New Zealand: A shake-up for insurance claims under the Earthquake Commission Act

In recent years there have been a number of significant natural disasters, most notably the Canterbury earthquakes, but also the Seddon earthquakes and flooding and landslips in various regions throughout the country. These events have put the spotlight on the Earthquake Commission Act 1993 (EQC Act), and shown some areas for improvement.

The Government has now released its proposals for the reform of the EQC Act. The aim of the reforms is to streamline claims processes, and ensure that the focus remains on insuring homes against natural hazards.

The proposed amendments to the EQC Act include:

  • An end to cover for contents.
  • EQC currently provides up to $20,000 cover for damage to contents. Leaving this cover to insurers will allow EQC to focus on its core responsibility of providing cover for buildings.

  • Claims being lodged with the private insurer, rather than EQC.
  • The insurer will do the initial work assessing and validating the claim, and will then pass the claim forward to EQC. This should resolve the issue that has occurred repeatedly in Christchurch, where there is disagreement as to whether the claim is over or under-cap.

  • Cover for buildings to extend to siteworks.
  • This means that cover would encompass any work required on the underlying land, including obtaining geotechnical assessments and any levelling or filling of the land. EQC will also cover driveways under this amendment. This will remove an overlap between house and land cover provided by EQC, and will also better align EQC with the practice of private insurers.

  • Increasing the cap on cover for houses from $100,000 to $200,000.
  • This increase is to reflect the inclusion of siteworks in the cover for buildings. It is also expected to lead to lower premiums being charged by private insurers.

  • Land cover to apply only where it is impracticable to rebuild.
  • Much of what is currently covered in respect of land would, under these proposals, now be covered by the siteworks inclusion in the building cover. This provides cover for the land where the house is not rebuilt.

  • A standard excess of $2,000
  • The current excess is calculated as a percentage of the claim, and so cannot be determined until the final cost of the claim is known. Setting a fixed amount would provide clarity for homeowners. However, this is a substantial increase on current excesses, which range between $200 and $1,000.

The Government has also confirmed that since the purpose of the EQC Act is to put a roof over people's heads after a disaster, it will not cover commercially run accommodation such as hotels, serviced apartments, boarding houses, nursing homes, or campgrounds. It also will not extend cover to bare land, buildings under construction, or non-residential property. The EQC Act will cover private residences, including rental accommodation, holiday homes for individual households, and retirement villages.

More information on the proposals, and a form to make submissions, are available from the Treasury website, here. Submissions are open until Friday 11 September 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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