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Monday, September 06, 2010

EQC: subsidising the South... subsidising Wellington.

Sponsored link on Google from the Earthquake Commission for Canterbury claims. Pro-active stuff from the Commission - I heard one radio report saying they may have about 100,000 claims. The extent of the damage - and specifically the expected extent of damage when Wellington's inevitable "big one" strikes - raises the question of who is paying for whom and how much. From their site:

EQC is New Zealand’s primary provider of natural disaster insurance to residential property owners. It insures against damage caused by earthquake, natural landslip, volcanic eruption, hydrothermal activity, tsunami; in the case of residential land, a storm or flood; or fire caused by any of these.

It's a compulsory provider too - tacked on to home insurance.

Looking at the prevalence and impact of earthquakes above all other natural disasters in this country it looks to represent a not insubstantial transfer of wealth over time from the low-risk earthquake areas (esp. Northland and Auckland) to the cities on fault lines (incl. all cities in the South Island, and Wellington and the East Coast cities of the North Island).

The exposure to claims by the EQC used to include war damage and that was part of their title until the 90s. Northland and Auckland areas would have expected to have incurred most of that, and so the relative risks and costs may have been more equally spread. But that was in the wake of a world war in which Japanese reconnaissance aircraft were over Auckland in order to plan what they were going to blow up when they invaded. As I understand it both the title and the liability for war damage no longer exists.

Auckland however has volcanic risk that other centres do not; but that - also inevitable eventuality - will almost certainly come with a forewarning (given the intensive monitoring of volcanic sites) and that lead-in time to mitigate the effects will reduce the cost to the EQC. More importantly we know from records going back now more than 170 years that Auckland and Northland's risk of volcanic activity (certainly the prevalence of eruptions) is far less than the risks to the rest of the country for earthquakes. Is this a case of North subsidising South?

When the big'n hits the capital that $5.6 billion fund (or whatever is left after paying out 100,000 Cantabrian claims) is going to seem like chump change - and the kitty will be sapped for years afterwards. Should the levy be regionally based on the known earthquake risk? Because if everyone pays the same amount that represents a huge subsidisation for Wellington. Contents not covered (up to the $20k limit) incl. vehicles and 'art'.


At 6/9/10 10:30 am, Anonymous Anonymous said...

The big lump sums for EQC payouts are seismic. The ongoing payment is for landslip due to storms - and guess what, there are a lot of storms around people in the upper north island.


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