Brian Rudman: Historic disaster fund our saviour

We can fall back on a disaster recovery plan to help meet costs of restoring water, sewerage and other essential services in Christchurch. Photo / Getty Images

As communities up and down the country throw open their doors to refugees, and donate money, expertise and resources to earthquake-ravaged Christchurch, their biggest contribution was already in place, courtesy of LAPP.

We've all heard of the Earthquake Commission, which runs the compulsory state-run earthquake insurance scheme, set up in the aftermath of the 1931 quake in Napier when homeowners were left out of pocket because private insurers refused to cover earthquake damage. But there must be few outside the local-body bureaucracy who know of LAPP, the Local Authority Protection Programme Disaster Fund.

It calls itself a "mutual pool created by local authorities to cater for the replacement of infrastructure following catastrophic damage by natural disaster".

At last count, 59 local authorities - ranging in size from Matamata-Piako District Council through the various Canterbury councils up to the new Auckland Council - jointly store funds to cover the catastrophic loss of local authority-owned infrastructure such as water and sewage treatment and reticulation, stormwater drainage, flood protection schemes and the like.

Last year there was great relief in other parts of the country when, during the setting up of the Auckland Council, it was decided that the Super City would continue the co-operative tradition adopted by the former Auckland councils and retain participation in LAPP.

Thanks to LAPP, Finance Minister Bill English will have one less bill to wrestle with. Well, a much-reduced one, anyway. Until 20 years ago it was assumed, but by no means written down, that the central Government would come to the rescue and cover the costs for the restoration of water, sewage and other services considered essential, but uninsurable, in the case of an emergency.

In July 1991, the Government decided to bring clarity to the situation - and spread the load. Under a newly developed disaster recovery plan, the central Government committed itself to 60 per cent of reinstatement costs for such losses, but only if the local authority demonstrated it could cover the other 40 per cent through the provision of reserve funds, effective insurance, participation in a mutual support scheme such as LAPP - and also prove a history of adequate maintenance.

In 1993, LAPP was established following a study which convinced local authorities that a mutual fund was the best option. As a result of the growing pool of contributions made by the members, the reluctant reinsurance industry finally came to the party and provided cover for what had, until then, been difficult or impossible to insure.

Roger Gyles, general manager of finance at Civic Insurance (which administers LAPP), said that after the first Christchurch earthquake in September the estimated total claim was "in the order of $150 million", with the Government's 60 per cent and additional estimated $225 million.

Mr Gyles said the vast majority of its contribution was covered by reinsurance. However, following last Tuesday's earthquake, known in the industry as "C2", the final figure for "C1" will never be known. For the assessors, it's now back to square one, which looks like a much bigger claim to come.

In a report written in December by Geoff Mercer, former general manager of finance at Civic Insurance, he notes: "Damage was worse in areas of high liquefaction and lateral spreading. The most damaged of all council-owned assets was underground wastewater systems. Significant damage also occurred to above-ground pump stations."

He noted how "liquefaction not only broke pipework but shifted levels up and down". For gravity-fed wastewater systems, this is a serious problem. He thought that about 10 per cent of the Christchurch City Council's 1790km of wastewater pipes had been damaged, noting that in a normal year, the council budgeted repairs to just 4km. After the latest quake that estimate can only go up.

Mr Mercer concluded that Christchurch City's initial claim to Civic Insurance - the 69-year-old local government-owned insurance vehicle - and LAPP was thought to be the biggest single insurance claim by a single policyholder in New Zealand history.

He added: "It has reinforced the value of having adequate insurance and proved in the most convincing way possible the value of Civic Assurance and the LAPP disaster fund."

The subsequent shake only amplifies these sentiments. He could have also added that as a small bunch of people, spread across a geologically challenged group of remote islands, we New Zealanders actually don't do such a bad job of looking after ourselves.

Unknown to most of us, we do have structures on which to fall back in times of emergency - like Civil Defence, which had its origins after the Napier disaster and got a pat on the back from the head of the British urban rescue team, who said this was the best-organised rescue effort he'd attended, and like LAPP, through which local communities have joined together to assist each other in moments of need.