Insurers halt new cover in Christchurch, brokers say

Photo / Geoff Sloan

Insurance companies all but stopped writing new cover in Christchurch in the wake of the February 22 earthquake and brokers say they will take some months to resume and are already raising premiums and claims deductibles.

Firms including AMI, the biggest general insurer in Canterbury, Australia's IAG which owns the State Insurance and NZI brands and QBE called a halt to issuing new policies while they await word from overseas reinsurers on new terms and conditions after a reassessment of risk.

Insurers are honouring existing policies for business, house and contents and vehicle cover.

"It's pretty early days for insurance at the moment," said Grant Milne, chief executive of insurance brokers Marsh.

"In terms of taking on new risk the answer is generally no, not interested."

Milne said insurers are following the same pattern as after the September quake in suspending new cover.

"Then over the next few months they began writing business again."

Marsh had an office in the destroyed Pyne Gould building in Christchurch and lost a worker, Melanie Brown.

Already, insurers are hiking terms of new cover, which may also apply to renewed policies.

One insurer has lifted deductibles across all of New Zealand, excluding Auckland and Northland, to 5 per cent from 2.5 per cent for corporate business.

More significantly, it has also amended the terms so that the deductibles apply to the total sum insured rather than the amount of loss or damage.

That means the owner of a $10 million building with $1 million of damage would have to come up 5 per cent of the total - or $500,000, compared to just $50,000 in deductibles under the old terms.

The insurer who is raising its earthquake rate for New Zealand by a minimum 0.08 per cent and "naturally there will be significantly higher rates applying in certain regions including Wellington," it said in a document seen by BusinessDesk.

In some regions it will require more site-specific information including strengthening work, code compliance and territorial authority approvals.

SMEs in Christchurch may be particularly hard hit and are likely to "encounter extreme difficulty in obtaining immediate insurance for earthquake loss or damage," said John Sloan, a risk insurance consultant based in Wellington.

"They will have to put together a compelling case why their property warrants cover."

They're also likely to face increased earthquake premiums and claims deductibles on renewal of existing policies, he said.

Larger entities may have more leverage to possibly control premium or deductible increases than SMEs of private individuals, who can be at the mercy of brokers or insurers.

Sloan warned firms to be careful of any brokers or insurers offering "competitive" premiums if they don't provide evidence of their current solvency/claims paying ratings from agencies such as Standard & Poor's and AM Best.

He also advised people to be wary of switching insurers, especially if there is undiscovered damage.

The earthquake "is on the radar" for reinsurance companies worldwide and it has hit reinsurers "equally badly," Sloan said. "There is nowhere to hide."

Some existing customers of insurance companies and brokers are able to increase or buy new cover by making a special case and typically need to be armed with engineers and geotechnical reports, brokers said.

QBE issued an advisory note last month saying it would honour existing policies coming up for renewal for 30 days from expiry and for new cover where terms had been offered and accepted. Any contracts for new business not yet accepted would be withdrawn, "with immediate effect."

The lack of availability of new cover has thrown some Christchurch residents into limbo, especially where a property is changing hands or is a new build. Construction firms hold builders insurance which typically expires on completion of a project.

"I had a couple call me - they had a house just finished and the builders risk had ended - they couldn't get cover," said Gary Young, chief executive of the Insurance Brokers Association.

"I suggested they talk to their bank - if the lender has got a lot of money invested in a new property they may be able to help."

Many brokers and insurers say they hasn't experienced such a savage and immediate market turnaround since the early 1990s, when the EQC pulled out of insuring non-residential properties, resulting in premium increases and capacity problems.

- AA Insurance today issued a statement saying that "in contrast to some others in the industry", it continued to insure its current customers and was taking on new ones.

"In particular AA Insurance is taking on new car insurance in the region," said corporate affairs head Suzanne Wolton.

She said that if AA Insurance already insured a home and the customer sold it, the company would usually offer the new owner insurance for the property - even if it was damaged - as long as a claim had been lodged and normal terms met.