Chain reaction covers cost

Anyone who pays to insure a house and contents contributes to the Earthquake Commission. It was a $6 billion national policy against natural disasters, but withdrawals by earthquake-stricken Cantabrians will leave only $3 billion in the kitty, reports Laurel Stowell
The Government has already indicated the costs may double or triple.
Terry JordanMOST FAMILIES protect their homes and belongings by insuring them and a government body backs them by providing some additional cover against natural disasters.
That government body is the Earthquake Commission (EQC). It was started in 1945 and is a Crown entity.
It provides cover only for people who have other insurance on their homes - because they are the ones paying into it.
Every year that someone pays to insure their house and its contents their insurance company hands over $60 to the EQC. That money is invested in its natural disaster fund.
When it started, the EQC provided cover for earthquake and war damage, but war damage was later dropped. Other natural disasters were added, such as landslides, volcanic eruptions, hydrothermal activity and tsunamis - as well as fire caused by any of those.
Storm and flood damage are covered, but only for land immediately around a dwelling.
Until September 4, the natural disaster fund was at about $6 billion.
If a disaster costs it more than $1.5 billion the EQC can draw on its own insurance against natural disaster to the tune of $2.5 billion.
That's because, like other insurance companies, it insures itself with other insurance bodies. That's how insurers spread the risk.
"There are some big companies that only do reinsurance. They probably have sales premiums in excess of New Zealand's gross national product," says Insurance Council spokesman Terry Jordan. Those big companies have names like Munich Re and Swiss Re and Employers Re, with the "Re" being short for reinsurance. The EQC is likely to have two or three of these covering it and those reinsurers would probably lay off the risk to other companies as well.
Until recently, Australia and New Zealand have been perceived as being fairly benign in terms of major disasters. But after two Canterbury earthquakes and the bushfires and floods in Australia, that may be over.
The EQC will be paying more than $1.5 billion on each of the Christchurch earthquakes, calling in a total of $5 billion from reinsurers.
As a result, New Zealand insurers and the EQC are likely to be charged more for reinsurance in future.
"The Government has already indicated the costs may double or triple," Mr Jordan says.
That would mean households paying the EQC $120 or $180 a year from each home and contents insurance - and it would undoubtedly raise their total insurance costs.
The EQC is based in Wellington and has a full-time office in Brisbane. Since Christchurch's September earthquake, it has had an office there as well.
Before September 4 there were 22 staff in Wellington.
That number has grown to 700, with the addition of assessors and engineers. Its last big run of claims was 6200 after the Gisborne earthquake in December 2007.
Christchurch's September 4 quake resulted in more than 92,000 claims, and $750 million has been paid out so far.
Claims from the February 22 earthquake totalled 51,424 on March 8.
People have three months to make them.
You can watch the claims climb at www.eqc.govt.nz.

EQC Natural Disaster Fund
Insures
* Dwellings and the land around them, to $100,000 plus GST
* Contents of dwellings, to $20,000 plus GST
Against
* Earthquake, tsunami, hydrothermal activity, natural landslide, volcanic eruption
* Flood and storm, land around dwelling only
Doesn't insure
* Houses and buildings not otherwise insured by owners
* Commercial buildings, Government buildings
* Vehicles, trailers, boats, art works, fences, swimming pools
Funded by
* $60 a year from every home and contents insurance policy
Backed by
* Reinsurance of $2.5 billion for disasters costing more than $1.5 billion.
* Government guarantee
High and rising
*One million = 1,000,000
*One billion = 1,000,000,000, or a thousand million
*That's the definition used by the Government when it talks about costs of the Christchurch earthquakes
*Occasionally, Commonwealth countries have defined a billion as a million million, or 1,000,000,000,000