Christchurch – who’s going to pay? (#NZEQ #CHCH)

Where will all the money come from to rebuild Christchurch? The immediate answer from people is obviously going to be “insurance”. Not a bad answer really, even if we don’t worry about all the people who don’t bother with insurance. The Government, the EQC, and the insurance companies have asked people to delay making their claims until the aftermath has settled a bit, so that there can actually be a proper assessment of the losses, and so that the current focus can be on rescue and retrieval. There is an additional reason that they don’t want to raise with the public yet, WHAT WILL INSURANCE ACTUALLY COVER?

Back when the original Christchurch earthquake happened in September a lot of people had no insurance, and when they suddenly realised it could be a great idea they discovered that some insurance companies were no longer offering cover in the Canterbury region (I will not name any entities here, so I don’t get in trouble!!), while others were offering cover but excluding earthquake loss or damage. This exclusion was for a defined period from the date of cover in some cases (normally 3 months), or for a period (again normally 3 months) from the most recent aftershock of a certain magnitude. On top of this, before cover could be offered, there was a requirement for geotechnical reports, engineers’ reports, and other assessments as the circumstances warranted. These all took time, and that was if you started the following day.

Other people took a few weeks to get onto this, and still others have bought houses since then. Now, working backwards from February 22nd, 3 months prior is November 22nd, a mere 7 weeks post-September earthquake. If you did not have your insurance contract up and running prior to this date (assuming my 3 months is accurate), then you may well NOT be covered by your insurance policy. Complicating this further is the fact that some experts are now starting to say that the Feb 22 earthquake may have just been an aftershock (albeit a big one) of the September earthquake. This in turn complicates insurance (and EQC) payout limits as they are per event, in which case it could be deemed that there is both no 2nd payout, and also that insurances taken after the September event do not cover an already occuring event.

This is what all those in the know are concerned about, the desire for delay in the lodging of claims is valid for the reasons given, but is also due to the very real desire to not give the public unwelcome news at this time. The delay in announcing just what sort of assistance package will be available, and what it will cost, is simply because the government has absolutely no idea. They also know that the insurance industry may legally not be liable for much of the losses this time – oh, and it’s an election year.

This all said, I do not envy the government, the EQC, or the insurance industry; but, I am glad that the Prime Minister we do have is from the finance world and understands these things. In times like these, we need a leader who is not only calm and collected (PM John Key, and Mayor Bob Parker), but who is also able to have the vision to see the numbers involved and where they will need to come from. As New Zealand looks to progress forward from this horrific and painful event, there will be many sacrifices on the part of every member of this nation in order to rebuild.

[UPDATE: NZ Herald reports that insurers are no longer offering new insurance in the Canterbury region.]