Auckland floods: Taxpayers may be called on to top up EQC fund

Taxpayers may have to put money towards the country’s state disaster insurer, depending on the size of the bill it receives for damage caused by floods and slips in the upper North Island.

If the cost to Toka Tū Ake EQC comes in above $250 million, the Government will need to step in with cash.

EQC’s Disaster Recovery Fund, used to pay out claimants in the event of a natural disaster, currently has a balance of just over $300m.

The Crown is obliged to top up the fund if its balance drops below $50m.

EQC’s chief financial officer Chris Chaney told the Herald it’s too early to say whether EQC will need to make use of its Crown guarantee.

“We will be working with our private insurance partners over the coming days to understand the level of claims with an EQCover element,” he said, noting private insurers are now handling claims on behalf of EQC.

“We expect the majority of claims in this flood event to be related to homes, contents and cars.

“EQCover will step in for land damage due to storms and floods, and for home and residential land damage from landslips.”

Private insurers had received 20,000 flood-related claims by Thursday, according to the Insurance Council of New Zealand.

It characterised the floods as the “biggest climate event” to have hit the country, but said they weren’t comparable in scale to a major earthquake.

EQC’s Disaster Recovery Fund is funded by levies paid by New Zealanders as part of their home insurance policies.

Over the past decade, EQC has been trying to rebuild the fund, which had a balance of $6.1 billion before the 2010/11 Canterbury earthquakes.

The 2016 Kaikoura earthquake saw $530m drawn down from the fund, before EQC in 2018 got its first-ever Crown top up of $200m.

EQC also has reinsurance cover. Under the current arrangement, it must pay the first $1.75b of claims related to a particular event before calling on this cover.

So, the Crown could be left with a tab of up to $1.5b in the absolute worst-case scenario.

Nonetheless, as Chaney explained, EQC’s flood cover is limited to damage to insured residential land.

EQC will cover the cost of removing flood debris such as silt and fallen trees and repairing land scour damage, but flood damage to homes, contents and cars are covered by private insurers.

EQC will also cover damage caused by a landslip to residential land or a home.

Cover for a damaged home is available up to the building cap, which was doubled to $300,000 in October.

Policyholders only get this new amount of cover when their annual private insurance policies come up for renewal. Costs above the EQC cap can be covered by private insurers.

Meanwhile, the amount of cover available for land damage caused by a slip is the lesser of the value of the damaged land and the cost to repair or reinstate that land.

An engineer at Northland Geotechnical Specialists, David Buxton, explained damaged land under a house is typically deemed more valuable than that on a slope or at the edge of a property for example.

He suggested claimants take photos and thoroughly document damage and any remedial work done.

He warned quirks in the law mean some people may not end up being as well covered by EQC as others.