A report by global insurance broker and risk management company Marsh has criticized insurance companies in the Christchurch market for being among the world’s slowest to respond to disaster.
Incredibly after major earthquakes in Chile, Japan and New Zealand most claims were settled in Chile within 12 months – by comparison in Christchurch only 16 % were closed within 12 months and 32% within 18. Three years on claims are still dragging on with many still outstanding in the city.
New Zealand not prepared
New Zealand simply was not prepared to deal with the Christchurch earthquakes, and in a report that holds grim forebodings for the people of Wellington (the nation’s capital, sitting astride a major fault-line) it seems that the scale of damage to its second largest city was too much for NZ to handle:
”The scale of the event [in New Zealand] was larger than the country’s loss-adjusting, engineering, and insurance industries were equipped to deal with, delaying the settlement of a significant percentage of claims,” the report states.
The report says New Zealand was ”the least prepared of all from an insurance perspective”…
[and] puts New Zealand’s slow progress down to the closure of the central business district following the quakes, ongoing aftershocks, and practical difficulties in assessing the scope and nature of damage.”
The ‘EQC Truths website’ – ‘What really happens at the Earthquake Commission’ written by an ex-employee that has now departed the country, had an interesting take on why New Zealand performed so badly. (link)
“We often hear EQC apologists exculpate EQC by saying that it confronted the most calamitous natural disaster in world history and therefore people must unquestioningly wait for years. However, a report released by Marsh comparing the responses to major earthquakes in Japan, Chile, and New Zealand in 2010/2011 is very critical of the response of EQC and the New Zealand private insurers. On a comparative basis, EQC and New Zealand insurers were the worst prepared of the three countries and they have been the slowest to respond.
I cannot release the whole report, but you can find it at http://newzealand.marsh.com/ by becoming a member. However, here are some relevant excerpts.
New Zealand was the least prepared of all from an insurance perspective. Although the country was conscious of earthquake risk and had a longstanding insurance scheme run by the Earthquake Commission(EQC), the last major earthquake prior to the September 2010 event was in the 1930s; in addition, previous events had not affected such a large area. Christchurch had not been regarded as a high-risk earthquake zone, and, as a consequence, people were underprepared for the February 2011 earthquake.
New Zealand has no regulations covering loss adjusters. The local firms in New Zealand had reduced staffing over previous years due to the absence of catastrophes and large losses. The major international loss adjusting firms provided considerable resources from abroad, but this caused problems in that the adjusters would stay for a period, and then hand over to somebody else. As a result, some claims had four or more adjusters managing the loss over a period of time, often resulting in a lack of continuity.
The government also influenced the EQC to handle claims itself, even claims greater than the EQC’s coverage limits, rather than ask insurance companies to handle them. The EQC insures the first NZ$100,000 of all insured residences as well as giving some land and contents cover. Instructing its staff to address claims exceeding this threshold resulted in the “double handling” of claims, and sometimes inconsistent coverage decisions and damage assessments. This has greatly frustrated some residential policyholders and, in some cases, delayed claim resolution.
Interestingly and unlike New Zealand where government ineptitude and corruption have been at the forefront of the botched response, Chile had a minimal government response, yet the government pressured insurers into doing their jobs properly.
In Chile, the only real government intervention was the Superintendent of Insurance, which pressured insurers and adjusters to settle and adjust claims as quickly as possible. Although this was particularly focused on non-commercial claims, it provided a sense of urgency post-event. There was also a push for transparency of information. The Superintendent has recently published a booklet outlining lessons learned and actions taken. It has led to a revision of the code regulating loss adjusting in Chile.
At any rate, the EQC’s response to the Canterbury earthquakes has been a huge failure in absolute terms and comparative terms relative to the response of Japan and Chile had to much more powerful earthquakes.