Future promising for insurance in New Zealand

Future promising for insurance in New Zealand

The head of one of the leading insurers in New Zealand says the industry has a promising future despite the recent earthquakes.

The Chief Executive Officer of Vero New Zealand, Gary Dransfield said fears about a withdrawal of major insurers and reinsurers from the market here are misplaced.

Addressing the Trans-Tasman Business Circle at a lunch in Auckland, he said that insurers were reassessing the risks and costs associated with providing earthquake insurance.

“They are doing that not because they want to withdraw from the market – but because they want to build sustainable businesses and be here for the long term.

“The future of the insurance industry is of national importance because it is underpinning the growth of the New Zealand economy through the massive inflow of claims money following the Canterbury earthquakes,” Mr Dransfield said.

The industry faced major problems including ensuring there was enough capacity to meet demand at an affordable price for consumers.

“We need to find a way to ensure we have enough capacity provided at an affordable price from a sustainable earthquake insurance model in New Zealand.

“The starting point is to ensure we manage as well as possible the rebuilding of Christchurch.
“We then need to ensure our insurance pricing and terms are consistent with that of a sustainable business.

“We also need to start thinking hard about ways to work with government, customers, business and community to address any shortcomings in the current approach to earthquake insurance,” Mr Dransfield said.

Vero is currently managing earthquake claims worth over $3 billion and has already paid out more than $500 million.

“No matter how substantial our commitment and investment of resources, I know from my regular visits to Christchurch that the pace of the recovery effort will not meet all expectations.

“There are ongoing issues ranging from claims coverage confusion through to tardy responses and refusal to write new policies.

“We are dealing with the loss of lives, businesses, properties and communities on an unprecedented scale.

“Our industry needs to understand this and respond to community frustration while calmly progressing claims and rebuilding,” Mr Dransfield said.

In discussing earthquake insurance reforms, Mr Dransfield said the objective should be to build a sustainable earthquake insurance approach for New Zealand.

“I believe the EQC should remain pivotal for any future earthquake insurance model. The adequate level of capital it needs to fulfil its key role and the speed with which that capital is built need to be considered.
“We could consider whether the EQC should have more involvement in the provision of insurance support for commercial properties as it did in the past.
“The EQC could also leverage its national government agency role and act as an aggregated buyer of reinsurance for local underwriters,” Mr Dransfield said.

The insurance, banking and construction industries should join government and regulator representatives to form a working party in 2012 to revisit the approach to earthquake insurance and recovery management, he said.

It is impossible to fully protect New Zealand from earthquakes. However, more effective land zoning, town planning and building design can mitigate the impacts and reduce both human and asset loss. The more we can reduce the damage caused by earthquakes, the more we can reduce the public and private cost of providing earthquake insurance cover.

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