By: Richard Hargreaves, Cecilia Liu
Introduction

Parliament has introduced the Natural Hazards Insurance Bill, which will replace the Earthquake Commission Act 1993 and overhaul the Earthquake Commission (EQC).

For readers overseas, the EQC is the New Zealand government entity which provides natural disaster insurance to residential property owners. Currently, there is statutory insurance cover for houses, contents, and land damaged by natural disasters.

When the Canterbury earthquakes hit in 2010 and 2011, EQC was not adequately prepared for the magnitude of the disasters. To be fair, this was not EQC’s fault – for years they had managed the whole country’s claims with a staff of 21 people, until an unexpected earthquake caused hundreds of thousands of claims. However, as time wore on and claims remained outstanding, EQC became increasingly dysfunctional.

A legislative review of the Earthquake Commission Act 1993 was announced in 2012. There was a discussion document released in 2015. A Public Inquiry into the Earthquake Commission was launched in 2018, which released a report with over 70 recommendations.

The new Natural Hazards Insurance Bill incorporates a number of these recommendations and aims to increase the efficiency and scope of the current system. It is also an opportunity to provide legislation to address the impacts of climate change.

 The three overarching objectives of the Bill are:
  • To enable better community recovery from natural hazards;
  • To clarify the role of the Commission and the cover provided; and
  • To enhance the durability and flexibility of the legislation.
Changes

The EQC will be renamed to ‘Toka tū Ake – Natural Hazards Commission’. This highlights that earthquakes are not the only hazard insured against. The Commission will aim to “reduce the impact of natural hazards”, managing and settling claims in a “fair and timely manner”. This requires the Commission to act consistently with a Code of Insured Person’s Rights, to have a complaints procedure in place, and to engage in a dispute resolution scheme approved by the Minister.

The claims-handling concerns which EQC was known for will hopefully fall away under the new Bill, as claimants will lodge claims with their insurer to access the Commission’s cover, rather than having to deal with the Commission directly.

Toka tū Ake will be funded in the same way as EQC, through levies on house insurance policies. In coverage terms, the main changes in the bill include:
  • Increasing the sum insured ‘cap’ on residential buildings from $150,000 per dwelling to $300,000 (both amounts excluding GST); and
  • Standardising claims excesses; and
  • Improved cover for retaining walls, bridges, and culverts, and extending cover for items located beyond the boundary of the land on which a residential building is situated; and
  • Introducing a clear repair standard for buildings and land, so the level of cover provided will be clearer.
What will this mean for me?

In summary, the Natural Hazards Insurance Bill will make it easier and faster for residential homeowners to make a claim if their properties are damaged by one of the specified natural hazards. The bill proposes improved coverage with clearer definitions. Claims will be handled by private insurers without duplication.

The bill also provides claimants with an avenue to lodge complaints against the Commission sets out a standing dispute resolution process. This is aimed to streamline the process, though obviously there are always inherent problems with internal claims resolution services.

The Natural Hazards Insurance Bill has not yet reached its final form as the bill is expected to undergo further changes as it progresses through Parliament. However, what is proposed would be a very welcome update to the previous legislation.
 
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