KPMG: the time is right for EQC Reform

The time is right to revisit the role of the Earthquake Commission (EQC), says KPMG New Zealand.

KPMG’s General Insurance Update 2015 publication, released today, includes two articles that focus on the future role of the EQC, in light of the Government’s plans to amend the Earthquake Commission Act 1993 early next year.

KPMG’s Head of Insurance, Kay Baldock, says while the Canterbury earthquakes have demonstrated the value of having a Natural Disaster Scheme – they have also highlighted a real need to revisit the role of the Earthquake Commission (EQC).

“It’s critical that we define the extent of the EQC’s role – how far it will or should support recovery following a natural disaster. Many of the problems experienced after the Canterbury earthquakes were due to the fact that the EQC’s existing operating model was not fit-for-purpose. It simply did not contemplate a natural disaster the scale of the Canterbury events.”

The Insurance Council of New Zealand (ICNZ) has made submissions to the recent Treasury review of the EQC Act. The ICNZ proposes that private insurers would effectively become claims managers for the EQC’s first loss exposure. KPMG agrees with that view.

“Under that model, the insurance company would have primary responsibility for managing claims and recovering amounts due from the EQC,” says Kay Baldock.

“The Canterbury earthquakes have shown that insurance companies are better-equipped with the in-house expertise to manage large, complex events.”

In another article written for the KPMG General Insurance Update 2015, ICNZ Chief Executive, Tim Grafton, says the new legislation should require claims to be assessed by insurers rather than the EQC.

“The ICNZ also advocates for all under cap as well as over cap claims to be managed by insurers, to the point of settlement or reinstatement. This change in the claims process would remove duplication of costs, provide one point of contact for home-owners, and ensure a faster recovery process.”

The article also outlines the other submissions made by the ICNZ in response to Treasury’s discussion paper.

Despite the shortcomings of the EQC’s current operational model, both KPMG and ICNZ agree the wider value of the EQC scheme is “unquestionable”. Taking a combined view of the Canterbury earthquakes, insurance coverage was around 71%. This is in stark contrast to coverage of the 2011 Japan earthquake at 19%, or the Californian earthquake of 1994 at 35%.

“The Canterbury earthquake experience has shown that New Zealand is very fortunate to have such a comprehensive natural disaster support structure,” says Tim Grafton.

“However, the EQC Act was not designed with such a major catastrophe in mind. The review of the Act provides an opportunity for the shortcomings to be put right.”

ENDS

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