'THE NATION'
GERRY BROWNLEE
Interviewed by SEAN PLUNKET


Sean Earthquake Recovery Minister Gerry Brownlee has just returned from meetings in Europe, where he's been talking to top reinsurers in London and Monte Carlo. The immediate question is whether they will be able to offer reinsurance for the Canterbury quake region. But there are also questions about coverage for other areas like Wellington, our most earthquake prone city. Gerry Brownlee joins me now from Wellington. Good morning to you Minister. Why did you go to Europe? What were you hoping to learn or what message were you hoping to deliver.

Gerry Brownlee – Earthquake Recovery Minister
Well I think the first point was, it was a unique opportunity that occurs once a year, where all of the major insurance reinsurance companies in man of the big finance houses of the world are in one place at one time, and their whole purpose is to have meetings with various stakeholders that affect their business. So we were able to talk over two days to quite a large number of reinsurers, but in particular the five biggest in the world. We were able to put a presentation both in London to the Lloyds' brokers and in Monte Carlo to the gathering of people there, that essentially talked about what the government is doing to derisk the future for insurers going forward. So that’s you know getting people off the worst land, making sure that our building codes are very very strong, and ensuring that new land as it comes available has a higher level of seismic resistance as well. And then of course connecting them up to GNS in a stronger way than perhaps might have been the case, so that that international consideration of risk can be done on a very factual basis right off the ground here.

Sean Minister did you do that, because at present the reluctance of the global reinsurance market to cover New Zealand, and particularly Christchurch, at a reasonable cost is delaying or damaging the recovery in Christchurch.

Gerry Well I think there are two parts to this. Firstly, insurance companies in New Zealand are continuing to cover their clients, and in many parts of New Zealand they're still expanding their book effectively. In Christchurch they're sticking with their clients. So if you're going out of a red zone into a new house somewhere, or building a new house, then the insurance company will stick with you through that process. Where it gets a little difficult is the lack of willingness at the moment to expand the book to write new covers, particularly involving the earthquake in Christchurch. Now that will be a transitory period I think.

Sean Well Minister what we're hearing is there is no new insurance being written from Kaikoura to Ashburton.

Gerry Well I'm not sure about the extent of that.

Sean You're not denying that that’s basically the position of private insurers, no new insurance?

Gerry Well we have 14 or so companies that offer household insurance and property insurance in New Zealand, I don’t know what they're all doing. I know that many of them …

Sean Can you name one that is offering new policies in that area then?

Gerry Well let me get the message out. What I do know is that there are companies at the moment sticking with their clients but not prepared to expand their book, and that’s been the case for a wee while. If you look at why that is it's simply they're saying we've had huge losses here, we don’t know that this event has fully settled, we don’t want to be risking the capital of their particular business out there knowing that they could lose it. And I think they’ve got other obligations that they have to meet as well. But I do think that this is a relatively temporary position in the long scheme of things, that as the incidence of seismic activity starts to reduce and they can see that pattern firming, then New Zealand becomes, and Christchurch again becomes quite a good risk. In the whole grand scheme of things, this in Christchurch has been a very very big event, but Christchurch and New Zealand ranks only about eighth or ninth on the list of most risky places to place insurance. For insurance companies, for reinsurance companies big risk based companies, that would almost indicate they have to take a chunk of book here. Earthquakes are not like west coast wind in the United States where you expect that annually. As this event settles the incidence of return will be very very low indeed.

Sean Even though you're loathe to say it Minister, the fact is it's very hard to get new insurance in Christchurch right now.

Gerry That’s exactly why we went to Europe.

Sean You went there, then what assurance did you get, what timeline did you get as to when this unofficial ban or moratorium from the private insurers is going to be lifted? Because we're also getting the message from Christchurch that until it is you cannot really get the recovery rolling.

Gerry Well I think words like bans and moratoriums are the wrong sort of words, they imply that there is a much bigger problem than there actually is. What we've got is a heightened risk situation in Christchurch and no one can deny that. And so what we'll be saying to people is we are going to provide the science, we're going to make sure the building codes are stronger so that if you, when you do return to the market then you can be assured that you know what the seismic situation is as far as it's predictable, and you'll be insuring buildings built property, houses, commercial buildings, that are much more resistant to damage in the future.

Sean So you didn’t get a time from the reinsurers, or you haven’t got a time from the insurance market as to when they’ll be back. Could I ask you, you have been quoted as saying…

Gerry What I got from them was that there is plenty of capital in the world available for the type of risk that we are looking at. What isn't there at the moment is an appetite to put that money in when the risk is currently so very high.

Sean Alright.

Gerry So it keeps going back to that same thing, people always ask for timelines, and I always think if you put timelines out there you just create unreasonable expectations. I've got plenty of political opponents who would accuse me of doing that too much.

Sean You said that you are reluctant to intervene in the market, you'd rather that you know the market took care of this. You’ve said we wouldn’t be inactive if it were the difference between the recovery getting underway and nothing happening. At the moment not much is happening. Are you having to reconsider for example the way EQC is structured, or what sort of government guarantee, government underpinning or underwriting of the insurance market is necessary in Canterbury to get things moving.

Gerry Well several things there, firstly, the Fletcher PMO office with the under $100,000 repairs is happening and people will be experiencing those repairs in their neighbourhoods and in their own homes as we speak. There is also a huge demolition programme going on in the central city that will soon expand into the suburbs as well. All of that is covered by insurance. That rebuild that comes out of those red zone demolitions will be covered by insurance and that’s all in place. What we're talking about is new risk, new exposure and expansion of various insurers' books, and that will not occur until we have a more predictable, a more settled seismic condition.

Sean And you can't give us a timeline for that. Can you give us a best guess.

Gerry Not at the moment no no no. If I could I'd be delighted.

Sean I know you would. Can you tell us what premiums are gonna go up by when the insurers do decide that they feel safe enough to return to the market?

Gerry Well one of the interesting things was at the conference we attended there was over two and a half thousand delegates, and they were made up of underwriters, reinsurance firms, insurance firms, finance houses, etc, and also of course brokers, and what we detected strongly was a big tension between the international broking community and the international reinsurance community. The reinsurers saying premiums not just in New Zealand but everywhere, have to go up because it's been such a bad 12 months, and the brokers saying hang on a minute, you’ve got heaps of capital, you’ve gotta deploy it somewhere, we can have price stability. So just where that argument settles I can't predict. But what I would say is that probably as a separate risk set New Zealand's been under-priced for a fair period of time, and we would expect to see some price rise. But you know remember that the earthquake component…

Sean How much? Can you talk ballpark percentages for us?

Gerry I can't do that because I'm not setting the price, but what I can talk is some general parameters. So the reinsurance part of any insurance contract is probably round about 20%. If that were doubled that doesn’t double your premium, it puts it up you know 10-15% but not a 100% as some are talking. So insurers themselves have to make a decision about their reserve levels, because that’s another issue entirely.

Sean So really Minister, you're back from Monte Carlo and London, you can't tell us when the insurance companies are gonna get back in and help get the recovery going in Christchurch, and you're saying when they do decide to it's gonna cost everyone more?

Gerry Well I think that’s a pretty pessimistic assessment.

Sean Pessimistic but accurate?

Gerry No I don’t think it's overly accurate because it implies that we went there and achieved nothing, and I don’t think that’s the case. I think getting in front of the five biggest reinsurers in the world at the very senior level, CEO level and thereabouts, I think does let them know that we're very active here as a government, making sure that the future for Christchurch and for the rest of New Zealand is a strong one, and we can do that by knowing a lot more about the seismicity of our country, and about our building codes' resistance to that seismic activity. And then of course the government's commitment itself to the regrowth and the ongoing growth of the New Zealand economy, and all those things matter. And I think being able to get that message quite directly will be helpful in the long term. By most counts New Zealand is a very good insurance risk as a nation.

Sean That’s if you can get the cover. Minister I thank you very much for your time.

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