A rare letter from the Chief District Court Judge

June 13th, 2014 at 9:00 am by David Farrar

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Hat Tip: Whale Oil

It is rare for the Chief Judge to write a letter to the editor. She is obviously concerned that Labour’s policy paints a false picture of the situation in Christchurch,

The key aspects if her letter are:

  • A specialist list has been in place since February 2012
  • Earthquake cases get priority over other civil cases
  • Court cases get before a judge within 55 working days
  • Of 76 cases filed, 43 have been disposed of of which only 1 went to a full hearing
  • Of the remaining 33, 17 are on track for a negotiated settlement
  • 10 further cases may be negotiated also

So basically there are possibly only six cases that may go to a full trial at the District Court.

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Replacement or fixed value insurance?

May 27th, 2014 at 12:00 pm by David Farrar

The Dom Post editorial noted:

Home insurance used to mean “total replacement”. If your house got blown over, you’d get a new one, as close as possible to the original, no matter the cost.

In the wake of the Christchurch earthquakes, with their mammoth reconstruction bill, insurers have moved to put a cap on how much they will pay out homeowners. That’s defensible – they, and their international reinsurers, have been badly burned by the quakes, and they need a better idea of their liabilities.

But it’s how they’ve handled the change that’s the problem. The onus has fallen on homeowners to determine exactly how much cover they need. Clearly that’s a specialist task that most people can’t manage.

Yet, if they get it wrong, they could be in real trouble, caught hundreds of thousands of dollars short of rebuilding the house they once owned.

To be fair, insurance companies do send out a rough suggestion for a figure. But what’s most alarming is that these “default sums” are consistently too low, at least according to valuers and quantity surveyors.

Putting aside what level the fixed value is, I think that may be the way of the future.

We’ve seen with Christchurch that total replacement is a recipe for years of delays, arguments and dissatisfaction.

The benefit of fixed value is if your place gets totalled, then bang you just get a cheque for the value insured, and all sorted in hopefully a few weeks.

The insurance companies needed to put more work into this – less television advertising and more accurate calculations to help people set their cap right. Most people aren’t inclined to pay for a professional valuation, but they will still be devastated if they can only rebuild themselves half a house.

Some industry figures suggest that people, especially older people in large houses, might deliberately under-insure themselves, and accept a smaller house if disaster strikes.

Or a house in a different suburb.



What would happen to “KiwiAssure” if there was another earthquake?

November 3rd, 2013 at 11:00 am by David Farrar

Gerry Brownlee has pointed out:

Canterbury Earthquake Recovery Minister and Minister Responsible for the Earthquake Commission Gerry Brownlee says Labour’s policy of establishing a state-owned insurer is no different than its other half-formed ideas – it’s emotive, shows a hopeless grasp of economic realities, and raises questions Labour won’t be able to credibly answer.

“Labour might hate private insurance companies, but the reality is they’re paying for $20 billion of the Canterbury rebuild – twice New Zealand’s annual corporate tax take,” Mr Brownlee says.

“The fact of the matter is you can only undercut insurance competitors if you’re prepared to take greater risk.

“Two insurance companies were doing that when the Christchurch earthquakes struck – both of them New Zealand owned – and they both collapsed.

“The reason insurance businesses tend to be internationally owned and operated, by big companies, is because they’re able to hedge their risk across a range of markets.

“Labour’s insurer would be completely exposed to the New Zealand market, which every citizen knows is at major risk of incurring heavy losses from natural disasters.

And guess who would be bailing them out – the taxpayer.

Insurers who are primarily covering just one country do run a very significant risk of collapse should disaster strike. And reinsurance can only go so far.


Insurance in Wellington

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

Alastair Thompson writes at Scoop:

Sources tell me that insurance chiefs from the biggest reinsurers in the world are now pricing Wellington as “ground Zero for earthquake 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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Why bother getting insurance?

February 18th, 2013 at 1:00 pm by David Farrar

Homepaddock highlights this policy from NZ First:

All Christchurch uninsured red-zoned land owners who accept the current Government’s 50 per cent compensation offer will get the other half should New Zealand First become part of the next coalition Government.

Ensuring these landowners are treated fairly and receive the full rateable value of the land will be a bottom line in any coalition negotiations.

Very unwise for a party on 4% to start laying down non-negotiable policies two years before an election.

Ele points out:

The party obviously doesn’t understand that what it regards as treating these landowners fairly would be treating insurance companies, their staff and shareholders, and taxpayers most unfairly.

This would kill the insurance industry because no-one would bother insuring their properties if they knew the government would pick up the pieces after a disaster.

This policy passes all the risk and costs from private property owners and insurance companies to the government which means taxpayers.

Exactly. The precedent would be horrible. You’d be mad to ever get insurance again.

Now remember that NZ First has said this is a non-negotiable bottom line policy for any future Government.

Isn’t MMP great!

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