EQC levy hike needed 'to realistically reflect costs' - English

Finance Minister Bill English says Earthquake Commission (EQC) levies will rise early next year to help rebuild the commission's Natural Disaster Fund (NDF) and to more realistically reflect EQC's operating costs.

"The levy increase is a responsible step to ensure EQC can meet its long-term costs and continue to provide disaster cover around the rest of New Zealand in a sustainable way. Strengthening EQC's finances will provide additional confidence to homeowners throughout the country that EQC has the capacity to meet its obligations now and in the future," Mr English says.

"This is particularly important given the Government's tight fiscal position, which is reinforced today by the Crown's financial statements for the year to 30 June 2011." 

Insured homeowners currently pay 5c per $100 of insurance cover, up to a maximum of $69 a year (including GST), as part of their insurance premiums. Under the proposed changes, homeowners will pay 15c per $100 of insurance cover, with an annual cap of $207 (including GST). 

The increase, which will take effect from 1 February 2012, will: 

• Provide revenue to meet EQC's operating costs, which for many years have been subsidised by NDF investment income, and to cover higher reinsurance costs.

• Enable EQC to rebuild the NDF to its pre-earthquake level of $6 billion in about 30 years.

• Reduce EQC's estimated $1.2 billion cash shortfall to $490 million, reducing the amount the Government may have to provide under EQC's Crown guarantee. 

It will increase annual levy revenue from about $86 million to about $260 million. 

"Raising levies for those who benefit from earthquake insurance cover is the fairest way to ensure EQC can meet its long-term costs," Mr English says. "The levy rise will add about $2.65 a week to most homeowners' insurance bill. 

"The increase is not based on a full actuarial forecast of future liabilities, which will be calculated as part of a review of EQC in the future. 

"I expect to take terms of reference for a review to Cabinet in coming months, but the exact timing will depend on getting more issues resolved on the ground in Christchurch. The Government and the EQC's first priority has always been progressing the recovery in Canterbury and that remains the case. 

"However it is clear the current levy is too low and needs to increase now to pay for EQC's operating costs and to begin rebuilding the NDF," Mr English says. 

The full Cabinet paper is available at: http://www.treasury.govt.nz/publications/informationreleases/canterburyearthquakes/eqc