EQC – what role for floods and other disasters?

Finance Minister Michael Cullen today released the terms of reference for a review of the applicability of the Earthquake Commission scheme to floods and other natural disasters.

“The review developed out of the government’s consideration of the issues raised by the recent flooding in the lower North Island and consists in two parts,” Dr Cullen said.

“Part One, on EQC’s disaster management, will be delayed to incorporate the findings, due mid-month, of the independent inquiry into the North Island flood response commissioned by Civil Defence.

“Part Two, examining whether EQC’s coverage is appropriate or should be extended, will require careful assessment of the potential implications for homeowners, private insurance companies and the EQC and for the government in terms of fiscal risk.

“This work, which can begin immediately, will be undertaken by Treasury, the Department of Prime Minister and Cabinet and EQC in consultation with the wider insurance industry,” Dr Cullen said.

“I expect to be in a position to come back to Cabinet with recommendations by the end of November,” he said.

Terms of reference attached.

EQC Terms of Reference

Part I: Disaster Management and Co-ordination1

What is the role of EQC in disaster management, coordination and recovery and how does EQC’s role intersect with other agencies (including government and local authority agencies)?

Should EQC’s role be expanded to allow it to assist the government or other recovery agencies even when it has no liability?

Would there be any synergy benefits from amalgamating EQC’s role with other disaster recovery agencies?

What should EQC’s role be outside recovery assistance (i.e. in research, planning, mitigation and response)?

Part II: Coverage

Extension of EQC scheme

To what extent does the current EQC Act permit compensating for losses due to floods and other natural disasters? Why have the boundaries been drawn in this way (ie. what are the principles that underpin the EQC Act)? Is there a case for EQC to meet the costs of disasters as opposed to natural disasters (eg. the costs arising from a plane crash or terrorism)?

What cover do general insurance companies provide and what possible changes might they make (especially as a result of the recent storm and flood events)?

Are there any gaps in coverage? Why? Would these gaps be best managed by the government (through EQC) or the private insurance industry?

What would be the consequences of extending the perils and property coverage under the EQC scheme:

- for current insured parties? - for uninsured parties? - for private industry?

If so, in what ways could EQC provide assistance? How would that assistance be financed?

What would be the implications for EQC’s premiums, the Natural Disaster Fund and the Crown if the perils were extended?

Uninsured parties

What is the extent of uninsured parties in New Zealand – residential, business, farmers, SMEs, non-profit organisations, community facilities? Of those that are uninsured, what is the extent of assets owned that are considered uninsurable?

Are there any ways in which insurance cover could be incentivised for these parties?

For those uninsurable assets (e.g. farm fences), what involvement, if any, should EQC have?

Should EQC’s role be expanded beyond the insurance mechanism (e.g. have the ability to finance remedial work by way of loans)?

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