Jitters over future insurance cover

The Insurance Council is warning of a big industry shake-up, as two new reports put Christchurch's devastating earthquake in a global context.

Global reinsurer Swiss Re says the February 22, 2011 quake, which killed 185 people, was the third most expensive in history.

Earthquake insurance in New Zealand is relatively high compared to other quake-prone areas. In Japan and California it is only possible to get restricted cover, if anything.

Insured New Zealanders have already felt the effects of the Christchurch earthquake in their pocket, with a rise in premiums, higher excesses and increased scrutiny by insurance companies on commercial buildings.

But speaking to NBR Online, Chris Ryan, the Insurance Council chief executive, warns of other changes, such as some commercial property owners being unable to get replacement cover and even some residential property cover being capped to a certain amount.

"It looks like [100% earthquake cover] is remaining in the market, but it will be the big issue over the next decade or so,"

"When you say you'll replace a house there's effectively an unlimited sum of insurance - whereas in the future the insurers will probably be much keener to say, if you want insurance cover of $500,000 on your property that's what we'll insure you for, and your premiums will reflect that.

"But anything over that cost you will probably have to pay for yourself or take out higher cover."

Code challenges

The building code puts challenges on insurers, Ryan says, by quite rightly protect people's lives, even if the building is destroyed.

"One of the concerns, I think, for insurers is even though you insure a property, particularly commercial property, you want to know what your maximum exposure is," he says.

"We're currently working with the government in a range of areas, but one particular area is looking at the changes to earthquake regulations for commercial buildings ... and what the insurers would like to see in those buildings.

"From our point of view, we want to see a much stronger effort put into much better built buildings and much more scrutiny on poor or under-strength buildings."

Commercial building cover might be more "site-specific" in the future, he says.

Ryan's comments come as two of the world's biggest reinsurers issue reports into last year's unprecedented natural disasters.

Disastrous year

Swiss Re's latest study says the Christchurch quake contributed to last year being the worst for economic losses from disasters, estimated at $US370 billion.

That's $US134 billion more than 2010's estimate of economy-wide losses, including insured and uninsured property.

The report says despite the "extraordinary and devastating catastrophic events", and record high earthquake and flood losses, the insurance industry has "weathered the year well".

Swiss Re chief economist Kurt Karl said two-thirds of the economic damage would be covered privately, by governments, companies, relief orgnasations and individuals, because of the widespread lack of insurance protection.

"The earthquakes in Japan, New Zealand, and Turkey, as well as the floods in Australia and Thailand, were unprecedented and brought not only massive destruction but also the loss of thousands of people’s lives.

Another big reinsurer, Lloyds of London, announced a £516 million pre-tax loss for 2011 after its biggest year for catastrophe claims, after earthquakes in Christchurch and Japan, and a subsequent tsunami, as well as Cyclone Yasi in Queensland,, tornadoes in the south and midwestern United States and floods in Thailand.

Lloyds chief executive Richard Ward said in a statement despite the loss the financial strength of Lloyds had been maintained.

“Make no mistake, 2011 was a difficult year for the insurance industry. Given the scale of the claims, a loss is unsurprising but it reflects what we’re here to do – help communities and businesses rebuild after disaster.

The disaster cost the market £4.6 billion, up from £2.1 billion in catastrophe claims in 2010.