Insurance in Wellington

March 14th, 2013 at 10:00 am by David Farrar

writes at Scoop:

Sources tell me that chiefs from the biggest reinsurers in the world are now pricing as “ground Zero for reinsurance risk” in the world. Not the Asia-Pacific. Not the ring of fire. The world.

And as a result practically speaking earthquake reinsurance cover is not practically available for commercial property in Wellington.

Yes some policies are being written on some buildings (usually ones which are up to code and have blue chip tenants) for 400% to 600% premium increases.

My apartment’s building insurance has already doubled and off memory it is at 80% of code!

In the Wellington commercial property market full insurance is a condition of all the mortgage business. Full replacement earthquake insurance is a standard term and condition.

In NZ most companies which carry business interruption insurance also need to have earthquake interruption cover to satisfy the conditions of the bank credit facilities. These often include warrantees around the quality of the building that business is being conducted out of – including the existence of earthquake insurance cover.

So what does this mean?

It means that the Wellington CBD property market is frozen. The only purchasers are ones which are buying with cash. There are hundreds, possibly thousands, of distressed mortgaged unit title and company share owners in the city.

It means rentals are falling and landlords are getting creative.

A good description of the problem.

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23 Responses to “Insurance in Wellington”

  1. BlairM (2,339 comments) says:

    Serves you all right for living in a fjord right on the faultline…

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  2. Lipo (229 comments) says:

    Just remember a year or so ago commentators saying that the Christchurch quake would lead an increase in GDP and growth in the country. I would like to remind people that the money for the rebuild has to come from somewhere. Some commentators suggested that off shore insurance money would flood into the country.
    Well now you are finding out that perhaps insurance companies do not print money after all and that they will raise premiums to cover their lose of position

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  3. scrubone (3,099 comments) says:

    Sounds like a good time to give Wellington back to the Maori ;)

    (Jordan notice: this is a joke, ok?)

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  4. RRM (9,924 comments) says:

    Jesus wept.

    Have these turkeys really only just now noticed that Wellington has a highly built-up CBD right on top of a really nasty faulted area? FFS. :neutral:

    This only reinforces RRM’s suspicion that the insurance industry in general is utterly negligent, and has been taking premiums off owners of property for years without really having much [/any??] appreciation of what the buildings they are pretending to cover are likely to do during a moderate or strong earthquake. Even though any of the main engineering firms would be able to write a brief letter report explaining the age and design philosophy of the building, and consequently its likely performance in earthquakes for something like a few hundred dollars.

    Hence AMI getting into trouble after the CHCH quake. Hence all the quelle surprise when many brand-new buildings required repairs, and some required uneconomic repairs and ended up being write offs. Hence insurers suddenly wanting to import this bullsh!t “Quake-Star” rating system for buildings from the States.

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  5. Steve Wrathall (284 comments) says:

    Time to move the capital to Palmy

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  6. lastmanstanding (1,297 comments) says:

    Typical of insurance companies. Sell you an umbrella on a fine day and take it back off you with no compensation when it starts to rain.

    Much as all Im against Gumint interference in markets in some cases where there is a monopoly duopoly or in the case of insurance companies cartels at work then Gumints need to intervene to ensure fair play.

    The insurers take the premiums in the good times and have to pay out in the bad times. Simple as that.

    Or if they wont/cant then we need to kick their sorry arses out of the country and dare I say it self insure thru a Gumint run co operative style.

    Fact is insurance companies have been shafting NZ consumers for years making fat profits year after year. Then at the first sig they have to pay they either fight in Court as in CCH or want to lay the risk off thru either massive premium hikes.

    Time we had a Royal Commission of Inquiry with 3 retired High Court Judges and subpoened the insurance company directors and CEO before it and forced them to answer.

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  7. wat dabney (3,756 comments) says:

    Typical of insurance companies. Sell you an umbrella on a fine day and take it back off you with no compensation when it starts to rain.

    You are of course free to start your own insurance company.

    I’m guessng you won’t though. You’re happy to force other people to assume financial risks which you personally wouldn’t touch with a barge pole

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  8. pq (728 comments) says:

    A man is just driving his car down the road , he is is Christchurch, when a demolition truck pulls out and hits him.
    He rings his Insurance Company to claim for the loss, and they say your car is worth nothing now, and that is what we will pay you.
    The man says, but wait, I insured for that loss , you can see on the contract for yourself, and the Insurer says .. ,, ‘take us to Court if you like, there are no class actions available, against us, and we are the lower class of Insurance Companies we can screw you’.
    Christchurch people are sad that the Insurance premiums have been raised throughout the country even while many people here can not re-establish Insurance.
    My family Insurance Company is Medical Assurance Society and these people are in a class of their own.
    They are meeting their obligations with sureness, and deliberate stoic.

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  9. WineOh (630 comments) says:

    The commercial disaster insurance premiums are a rort. The reinsurers are looking to recoup all the claims paid (or haven’t paid yet as the case may be for many in Chch) by huge premium increases. Local insurers are also using it as an excuse to fatten up premiums for normal risks (as far as I know the risks for water/fire/theft have not changed in the last 2 years).

    It will have a huge impact on the commercial property market, especially in differences between gross & net leases.

    @ pq, I worked at MAS for 10 years many moons ago, and can attest that they have a different view on insurance contracts than most of the commercial ones and have a different relationship with their customers as a result. Their policy terms used to be very generous compared to the market, and although higher premiums had a higher ‘loss ratio’ too (ie- paid out more dollars in claims per dollar in premiums). Since the early 2000s though they started to slip backwards as other insurance companies came to the party with improved terms & cover.

    The last survey on insurance company performance had Lumley & MAS as the top rated for service for responsiveness in the Chch quakes.

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  10. BeaB (2,123 comments) says:

    Hamilton much better than P North for a safe new capital.

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  11. scrubone (3,099 comments) says:

    Have these turkeys really only just now noticed that Wellington has a highly built-up CBD right on top of a really nasty faulted area? FFS.

    I partly agree. But the Christchurch situation was quite extrodinary and unprecidented, as was the Japan earthquake (it released a far greater % of the fault pressure than previously thought possible).

    The perception of the risk has changed.

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  12. Black with a Vengeance (1,861 comments) says:

    But in real time, Wellington only has 20days of water backed up and then you’ll be going Bear Grylls for a drink.

    http://www.stuff.co.nz/national/8417298/Wellingtons-water-supply-now-at-crisis-level

    Hope all the farmers have got drought insurance. How the fuck else they gonna afford state asset shares if they’re all on welfare?

    Shoulda saved for a rainy day. Shame no one said nothing bout fairweather friends.

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  13. lastmanstanding (1,297 comments) says:

    No wat dabney

    I expect the insurers to honor their side of the bargain. They aint and the evidence is the lack of any real rebuilding in CCH.

    I bet in 2023 CCh will look much the same as it is now with the insurers still fighting those who have any cash to fight back.

    The rest will have given up the fight and

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  14. lastmanstanding (1,297 comments) says:

    moved on the wiser and poorer for the experience.

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  15. Black with a Vengeance (1,861 comments) says:

    Christchurch used to be such a pretty little cracka ass shithole…now it ain’t even pretty.

    Nelson on the other hand still is…

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  16. Grendel (1,002 comments) says:

    General insurance is a year by year renewable contract.

    if during that year, new information comes to light about the risks of your cover, and it increases the risk for the insurer then your costs are going to go up.

    the insurers will honour the claims during the year of cover.

    part of the problem is that even though NZ had a lower $ loss than japan did in their tsunami, their insurance market is such that its going to take less than a year to cover the loss across other premiums. In NZ it will take more than 20 years of all premiums to get close.

    So its not the insurers screwing us, NZers simply got by with far too cheap insurance for so long, relative to our risk.

    Where else in the world can you get house insurance with full earthquake and natural disaster cover, in an earthquake prone area, that will fully rebuild the house regardless of the cost to rebuild, based purely on the size of the house?

    So NZ is now finally going to be paying the actual cost of insurance set against actual risks. yes it sucks, but it was so cheap for so long, and we had it good.

    i expect however that in a few years with no more disasters the insurers will be more prepared to cover, and competition will lead to price decreases. currently they simply have a huge deficit to cover and need to placate the reinsurers.

    at least we can get insurance…

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  17. barry (1,317 comments) says:

    This is what happens when some bunch of halfwits (the ministry of business, innovation and development)and the Christchurch inquiry decide that all they need to pass a law based on the assumption that if anywhere gets an earthquake then all the buildings will fall down….!!!
    And then they tell the world that all our buildings are screwed.

    What does expect the insurance industry to do.

    Insurance is based on cover for the UNEXPECTED. But when these halfwits tell the world that its EXPECTED, then either cover goes up or is even denied.

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  18. backster (2,172 comments) says:

    Bob Jones got a problem then.

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  19. seanmaitland (500 comments) says:

    All the people here going on about the insurance industry creaming it off this are seriously mistaken.

    Premiums were dirt cheap in NZ up until the earthquakes – my properties in Wellington had full replacement plus a sizeable contents amount for about $120 a month for a 400k property. I would have to pay premiums for 277 years to cover that amount. A one-off like a house burning down is fine, but when thousands of homes and buildings are completely wiped out it has a massive impact on an insurance company.

    To turn around and say that its just profiteering is about as smart as what most of what the Green Party manages to come up.

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  20. Mobile Michael (451 comments) says:

    12 months from now replacement value insurance will be a thing of the past. You will have nominated replacement value, rather than an uncapped liability from a reinsurer. For a typiclal 120 sqm bungalow you can expect a doubling in price.

    And with EQC broke, any major earthquake in the next 70 years in Wellington couldforce the government to near bankruptcy – think very carefully before electing a deficit friendly government.

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  21. Steve (North Shore) (4,562 comments) says:

    Auckland should be the Capital City of NZ. Just change it and leave all of those Civil Servants in Wellywood, they do fuck all anyway, just cause more problems and red tape.
    A Country of 4.5M people does not need so many controllers.
    Oh hey Wellywood, you can have Len Brown any time soon

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  22. Viking2 (11,471 comments) says:

    Nah Steve, that’s just not on.
    If you want to be the capital then you are duty bound to also employe all those Civil Servants and pollies.
    Just build a round house up at the domain and we can send them north for you.
    But here’s what you have to do next.

    Disconnect the main highway at the Bombay’s. The rest of us will survive just niocely, in fact much better thans. Why wouldn’t we with the drag of both the blood suckers and the Jaffa’s removed from our broad shoulders.
    In fact you deserve one another.

    We could set up a border and issue tempory visa’s to the rest of you for short term stays and ensue you returned home with the threat of depotation to Somalia if you didn’t.

    This could catch on and help make the our part of NZ a much nicer place.

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  23. Sponge (182 comments) says:

    Most, if not all, of the conspiracy theories about the insurers trying to rip people off are just bullshit. I own a company that is running 74 claims in Christchurch and have found, without exception, that the insurers are acting exactly as they should (but only within what is allowed for in the policy of course). The problem is that with the “entitlement” expectation that so many now seem to have people are expecting a windfall from the disaster.

    For example I have a claim with Tower for a 18 unit complex where 9 will be demolished and 9 will be repaired and the expectation from some of those who can be repaired is that they should receive new units – but only because some of the other units are being replaced.

    I have another claim where some of the owners think that abusing the EQC staff and the insurers assessors will speed the process up – and they wonder why their claim is not progressing.

    I have another claim where the owners have engaged and “advocate” who has promised the world to them. Their claim? – Going nowhere and I suspect they will be burdened with significant costs (They ignored our advice).

    I have a claim in exactly the same situation as the one above but the owners are sensible. Their claim? – About to settle (They listened to our advise).

    Grendel is absolutely correct in that our insurance has been too cheap and we are about to pay the real cost. I also remember in 2003 our premiums going through the roof for 3-4 years following the huge floods in Europe. It is the nature of insurance.

    If you want insurance you have to pay for it based on the underwriters perception of the risk involved. Don’t like it? Self insure then.

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