Stuff reports:

Britain’s Labour party being ripped apart as an epic struggle for its soul threatens to destroy its election hopes for a generation.

Jim Murphy, a respected and moderate Blairite, left his colleagues stunned and distraught by quitting on Saturday as Scottish Labour Leader after a “poisonous” war with the party’s biggest trade union paymasters.

In parting remarks, he warned that it would be “the kiss of death” if Labour caved in to the demands of hard-Left union barons such as Len McCluskey, the general secretary of Unite, who backed Ed Miliband as Labour leader.

The unions in the UK got Ed Miliband made leader, just as the NZ unions did the same with Andrew Little. Both Ed Miliband and Andrew Little lost the members vote and the caucus vote, but got elected due to the union vote.

Murphy warned that McCluskey must not be allowed to choose the next leader of the party.

In NZ, three faceless EPMU delegates made Andrew Little the leader.

Murphy’s decision came a day after Chuka Umunna, a leading moderniser, withdrew from the contest to succeed Miliband as leader.

David Cameron will be relieved. Umunna was the ones they feared could reach out to aspiration centrist voters.

Moderate Labour figures believe the time has come for a decisive shift away from union dominance of the party’s politics. Blairites are privately dismayed that 147 of the 232 Labour MPs elected are Unite members, or received donations from the union.

Owned, lock stock and barrel.

Stuff reports:

Big charities are claiming income tax exemptions while small non-profits struggle to gain official charity status under the current rules, a new report says.

The New Zealand Initiative’s latest report, titled Giving Charities a Helping Hand, calls for the Government to provide greater transparency in the charity sector, set clearer rules and processes, and remove the “unfair” tax advantages enjoyed by the for-profit arms of charity groups. 

The business lobby group analysed 12 years of regulatory change to find the current legislation allowed the commercial arms of large charities to claim income tax exemptions with little oversight into how much money was passed on for charitable purposes.

At the same time, smaller operators were struggling to achieve or keep registered their charity status, threatening the important work they did in New Zealand communities, report author Jason Krupp said. 

“With about $16 billion flowing into charities a year, it is absolutely necessary to have effective regulation in place to maintain the public’s trust in the sector,” he said.

“Unfortunately, we appear to have set the regulatory bar too high in some places.”

The current law is inconsistent with some small charities struggling to get registered, while large trading companies are registered.

The same legislation allowed large charities with commercial arms to keep their earnings within the business tax free, regardless of how much of the profits were distributed to charities or what the charities did with the funds.

Such companies included food giant Sanitarium, Ngai Tahu’s 38 limited liability companies (which included Shotover Jet and Whale Watch Kaikoura), private schools, and private hospitals like St George’s Hospital in Christchurch. 

“We’re not saying religious and cultural groups can’t be charitable but we need a levelling of the playing field,” Krupp said.

He wanted the Government to “rebalance” the charity sector by reviewing the Charities Act and the definition of charitable purpose. 

I’d like to see it reviewed. I do not think the advancement of religion should be a charitable purpose. There is no benefit to society in having groups promote a belief in a supreme being or beings. Many religions do a lot of very good charitable work, and would still qualify for charitable status. But it should be based on what they do, now on promoting a belief system.

Who should promoting evolution or jihadism (both tenents in holy books) be a charitable purpose, but promoting science is not?

John Key announced:

“People calling for a new capital gains tax often overlook the fact that under existing rules, anyone buying property with the intention of selling for a gain is liable for tax on that gain,” Mr Key told the National Party’s Lower North Island regional conference in Lower Hutt today.

Mr Key confirmed the Budget this week will contain several measures to bolster tax rules on property transactions and to help Inland Revenue enforce them.

Introducing a new “bright line” test to tax gains from residential property sold within two years of purchase, unless it’s the seller’s main home, inherited or transferred in a relationship property settlement.

This isn’t a major change, but a useful one. Intentions are very hard to prove, so a bright line test will make enforcement easier. It is hard to think of many times that you’d sell a secondary home within two years of buying it, unless it is to make a capital gain.

Requiring non-residents and New Zealanders buying and selling any property other than their main home to provide a New Zealand IRD number.

This may also give us some better data on what proportion of houses are foreign owned, plus of course allow any gains by non-residents to be taxed,

Yesterday I covered the first two important issues on this subject. Today I conclude this topic with the last two important issues:

3 – The requirements of the global reinsurers

With NZ contributing a miniscule 0.67% of premiums to the global insurance underwriting pool and yet necessitating one of the top 10 global insurance payouts in the last four decades, you can imagine that the global reinsurers were forced to look very closely at their exposure to the New Zealand market. It became quickly apparent that the already tiny premium pool was even smaller than it should’ve been due to the competitive market pressures mentioned in yesterday’s post. Not only was the premium pool tiny, but there were significant earthquake underwriting problems with the model in NZ.

NZ’s retail F&G insurers only carry between $5 and $10 million of the first portion of a large disaster claim – the rest is reinsured. Just as we pay premiums to retail insurers for the cover we seek carrying a portion of the risk ourselves via the policy excess, so retail insurers do the same. The first $5 million of an insurable event must be covered from the premium pool that the individual insurance company holds internally and above that, a claim is made on their insurance with the re-insurers. The re-insurers in turn charge the retail insurance company re-insurance premiums based on their accessed risk of that insurer’s portfolio of policies. The re-insurers spread the load amongst themselves by only taking a portion of a retail insurers’ risk so NZ insurance companies typically have treaties with a minimum of eight and sometimes up to fifteen re-insurers. The re-insurers in turn spread their risk load through the huge insurance syndicates that trade at Lloyds in London.

With such a massive claims event from such a small country (i.e. one that could take many decades to replenish the cost of the claims from future premiums), the only way a reinsurer could profitably remain doing business in such an earthquake prone country was to find ways to definitively quantify then cap the payouts and do everything legally possible to prevent a massive new round of claims in the event of another major earthquake. Two crucial decisions were taken by a consortium representing the reinsurers with the most exposure to the NZ market – decisions that if they could not be implemented, there were doubts as to whether they would stay in the entire New Zealand F&G insurance market AT ALL. A rushed visit to Brussels by the Insurance Council CEO and Earthquake Minister Gerry Brownlee reassured the reinsurers that NZ was worth keeping in their portfolio. The following two decisions were imposed externally by the reinsurers and would also have a dramatic impact on the claims management process and how long it would take to settle claims:

(i) The event had to finish.
Canterbury quickly became the epicenter of global seismologic research especially given the presence of what were considered new faults (e.g. the Greendale fault causing September 4 and the Port Hills fault causing February 22). Given the interrelated nature of the faults and the stress fracture points from the later quakes being triggered by the earlier sequences AND the huge number of aftershocks (1,500+ over 4 on the Richter scale, 63 over 5 and 6 over 6 – anyone who’s been through just a 4 will tell you it’s quite a good shake), the understandable rationale was: why should we (the reinsurers who are on the hook for the $29 billion of the insurable costs of the rebuild) spend those billions rushing to make repairs only to have a fresh earthquake sequence re-damage the repaired properties. Some of the early cosmetic repair work under the cap done by the EQC in early 2011 had to be redone as a consequence of the June 13 and December 23 sequences. The general reinsurance rule of thumb with serious earthquakes is that six months has to elapse without an aftershock above 5 before any major claim settlements could begin. The gap between quakes 5 or above for each of the five designated earthquake sequences commencing with September 2010 were: 3 months, then 2 months, then 4 months and then 6 months. It wasn’t until May of 2012 (after the December 23rd 2011 quake) that the reinsurers could formally declare the entire event over and begin the proper work of larger claim settlement. The claims ‘meter’ didn’t start running on the major claims in the eyes of the insurers until May 2012.

(ii) Ensuring durable earthquake proof repairs
Understandably the reinsurers did not want to be on the hook for another massive repair bill should Christchurch be struck again. The best way to ensure this would not happen was to make sure that rebuilt/repaired homes in the riskier parts of the city had deep and strong enough foundations done during the rebuild/repair process. Christchurch is a hodge podge of different land types with some areas far more prone to damage than others. It is why the western and northern parts of the city were relatively unscathed (more elevated drier clay laden and gravely soil) versus the east where the ground was closer to the water table, swampier and less stable. The land under suburbs immediately adjacent to the Avon and Heathcote Rivers was so unstable as to comprise the bulk of the residential red zone. In this area, the ground was deemed to be so unstable as to render it uneconomic to mediate possible future damage hence the settlement scheme.

Reinsurer requirements for stable repairs/rebuilds lay behind the re-designation of green zoned land into three subzones: Technical Category or TC1 (grey) being the most stable, TC 2 (yellow) being moderately stable and TC 3 (blue) being deemed the most unstable of land not zoned red. Repairs/rebuilds could commence on TC 1 and 2 designated properties but some 17,000 properties in the green zone were designated TC 3. Insurers would not begin to affect repairs or do a rebuild on properties zoned TC 3 until they knew precisely what type of soil the property was on so they could ensure the new foundations were strong enough to leave the repaired/new dwelling isolated from another large earthquake. This required soil tests to be done on every TC 3 section BEFORE the settlement of the claim could even commence by way of building work. Soil engineers don’t grow on trees and so a huge backlog of required tests built up and added to all the other issues that formed part of the suite of frustrating delays. I know several people in TC 3 hell and their lives have been miserable in their wobbly uneven cold draughty homes. Their plight is wretched and they all can share mind numbingly depressing stories about the massive runarounds their insurer and EQC have given them. It is of little comfort for them to hear that they effectively became the sacrificial lambs to preserve the right of all other kiwis to insure their homes, businesses and vehicles such was the knife edge that global underwriters teetered on in deciding on their continued exposure to the whole NZ insurance market. The protection from future claims inherent in the TC 3 process was the price that needed to be paid to keep the reinsurers in our market.

4 – Miscellaneous issues

Other issues that have impacted negatively on the claims settlement and rebuild process include:
* The Christchurch City Council’s consenting process as the rebuild gathered pace quickly came under massive strain. It was borderline efficient even before the quakes (I know because I built some apartments in 2004 before emigrating to the US). Despite the presence of CERA as a super agency given extraordinary ‘cut the red tape’ powers, the CCC’s consenting time frames and processes became even more bogged down as to impose a serious bottleneck particularly on the nascent commercial rebuild in the CBD. This culminated in the CCC having its consenting powers taken away from it by the NZ wide council consent accrediting agency IANZ and distributed to other councils with a proven track record in greater consenting efficiency.
* Staff shortages – an event of this magnitude was going to test the claims processing capacity of every insurer with exposure in the province. EQC had to increase its claims handling staff fifty-fold and private insurers, swamped with massive caseloads of claims, had to reallocate resources from other offices, bring people out of retirement and hire new staff and restructure their Christchurch claims handling processes to meet the load. This all took time. For a period of time, a raft of inexperienced even incompetent (and occasionally fraudulent) assessors and adjustors were wreaking some havoc with the lower end EQC claims. Millions of dollars were wasted on unnecessary paint jobs and smaller cosmetic repair work approved by the new adjusters rushed into the field but inexperienced with differentiating between earthquake damage and normal wear and tear. It has taken all the insurers, EQC, assessors, QSs, Fletchers’ approved contractors and others years to get up to speed in processing claims of this volume. These delays are common with any major global insurance event but they added on top of the ones unique to New Zealand detailed earlier.

The Christchurch earthquakes have been a massively traumatizing event for most of the population of the city even for those who did not face battles over claims over the cap. The problems of claims management by EQC, the insurers and Fletchers fill social media, blogs and other concerned citizen websites. This post is not to excuse the various mistakes made at various levels but merely to give some big picture context to the problems and to identify the combination of unique factors that have come together in somewhat of a perfect storm in Christchurch. Some could be ameliorated with procedural even legislative changes to the EQC and how it delivers the earthquake cover it offers but some is endemic to the global insurance market and those issues are beyond the ability of EQC, NZ’s biggest retail insurers and even the government to get around. It is hard to listen to the woes of those on the receiving end of all these issues and not be moved by their plight and to be sympathetic to their desire to blame simple scapegoats (EQC, the insurance companies and the government). Such criticism fit neat pithy sound bites so loved by the media. The truth is far more complex and cannot be described in a simple short sound bite hence this post.

Stuff reports:

Treasury should set up a special unit to lead private companies looking to make a return on social services, a new report says.

Social impact bonds are becoming more frequent in the United States and the United Kingdom, but have yet to be tested in New Zealand. 

They involve private and non-profit organisations partnering with the Government to fund and deliver services to improve social outcomes.

If the contracts achieve agreed results, investors get paid back their investment plus a return.  

Sounds worthwhile and a win-win.

Right-wing think-tank The New Zealand Initiative has released a report analysing overseas examples and looking at the application of social bonds in New Zealand. 

One of the authors, Dr Bryce Wilkinson, said they could have a real impact here.

“There’s been widespread concern about the extent of certain social problems, and there’s a feeling New Zealand could and should be doing better.

“There’s real hope that in the right set of circumstances, there’s considerable gains to be made,” he said.

But those circumstances were limited. Areas in which the bonds might be applied included reducing prison recidivism, lowering the number of children needing to go into state care and helping keep truancy rates down. 

So if an organisation managed to reduce the truancy rate in an area, then investors get back a return on their investment.

The Press reports:

Unions are pushing for the Christchurch City Council to renegotiate its Cost Share Agreement with the Crown in a last ditch bid to stop assets being sold off.

They’re saying they want hard working taxpayers in Oamaru and Hamilton to hand over money to the Christchurch Council. Taxpayers have been very generous with Christchurch, and have poured billions in. But an agreement is an agreement. The Christchurch Council has to live within its means.

The Rail and Maritime Transport Union told the council it was vehemently opposed to the proposed asset sales and viewed it as matter of life and death.

“In our experience the privatisation of publicly owned assets that are operated as businesses leads to a deterioration of health and safety standards and increased risk of serious harm and death. This was our experience during the privatisation of the rail industry in New Zealand,” spokesman John Kerr said.

Lyttelton Port had an unhappy recent history of deaths and serious harm injuries on the waterfront and its inland port. The union did not wish the situation to be made worse by a sell-off of the port and would fight to stop any sale.

Their ideology blinds them. Council owned ports such as Lyttelton have far far worse safety records than privately owned ports such as Tauranga.

Relative injury rate statistics at all the Ports throughout New Zealand.
Supplied by Worksafe New Zealand
BTG 31Oct14 –

This graph is from the Bay of Plenty Times. The most unsafe ports are Timaru, Wellington, Dunedin and Lyttelton. Wellington’s port is 100% Council owned. Port Otago is 100% Council owned.

The Port with the largest private shareholding (45%) is Tauranga. Bluff has 34% private.  Timaru has 28% private.

There is no evidence at all that having some private share-holding makes you unsafe.

The Herald reports:

He portrayed himself as a man of the people who shunned the trappings of wealth.

But in reality Fidel Castro, the longtime communist leader of Cuba, lived a life of pampered luxury and had a fortune of hundreds of millions.

Away from the prying eyes of his people, who suffered poverty and hardship after he seized power in a communist coup 55 years ago, Castro lived like a king. He had his own private island called Cayo Piedra which featured a floating restaurant, helipad and even a pen containing two pet dolphins. …

Castro, who stood down as Cuban leader in 2008 and handed power to his brother Raul, kept secret his wealth, which ran into the “hundreds of millions”, as well as up to 20 other properties dotted around Cuba …

Has there even been a communist leader who wasn’t personally incredibly rich, while insisting everyone else must remain poor in the name of equality?

Mike Yardley writes:

Enter the Christchurch deputy mayor, Vicki Buck, who thinks it’s the city council’s role to fire hose the issue with your money, by underwriting their rental payments on more than 40 private properties.

Enter Cr Ali Jones, who had the audacity to say no. No, to the never-ending binge. No, to the misappropriation of the city’s coffers as a branch office of social welfare.

No, to Vicki Buck’s insatiable appetite to dream up new feel-good, big-spending schemes, that stray further from the council’s knitting and inflate the rates explosion.

As Cr Jones points out, only eight weeks ago, the council benevolently shelled out $300,000 to the City Mission for their new Homelessness Accommodation Project.

But now Cr Buck wants to throw another $400,000 at the problem, even though Cr Jamie Gough has confirmed to me the council housing unit  (which is supposed to be revenue neutral) “can’t clean its own face”, clocking up a monthly loss of $660,000.

Fundamentally, the council’s penchant for trying to usurp the core functions of the Ministry of Social Development is galloping out of control.

Housing is not a core role for Councils. Central Government does have a role there, but local government should focus on doing infrastructure well, rather than trying to be a social welfare provider.

Christchurch is blessed with an abundance of community housing providers. As just one example, Comcare and VisionWest have just been contracted by the government to provide more placements for transient residents.

Meanwhile, the inspirational Sue Bagshaw is developing transitional housing for homeless youth. 16 and 17 year olds are currently paid $175 a week by Work & Income, plus a $65 accommodation supplement.

If they pooled their money wisely, and behaved lawfully, securing a rental wouldn’t be problematic.

But unreformed glue sniffers, pot and meth heads, unwilling to deal to their demons, is a hell of a proposition for private landlords.

I’ve held the hands of several friends as they confronted drug addiction. I know how tortuous the journey can be. But it’s the extended whanau who need to be fronting up, taking account and reclaiming their “lost” children from the street.

The hate-filled, rancid, vitriol piled on a councillor who courageously said no to yet another hand-out, is contemptible.

It is always interesting to observe how much hatred some people have when a politician has different views to them. It isn’t healthy.

The Smith Institute has done a profile of the 650 MPs just elected to Westminster.  Some interesting facts:

• 25% of the MPs are new
• The average ages are SNP 44, Conservatives 50, Lib Dems 51 and Labour 53
• 29% of MPs are female, up from 22% last time
• 33% of MPs went to a private school and 23% went to Oxford or Cambridge
• Only 22% of MPs have a business background
• 7% of Conservative MPs were in the Armed Force (0% for all other parties)
• 15% of Labour MPs were professional unionists
• 25% of MPs main background is in politics (29% of Labour MPs, 19% of Conservative MPs and 35% of SNP MPs)

The last one is the most disturbing. It isn’t a bad thing to have a few MPs whose main background has been in politics, but you don’t want a quarter of Parliament made up of professional politicians who have never held a job outside politics.

If you live in Christchurch, visit there regularly or know homeowners there, you will know that this question has consumed enormous emotional bandwidth for the longsuffering residents of the earthquake battered city. There are pressure groups (Red Zone Rebels), websites (www.insurancewatch.org.nz) and various Facebook pages devoted to attacking New Zealand’s retail insurers, the EQC, Fletchers and CERA for the various delays in payouts and a variety of issues to do with the rebuild. A book called “The Christchurch Fiasco” by Sarah Milne is an excoriating attack on insurance companies albeit from a left wing partisan perspective. An entire lengthy post could be devoted to the legitimate shortcomings of both the EQC and retail insurers – this post attempts to detail WHY the delays occurred and points to several factors unique to New Zealand and these earthquakes that have contributed to many of the problems Christchurch residents face. There 3 main factors at play:

1 – The scale of the disaster

This is a matter that almost all people can appreciate. Part of the problem of managing the disaster was the sheer scale of the disaster. Here are some key statistics that put it into some NZ and global context. The total all up cost of the rebuild of Christchurch (and surrounding towns) is estimated at $40 billion. Of this, approximately $30 billion is covered by insurance ($17B private insurers and $13B from EQC) with the remaining costs being mainly infrastructure rebuilds covered by local and central government. In terms of just the combined insurance expected payout, the next largest disaster in NZ was the Edgecombe/Bay of Plenty Earthquake in 1987 that did $271 million worth of damage. In USD$ terms, the combined damage of the five major earthquake events (4 September 2010, 26 December 2010, 22 February 2011, 13 June 2011 and 23 December 2011) makes the Canterbury quakes the 6^th largest insurance event GLOBALLY since 1980. The only earthquake to exceed the Christchurch sequence in costliness is the 2011 Japanese quake and tsunami and it is hard to separate what portion of this event was the earthquake or the tsunami rebuild cost. The Northridge/San Francisco quake of 1994 cost about the same as the Canterbury quakes.

The total insured component of the rebuild comprises approximately 12% of the Gross Domestic Product (GDP) of the NZ economy with Treasury estimating the all up cost of the rebuild to top 20% of NZ’s GDP. To give some sense of comparison, the most costly disaster in terms of rebuild costs was Hurricane Katrina in 2005 in Louisiana and Mississippi costing approximately USD$200 million. As costly as it was, it represented only about 0.5% of US GDP. The Kobe quake in Japan in 1996 comprised 4% of Japanese GDP with the 2011 earthquake/tsunami costing 6%. Only the Chilean earthquake of 2010 came close at 10%.

A total of 1,240 commercial buildings were demolished in the Christchurch CBD (about 80% of the stock) and 12,000 residential homes have or will be demolished (8,000 of them comprising the residential red zone). Between Fletchers (the lead repair contractor) and other contractors, over 170,000 homes have been, or are waiting to be, repaired.

2 – NZ’s unique insurance environment

There are a number of features that are unique to New Zealand when it comes to earthquake insurance. The impact of the EQC has been huge. New Zealand’s EQC is unique in the world. There is no other private sector or government sponsored earthquake insurance scheme that offers such widespread affordable cover for earthquakes ($100,000 on residential dwellings and $20,000 for domestic contents) for what was a premium of only 0.15c per $100 of the insured’s Fire and General insurance premiums up to a maximum of $180 per annum. Premiums were a tenth of those currently charged by the California Earthquake Authority, probably the only scheme in the world remotely close to the EQC. Consequently only about 30% of home owners in California have earthquake coverage and with a $500,000 cap, many high value homes would be significantly under insured. NZ’s EQC model has had three significant impacts on the Christchurch earthquake claim settlement process:

(i) Effect of EQC on NZ retail insurer behaviour
By taking the first $100k of earthquake risk, it meant NZ retail Fire and General (F&G) insurance companies effectively had a $100k excess if they offered earthquake insurance cover to full replacement. Since not all homes are destroyed in an earthquake merely damaged, it was likely that, at least for residential homes, the vast majority of claims would be handled by EQC. The presence of such extensive affordable earthquake cover resulted in market behaviour that took NZ earthquake insurance on offer far beyond what other earthquake prone first world countries’ insurers offer. It led to a product war between retail insurers as they out bid each other in terms of the top-up earthquake coverage they offered. I worked for a retail insurer for 7 years from the late 80’s to the mid 90’s. When I first commenced my employment, we would only offer top up earthquake cover from the EQC $100k to the indemnity value of the property included in your dwelling policy. The indemnity value is the depreciated value of the home. If you wanted full replacement earthquake cover, you had to pay an extra premium for the difference. Then we were able to offer full replacement to a specific sum insured for earthquake as part of the policy for no additional premium. Finally, due to competitive pressure, we were offering full replacement for earthquake to full replacement based on the m² of the dwelling (so-called open ended full replacement cover).

The effect of this product bidding war was to leave NZ retail insurers (and their international reinsurers) with a sizable underwriting shortfall from the premiums received for earthquake cover in comparison with the coverage offered. This gap can be best illustrated by the situation faced by AMI Insurance post quakes. By buying a higher than normal percentage of the dwelling and contents insurance market in Christchurch with lower than competitor premiums, once the claims were totaled up and the reinsurance added, the company was insolvent and had to be effectively bailed out by the government who took the Canterbury quake claims portion of AMI into Southern Response, allocated the reinsurance claims amounts taking the whole disaster off their balance sheet effectively recapitalizing AMI and allowing it to continue to trade unencumbered by the quake claims.

(ii) International insurable percentage comparisons
The extensive and cheap cover offered by EQC meant a significantly higher percentage of properties in NZ were covered for earthquakes. This was not only in terms of the percentage of properties that actually had earthquake cover but the percentage of each properties’ replacement value that was covered for earthquake damage. Munich Re (one of the world’s largest reinsurers) calculated that fully 75% of the Canterbury earthquakes’ losses were insured. This figure is distorted by the various Category C and D commercial buildings that could only be insured for indemnity value which, for say a 70 year old un-modernised building, meant effectively its land value only. The affordability and accessibility of residential dwelling earthquake cover in NZ meant that a whopping 97% of homes in Christchurch were insured for earthquake most technically for full replacement. To give you a sense of what a massive global outlier this is compared to other 1^st world countries’ earthquake claims: for the 1994 Northridge, California earthquake, only 35% of the losses were insured. The percentage was a measly 19% for the 1996 Kobe quake in Japan.  Thus the presence of EQC created a massively greater per capita insurable event than was possible in any other country.

(iii) Legal interface and apportionment issues
The presence of EQC has resulted in yet another unintended consequence – that of the confused and blurred legal boundaries between its cover and that offered above the EQC $100k by private insurers. Of all the problems that have arisen with claims in Christchurch, this one has had the most severe and debilitating impact. The confusion began with the very first quake in September 2010. The EQC and private F&G insurers all have their own policies, procedures and interpretations. Whilst the private sector insurers differed somewhat from each other, most of the differences lay in the wording of their respective policy documents.

The real friction and problems arose from so-called ‘over the cap’ claims or claims where repairs or rebuild costs were likely to be above the $100,000 ceiling of an EQC claim. Private insurers would not take responsibility for any claim at or below $100,000. What happens when there are differing views as to what the repair/rebuild costs would be? The EQC has a vested interest in the costs being greater so that some of the burden of restoring the property as per its policy provisions is shared with the private insurers and the private insurers had a vested interest in making sure as few claims as possible were over the cap and thus exclusively the responsibility of the EQC. The highest percentage of the residential rebuild cost is tied up in the homes that were either destroyed or the most damaged. There are 4,000 homes in Christchurch not in the residential red zone that were completely destroyed and thus not covered by the government’s buyout scheme – and some 25% of the red zone home owners opted to take only the GV on the land payout leaving their insurer to cover the rebuild cost on a new section elsewhere in the city. Tens of thousands more homes required more than $100,000 to repair them. When there was a difference of opinion over the true cost of repair, agreement had to be reached as to who would manage the claim via a complex process known as the ‘Joint Review’. Each side hired Assessors then Quantity Surveyors and Contractors and then sometimes lawyers were needed to determine this with each step of assessment taking months leaving hapless policyholders in a hellish insurance ‘no man’s land’.

Had the EQC scheme been a behind-the-scenes wholesale provider of just the first $100k of earthquake cover who would have only dealt with the retail insurers effectively as their under the cap earthquake re-insurer, policyholders would’ve had only one entity (their retail insurer) to deal with. Had the legal boundaries between the two insurers been more clearly spelled out in legislation, it would’ve spared millions of wasted man hours and likely more millions in needless litigation costs borne by policyholders forcing the courts to define these boundaries. Sadly, it took a major earthquake to properly test these boundaries – boundaries that were never really tested in prior events where EQC claims were made.

Deciding on what to do with over-the-cap claims was further complicated by the issue of apportionment; i.e. which of the five officially EQC designated separate earthquake events was responsible for what damage. With assessors and QSs already overloaded with the sheer volume of claims, this apportionment added to delays in assessing claims because each event was subject to the $100k cap and it took until a landmark High Court case in September 2011 for the EQC to accept this and then begin negotiating with the retail insurers on a case by case basis as to who paid for what.

Part 2 tomorrow covers: The requirements of the global reinsurers and Miscellaneous issues

Some interesting prices and probabilities on iPredict at the moment. They include:

• Green male co-leadership: James Shaw 65%, Kevin Hague 37%
• Wellington Councils amalgamate this year – 4%
• 2017 election: National PM 59%, Labour PM 39%
• NZ First: If hold balance of power 35% chance support National, 205 chance Labour
• TPP signed in 2015: 8%
• 2016 US Presidential Election: Democrats 60%, Republicans 40%

Some anti-trade activists are saying that NZ should not agree to any TPP, as it will have an investor-state dispute settlement clause in it. They would have you think that this is some new clause that will give multinationals rights to over-turn decisions by Governments.

As I previously blogged, almost every trade agreement signed by New Zealand in the last decade has an ISDS clause. Labour signed half a dozen with such a clause.

But as Brian Fallow reports, they are even more common that that:

More than 3000 bilateral investment treaties and other international agreements include ISDS.

3,000 agreements to date have such a clause!

In fact the number of agreements providing ISDS protections for foreign investors greatly exceeds the number of cases brought under them over the years.

According to the United Nations Conference on Trade and Development (UNCTAD), which monitors them, by the end of last year 356 investor-state cases had been concluded, of which 37 per cent were decided in favour of the state and 25 per cent ended in favour of the investor with monetary compensation awarded.

So over the last 40 years the number of cases has been less than 10% of the number of agreements. So on average you only get one case for every 10 agreements.

I have concerns over some of the clauses proposed by the US in the TPP. But a decision on whether to support or oppose the final agreement (if there is one) should be based on what is actually in the agreement, not on scaremongering.

An interesting paper by Treasury on the pros and cons of a carbon tax vs an emissions trading scheme. Some people think there should be no cost added to carbon, but for those who think there should be, it is important to have the most efficient cost.

Treasury does not support replacing the ETS with a carbon tax. We think the ETS is preferable to a carbon tax, because it can provide certainty about the level of domestic emissions. This fits well with our international obligations, which set a limit on total emissions. Emissions trading schemes are also easier to link with other countries, which helps ensure that the lowest cost abatement opportunities are taken between countries.

If further emissions reductions are needed, we recommend increasing prices in the ETS by introducing a price floor, removing the two-for-one rule for emitters, or reducing free allocations

They go into the specifics:

The main difference between the two approaches is that carbon taxes provide certainty about the price but leave total emissions uncertain, while trading schemes allow the price to adjust to deliver a certain level of total abatement. We think that certainty about total abatement levels is more important than price certainty, because our international obligations require us to achieve specific amounts of emissions reductions. ETS’s are well-placed to achieve these quantitative targets.

So a carbon tax is arguably better for businesses, as it gives them price certainty. However an ETS is better for a Government as a tool to deliver a certain level of abatement.

Emissions trading schemes can be easily linked internationally, giving access to cheaper abatement opportunities overseas. This allows the market to find the lowest cost mix of domestic and international abatement to achieve an abatement target. This is particularly important for New Zealand, given that we have limited low-cost domestic abatement opportunities.

The problem is though that the cheaper abatement opportunities overseas have meant that the ETS hasn’t actually provided any incentive to reduce emissions in NZ, and hence we have an expensive regulatory scheme that isn’t actually incentivising change.

The Herald reports:

A religious spat has broken out between two neighbours in rural Auckland after one erected a 6.4m statue of the Hindu god Shiva.

Ravin Chand told the Herald on Sunday that he installed the 30-tonne religious effigy so that he and his family could pray to it.

But neighbour Bryce Watts, a Catholic, said the marble statue was “bizarre” and “offensive”.

“Religiously and culturally it’s a bit insensitive to us and I can’t believe they’re able to do this. Part of our property looks at it and it’s part of a religion we don’t agree with,” he said.

In Paraparaumu there is a 14 metre statue of the Virgin Mary on a hill, which most of Paraparaumu can see. That’s no more (or less) offensive than a statue of Shiva.

People have the right to worship whatever God they want. They don’t have the right to stop their neighbours putting up a state of their God, on their land – even if it is of a different God. That’s what we call freedom of religion.

The Herald reported:

One-in-five murder victims around the world is Brazilian, Colombian or Venezuelan, a study has shown, despite the three countries containing less than four per cent of the world’s total population.

Click here to see the interactive map

The Homicide Monitor data project compiled by the Brazil-based Instituto Igarape reveals the high rates of homicide around Latin America and the Caribbean, where a third of all of the world’s homicides occur.

The region contains only eight per cent of the world’s total population.

Honduras (85.5 murders per 100,000 inhabitants), Venezuela (53.7) and the US Virgin Islands (46.9) have the highest murder rates per population in the world.

By contrast, New Zealand’s homicide rate is 0.9 per 100,000 population (as of 2012), while Australia’s is 1.1.

And:

But owing to Brazil and Colombia’s largest overall population, these two countries – along with Venezeula – are responsible for one-in-five of all murders in the world each year.

Wow. That is huge.

So how does NZ compare with other (non-micro) OECD countries. The rates per 100,000 from lowest to highest is:

1. Luxembourg 0.2
2. Denmark 0.3
3. Iceland 0.3
4. UK 0.3
5. Japan 0.3
6. Austria 0.4
7. Slovenia 0.4
8. Germany 0.5
9. Australia 0.8
10. Switzerland 0.5
11. France 0.6
12. Norway 0.6
13. Spain 0.6
14. Italy 0.7
15. Sweden 0.7
16. Ireland 0.8
17. Czech Republic 0.8
18. New Zealand 0.9
19. Poland 0.9
20. Netherlands 0.9
21. South Korea 1.1
22. Portugal 1.1
23. Belgium 1.1
24. Slovak Republic 1.2
25. Hungary 1.3
26. Finland 1.4
27. Canada 1.5
28. Greece 1.6
29. Israel 2.3
30. Chile 4.4
31. Estonia 4.8
32. USA 5.2
33. Mexico 23.4

So NZ is around middle of the pack. We had 41 murders last year. To match the best OECD countries, that needs to reduce to 15 or so.

The peaceful passing of one of the greatest blues legends of all time was announced inauspiciously on www.bbking.com late last night in Las Vegas.

In 2000 I once attended a Mortgage Bankers conference in the US when I was still living in New Zealand. It was a lavish affair made all the more awesome when it was announced that they had hired BB King. He came on stage alone with just a chair and his legendary blues guitar, pulled out of his pocket a scruffy bit of paper from which he read the name of the organisation that had hired him and proceeded to jam for almost 2 hours. It was the most incredible musical event I had ever attended! He kept performing until well into his 80’s.

My favourite was “The Thrill is Gone”. One of the entertainment industry’s mightiest has finally left the stage. May he Rest in Peace.

Came across this video. Very chilling.

Amazingly not everyone on board died. 35 died and 62 lived.

The 50th Otago Foreign Policy School is on from Friday 26 to Sunday 28 June.

A must attend for foreign policy wonks. Some of the speakers and topics are:

• Mr Colin Keating – ‘New Zealand’s election to the UN Security Council in October 2014: How was it accomplished and what does it mean?’
• Professor Jacqui True (Monash University) – ‘The Globalisation of the Human Security Norm: New Zealand Leadership and Followership in the World’
• Ms Lucy Duncan, Group Manager, Strategy and Governance Group, Ministry of Foreign Affairs and Trade (MFAT), Wellington – ‘The Role of the New Zealand Diplomat: Past, Present and Future’.
• Professor Hugh White (ANU) – ‘Old Friends in a new Asia: Australia, New Zealand and the Rise of China’
• Dr Joe Burton (Victoria University of Wellington) – ‘New Zealand-US Relations and the Obama Administration’s Pivot to Asia’
• Dr Anna Powles, Massey University – ‘New Zealand’s Foreign and Defence Policy in the Pacific: Shifting Regional Geopolitics and the Risk of Diminishing Relevance’
• Dr Adrian Macey, Senior Associate (Institute for Governance and Policy Studies, Victoria University of Wellington) – ‘The Environment and Foreign Policy: New Zealand’s Climate Change Diplomacy’
• Professor David MacDonald (Guelph) – ‘Exporting Aotearoa New Zealand’s Biculturalism: Lessons for Aboriginal-Settler Relations in Canada’
• Mr Terence O’Brien, (Victoria University of Wellington) – ‘National Identity and New Zealand Foreign Policy’
• Dr James Rolfe (Centre for Strategic Studies, Victoria University of Wellington) ‘Intelligence, Accountability and New Zealand’s National Security’
• Dr Paul Buchanan, Director (36th Parallel Consultancy) – ‘Foreign Policy Realignment and Institutional Lag: the case of the New Zealand intelligence community’

NewstalkZB reports:

The government’s accused of economic mismanagement, as the Trans Pacific Partnership deal threatens to grind to a halt.

Political infighting in the US means a big delay in negotiations.

New Zealand’s Trade Minister Tim Groser admits it could see the TPP fall apart.

Labour’s trade spokesperson David Parker remarks the government has already talked up the benefits, and promised to land the deal.

“Seems to be the way of this government. They promised we’d be back into surplus long before now and we’re still in deficit, you know we’ve got regions languishing.

“If they don’t make their trade obligations, well it’s just another long litany of imperfect management on the economy.”

So David Parker is implying it is the fault of National that left wing Democrats in the US Senate voted against cloture on fast track authority for Obama.

Not really helping the chance of Labour being seen as a credible opposition.

Incidentally the US Senate has now voted 65-33 to debate the fast track authorisation, so presumably David Parker will credit National with this turn-around!

The Guardian reports:

Ed Miliband is licking his wounds in Ibiza but his much maligned “Ed Stone” has suffered a less glamorous exit from the spotlight and is languishing in a south London garage, the Guardian has learned.

The 2.6 metre-high, two-ton stone was unveiled with great fanfare in the marginal seat of Hastings, and featured Labour’s six key election promises. It was intended as a symbol of how Miliband would restore trust in politics.

It was the one of the biggest PR stunt backfires I’ve seen. Partly because it was so ridiculous the insistence this would be placed in the garden at Downing Street, but also because the six pledges are meaningless waffle. A pledge card can work, but only if they have a fair degree of specificity.

With Labour defeated, and the stone’s promises summarily rejected, newspapers were offering rewards including a case of champagne in return for news of the tablet’s whereabouts.

The Guardian understands that the party has ensured the limestone hulk is kept under lock and key, to avoid any discovery which might cause further embarrassment.

The Daily Mail won’t rest until it finds it!

Chris Trotter writes:

The other explanation for Labour’s curious submission is considerably less lofty.

Despite enormous effort by scores of tireless volunteers, tens of thousands of likely Labour voters failed to enrol in time for last year’s election. Though technically in breach of the Electoral Act, these citizens will probably not be prosecuted. Receiving no disincentive to repeating the offence, there’s every chance their names will not appear on the roll again in 2017.

If, however, tens of thousands of social welfare beneficiaries – people who, most experts agree, are much more inclined to vote for political parties of the Left than the Right – were required (ably assisted by Work and Income staff) to fulfil their legal obligations as electors before receiving their benefits, then the Labour Party would be saved a huge amount of hard political slog.

First make it no benefit if they don’t enrol. Then no benefit if they don’t vote. And finally an increased benefit if they vote Labour!

When viewed from this perspective, Labour’s submission not only appears organisationally self-serving, but it could also be construed as a subtle thrust against the emerging strategic preference (among Andrew Little’s principal advisers) for Labour’s effort to be directed at “soft” National Party voters. Many on the left of the Labour Party are convinced that the tens of thousands of unregistered voters constitute a more wholesome electoral target than some 21st century version of “Rob’s Mob”.

That Labour’s submission ended up attracting so much (presumably unwanted) media attention more than bears out the observation with which this discussion began. That one of the best ways of telling whether or not things are going well for a political party is how invisible its organisational wing is willing to become, and how anonymous its leadership.

The question for the Labour caucus should be why did none of the three Labour caucus reps on the NZ Council vote against the submission or stop it?