Editorial: Govt right to give risk-takers the message

Finance Minister Bill English. File photo / Mark Mitchell

In the aftermath of the Christchurch earthquake, the Government is treading a fine line in dealing with what Deputy Prime Minister Bill English describes as "some pretty tricky policy issues".

Nowhere is this more evident than in the response to those who do not have household insurance. No one wants it to be hard-hearted towards people stricken by this devastating blow, but the Government must also be careful not to send a message that insurance is unnecessary because in the event of a disaster, everyone will be bailed out by the state.

It has hit on what appears a reasonable compromise. An initial $5 million will be contributed to a mayoral fund that has been established to help Cantabrians who face "true hardship" and are not eligible for direct state assistance.

The Prime Minister has indicated the threshold for financial help will be high. It must be. This cannot be a slippery slope, with the Government throwing more and more taxpayer money at the fund. That would be unfair, not least to those who have taken their own insurance precautions.

Most householders are insured. Generally, it is a condition imposed by mortgage lenders. People who have insurance will be able to claim up to $100,000 on buildings and $20,000 for contents from the Earthquake Commission, after which their private insurance will kick in. But it is estimated that 5000 uninsured homes were damaged in the earthquake.

The owners took the risk of not having cover, perhaps because they believed their chances of being affected by an earthquake in Christchurch, or even a flood or fire, were low. In some instances, they may have stopped paying for insurance as a cost-cutting measure during the recession.

Circumstances have rebounded terribly on this group. But John Key is right to insist risk-takers are put on notice. "The very strong message we need to send to New Zealanders is that they need to have insurance," he says. If the Government cheque-book was thrown open, a moral hazard would be created.

People seeing a wholesale government bail-out would conclude, quite reasonably, that they should not insure their houses because they would not have to bear the cost of a major catastrophe. They would, in effect, be insulated from risk.

The previous Government went some way down this path when it provided handouts to uninsured victims of flooding in the Manawatu and the Bay of Plenty. The number of people involved was minor compared to those affected by the earthquake.

But at least the potential repercussions of this intervention were recognised, and a review was ordered. Its brief was to discover whether it was possible to give the uninsured incentives to take cover. Failing that, the obvious course would be compulsory household insurance which, most logically, would involve a levy collected through the rates of uninsured property owners.

Nothing came of this review. Probably, the notion of coercion was politically unpalatable to the Labour Government. The overwhelming defeat of the Winston Peters-initiated referendum on compulsory superannuation had carried its own message.

Today, there would be far less opposition to such a step. And with the Christchurch earthquake having underlined the importance of insurance, Mr Key's principled stand adds ammunition to the case for some form of incentive or even compulsion.

Only if the vast majority of people have their own cover will widespread financial strife after such catastrophes be averted. And only then will the state avoid a multi-million-dollar bill. It can never be fair when the burden of relief for the uninsured falls on taxpayers who, in the main, are insured.