as to a structure. Previously, it only referred to the primary structure—it might be a house. We extended the bill to include appurtenant structures. So people will be looking for their dictionaries, maybe, but what that means is other types of structures—not pizza ovens and dog kennels as the Minister quite rightly pointed out. But on residential properties, often you will have a garage or something like that that may not be connected to the main structure, which is important. So the liability was extended to those ones.

It was also extended to horizontal infrastructure, which is a Christchurch term: pipes, drains, and other services, which is an important thing because often when you have earthquake events, pipes get damaged as land subsides, whatever. We thought it was important that the cover covers that, and also retaining walls—particularly if you’ve got a retaining wall that’s stopping a landslide from behind your house and it’s consented and all that sort of stuff. We thought it was important that those types of structures would be covered. There is a limit on the value of that retaining wall or those type of structures—$50,000 per dwelling on a retaining wall, $25,000 for bridges and culverts. So we widened the definition and we think that’s very important.

The second most significant aspect about this is the increase in the cover. Previously, as most people will be aware, earthquake damage was limited to $150,000 per property. This has now been increased to $300,000. And it’s one of the issues where the committee—and I’ve been involved in finance and expenditure for a long time—had virtually unanimous support across the House about increasing that level of cover.

The third element is this information requirement. So the commission now has increased powers of being able to gather information—obviously in the context of assessing claims—but also there’s now a requirement that the commission needs to share information with the appropriate other Government organisations. In many cases, we’ve seen a silo approach taken within Government, and we need to look towards making sure our own Government agencies have access to the information and can get access to the information. The Privacy Act, which is causing so much trouble for the operation or interoperability of Government departments and even with private citizens, is an area that we were concerned that there was sharing of appropriate information so that all could be done to expedite claims and get on with things.

The next aspect is the due date. National was particularly concerned about the proposed date of implementation in the bill. I do want to acknowledge the Labour members who agreed with us and pushed out the time frame by 18 months for the implementation of this bill to 1 July 2024. This is not to stop this from occurring; this is to be practical about when these things can be put in place. The committee decided on that, and I acknowledge the committee members for doing that and the Minister for agreeing to that.

The fourth issue is the requirement for the commission to participate in a dispute resolution scheme. It is an important aspect and one that we were very keen to see put in place, and that is an important requirement on the commission.

There are some issues with the bill that should be acknowledged—and I’m just conscious of the time because I don’t want to drag this beyond 1 o’clock. But the first one is that the implication for increasing the cover to $300,000 means that, perversely, in some low-risk seismic areas, or in areas of generally low risk from these events, people will end up paying a higher excess on the insurance premium—up to $200 per annum—and that is a cost that some people are going to bear. But the trade-off is a higher overall cover for people. The second one is removing the commission’s discretion to discount levies to private insurers. Insurers do collect premiums on behalf of the commission. It is a moot point about removing some of the discounts and rebate that they’re entitled to.

We also introduced a new offence for insurers who fail to comply with the obligation to pay the levy to the commission. We would not want to see the new commission using that power inappropriately and conducting, sort of, audits of insurers. We’ve got to acknowledge that insurers played an instrumental role in helping, particularly during the Christchurch earthquake.

Those are the key bits. I think I’ll draw it to a close because I know the House is about to lift, but this is a good outcome. As I said, National are supporting this bill and I look forward to further contributions as we move this bill forward through its progress. Thank you.

Members, the House stands adjourned until 2 p.m. today.

The House adjourned at 1 p.m. (Thursday)