Labour would ratchet up the risk for everyone

Canterbury Earthquake Recovery Minister and Minister Responsible for the Earthquake Commission Gerry Brownlee says Labour’s policy of establishing a state-owned insurer is no different than its other half-formed ideas – it’s emotive, shows a hopeless grasp of economic realities, and raises questions Labour won’t be able to credibly answer.

“Labour might hate private insurance companies, but the reality is they’re paying for $20 billion of the Canterbury rebuild – twice New Zealand’s annual corporate tax take,” Mr Brownlee says.

“The fact of the matter is you can only undercut insurance competitors if you’re prepared to take greater risk.

“Two insurance companies were doing that when the Christchurch earthquakes struck – both of them New Zealand owned – and they both collapsed.

“The reason insurance businesses tend to be internationally owned and operated, by big companies, is because they’re able to hedge their risk across a range of markets.

“Labour’s insurer would be completely exposed to the New Zealand market, which every citizen knows is at major risk of incurring heavy losses from natural disasters.

“So what Labour is saying is it’s prepared to increase the financial risk to every New Zealand taxpayer by entering a market in which it has no expertise and cannot offer any competitive advantage without ratcheting that risk up even higher.

“Insurance only works because big capital calls are available to back it, which is why insurers work very hard to price that risk accordingly, and smart governments limit their exposure on behalf of taxpayers where possible.

“With $600 billion of insured assets, New Zealand has a competitive insurance market for its size, with a more comprehensive range of cover than in many other jurisdictions.

“Ironically, given Labour’s apparent concern at foreign owned insurers’ profit levels, the chance of adverse selection occurring and simply increasing those profits further is very real.

“Again, insurance is priced to reflect risk, and the only way a state insurer could offer lower premiums is by managing risk unsustainably and becoming a magnet for bad risk.

“And the only way that ends is badly.”

Mr Brownlee says it’s simplistic and unfair of Labour to use the example of the Canterbury earthquakes as a reason to launch this policy – but then simplicity and negativity has been the hallmark of Labour’s response to the earthquakes.

“These events were like no others, and they were massive. Canterbury is the fourth largest natural disaster insurance event in history.

“But by working together, the Government, local government and the private sector are spending $40 billion putting the region back on its feet and creating a modern city all Cantabrians, and New Zealanders, can be justly proud of.”
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