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Key’s multi-billion dollar earthquake bet

Written By: - Date published: 7:54 am, July 23rd, 2013 - 104 comments
Categories: disaster - Tags:

The Natural Disaster Fund is filled by the EQC levy you pay on your home insurance (currently, $200 a year) and is there to cover EQC payouts.

Before the Christchurch quakes it had $6 billion. It also had reinsurance of $2.5b with an excess of $1.5b that it could get after each event. (so, first $1.5b paid for from the Fund, next $2.5b from reinsurance, above that comes from the Fund again). The Christchurch quakes not only completely drained it, including two rounds of reinsurance, the Government had to top up a further $1.5 billion.

Now, the Fund sits empty.

National’s plan is to refill it at a rate of $200m a year for 30 years – and that will only get back to how much it had before the Christchurch quakes – ie. not enough.

So what happens if there’s another big one, or even a medium-size one before then – as is likely and as the Wellington quakes have reminded us is possible?

John Key won’t exactly say. Here’s his comments on what would happen if the Government suddenly found itself liable for billions of dollars of EQC claims with nothing in the kitty:

“There is nothing at the moment that would advise to me that there is substantial fiscal risk to the Crown. We know that the EQC fund really has nothing in it from the last, from memory, time I looked at it. But
in essence the Government just backs that up.

“And we’ve got a strong balance sheet, we are in better shape the pretty much any other OECD country in the event that we need to rely on the Crown, but we are a long, long way away from that.”

What Key’s saying there is ‘we would borrow the money’.

Now, can you think of a worse time to go to the money markets and say ‘hey, lend us a few extra billion dollars, would ya?’ than right after a major city has been knocked out of action? Because I can’t. There’s actually a good chance that a government faced with having to dramatically increase borrowing at the worst possible time would instead refill the Fund in the way the Greens proposed – their now defunct QE plan.

But Key’s basically betting that another major disaster won’t happen. That’s a big bet and a long-shot given New Zealand’s history. Does that still look like such a good bet to you after the last few days?

The most important thing is getting that first $1.5 billion back in place – then we’re at least covered for anything up to $4b of damage.

That’s not a huge amount of money – 2% of the annual tax take. A doubling the EQC levy could get you there in a few years, or a one-off economy-wide levy could do the trick. Or we could, you know, just risk it, eh?

104 comments on “Key’s multi-billion dollar earthquake bet ”

  1. Akldnut 1

    Or they could come down a few thousand tax cheats (instead of beneficiaries), and claw back a few billion that way.

  2. Matthew Hooton 2

    How much do you think the levy should be, Eddie? $400 a year? $600?

    • One Anonymous Knucklehead 2.1

      Tax evasion per year: $11.4bn. It’s time to get tough on your clients, Matthew.

      Do you mind if I ask you a personal question: when Nicky Hagar exposed your wretched mendacity, were you ashamed, or did you just pack a big denial-tanty?

    • Dr Evil 2.2

      One zillion dollars !

    • Lightly 2.3

      if you doubled it to $400, you would have the $1.5b in four years, then you could reduce it again.

      How long are you prepared to go without any cover, Hootie?

    • Yes 2.4

      i agree matt – lets make it $18,000 per person (which by interest is our external debt number per person). While we are at it – lets predict Tonga to win the world cup at soccer, the royal baby to only get 7 o levels and david shearer marries helen clarke

      • One Anonymous Knucklehead 2.4.1

        That’s nothing; Nostradamus predicted that childish twits would use strawman arguments and here you are.

        • Yes 2.4.1.1

          “Nostradamus predicted that childish twits would use strawman arguments and here you are.”

          liar – he never predicted that. By the way Tonga win 3-0

          • One Anonymous Knucklehead 2.4.1.1.1

            Perdu trouve, cache de si long siecle,
            Sera, Pasteur, demi-Dieu honore;
            Ains que la lune acheve son grand siecle,
            Par autres vents, sera dishonore.

            QED 😉

            • Yes 2.4.1.1.1.1

              You know what – you are a liar – I have translated for you…always remember you should know your subject..I can read french.

              You are no longer anonymous knucklehead..you are a knucklehead

              translation

              The lost thing is discovered, hidden for many centuries.
              Pasteur will be celebrated almost as a god-like figure.
              This is when the moon completes her great cycle,
              but by other rumors he shall be dishonored.

            • Rob 2.4.1.1.1.2

              it should be One Pompous Knucklehead.

              • Richard Christie

                Out with the scythe, we can’t have anybody being or pretending to be clever.

    • ghostwhowalksnz 2.5

      THose in Wellington and Christchurch could certainly pay much more than low risk Auckland

      • Colonial Viper 2.5.1

        Auckland, City of Volcanoes.

      • Lanthanide 2.5.2

        Yeah, it’s not like Auckland gets tax money generated out of Wellington or Christchurch to pay for its roads. Or schools. Or hospitals. Or superannuation of it’s citizens.

        Oh wait.

        • Colonial Viper 2.5.2.1

          Time to start thinking as One Nation.

          • unicus 2.5.2.1.1

            “We should think as one nation”

            True – and the first question the nation should be asking is – exactly what happened to our $6 billion – lets see the balance sheet entries detailing who got paid when and what for –

            What we do know is that Nationals dodgey boys followed the New Orleans disaster response strategy to the letter – the sorry results of payola and the brutal impacts of corruption on that city are legend – believe it – Christchurch is the same

        • ghostwhowalksnz 2.5.2.2

          With one third of the population- they are way behind on theor share.

          Do you think the South Island even pays for painting white lines on all its roads

          The roading historically was only 19% went back in Auckland until 10 years ago it went up to about 25 -28%.

          Still well done on the petrol tax generated by 1/3 of the population

          • MrSmith 2.5.2.2.1

            That’s right Ghost how about we let the Jafas form there own country and see how that works out for them.

        • Draco T Bastard 2.5.2.3

          It doesn’t. Over the last few decades Auckland has supplied more tax to the nation than what we’ve got back. It’s why government, both Labour and National led, have focused so much on building Auckland.

      • weka 2.5.3

        “THose in Wellington and Christchurch could certainly pay much more than low risk Auckland”

        Tsunami.

  3. James Thrace 3

    Be far better putting the EQC levy on rates, rather than insurance.

    Not everyone has insurance, but everyone pays rates.

    Far more equitable, and at a fixed rate much like it is on insurance, not likely to break anyones back. The added advantage is that insurance premiums will be seen to “come down” when all it is is just the EQC levy being taken off.

    A bit of a no brainer. It makes no sense to only have the 70% of buildings that are currently insured paying 100% of the EQC fund.

    • Tamati 3.1

      That would punish those living in lower risk areas, i.e. Auckland with higher rates. Almost everyone has insurance anyway.

      • Lightly 3.1.1

        Auckland isn’t low risk it’s on an active volcanic zone.

        putting it on rates is fairer. You would still have the cap (currently the cap is $138,000 – if your place is worth above that you pay $207 a year), but move that cap to a higher level because more expensive properties are likely to incur more costly damage in a quake.

        • Tamati 3.1.1.1

          I’m no Volcanologist but I’d hazard a guess that a volcano poses a much lower risk to Auckland than an earthquake does to Wellington or Christchurch.

          Remove the cap entirely would be fairer still, those with more expensive properties have more cover, so should pay more.

          The insurance also doesn’t account for those who invest money now to protect their property from natural disasters. Perhaps a direct levvy on the insurance companies would be fairer still?

          • vto 3.1.1.1.1

            Rangitoto burst out of the Waitemata only 600 years ago.

            The chances of another are the same as 600 years ago. It will happen, dontcha worry about that

            • Tamati 3.1.1.1.1.1

              Right, so you don’t know the chance of it happening?

              • Lightly

                it’s an active region that has major eruptions every few hundred to few thousand years, which is on par with the rate of major quakes on a big faultline, and hasn’t had one in 600 years. Discounting that risk is like discounting the risk of a major quake in Wellington.

      • James Thrace 3.1.2

        It will hardly punish them. if as you say everyone has insurance, all youre doing is moving the collection point from insurers to local councils.

  4. TighyRighty 4

    Wow, concern for how Wellington will pay after spending how many years hating on its only growth industry?

    • Colonial Viper 4.1

      So what is happening to Wellington is just a joke to you?

      • Dr Evil 4.1.1

        We’re not known as the shakey isles for nothing.

        Over 17 thousand shakes in the last 12 months.

      • TightyRighty 4.1.2

        I’m from Wellington.
        i was in the Lichfield lanes in Christchurch for the February 22nd earthquake.

        Notice the sloshing in your father in laws pool you snivelling sack of shit?

        • tricledrown 4.1.2.1

          Slow day at the office tighty,poor sentence structure ,
          take an anger management pill while your about it.

          • TightyRighty 4.1.2.1.1

            That’s hilarious for someone who can’t spell trickle, hasn’t used a space after a comma, used a space before a comma, used a comma instead of a question mark and hasn’t conjugated either of the final two sentences properly. If you are going to be a grammar dick, get your shit together.

    • quartz 4.2

      You’re a growth, Tighty.

    • Lanthanide 4.3

      Erm, no, concern for how taxpayers, that live all over NZ, will pay for a natural disaster that may strike any part of NZ in the future.

      The recent Wellington quakes are only highlighting further how Key is abrogating his responsibilities as PM.

      • TightyRighty 4.3.1

        Key is an excellent prime minister. He’s guided us through two man created disasters, the previous labour government and the GFC and one natural disaster. New Zealand is one of the best places on earth at the moment. To give thanks to any other politician except John key and the national government is basically admiring you are to prejudiced to think properly.

        • Lanthanide 4.3.1.1

          “To give thanks to any other politician except John key and the national government is basically admiring you are to prejudiced to think properly.”

          Yeah, lets not thank Helen Clark for paying down debt and resisting calls for tax cuts to such an extent that John Key was able to run up massive debts and give tax cuts to all.

          Clearly *I’m* too prejudiced to think properly 🙄

          • Colonial Viper 4.3.1.1.1

            The only way that Helen Clark and Michael Cullen “paid down debt” was by letting the private sector run up debt to the eyeballs, and then heavily taxing that debt sourced money back into the government sector.

            Put another way, the 5th Labour Government reduced its debt by moving it to the private sector, including households.

  5. Tamati 5

    We could pretty easily borrow $2b at short notice, bond yields would rise in the short term but we wouldn’t go bankrupt.

    We would just have to raise taxes after the event to pay for the extra borrowing.

    • Lightly 5.1

      so, pay now or pay more later when you can least afford it?

      Hey, that’s the whole principle of savings/insurance… well done.

      And who said it would be limited to $2b? The NDF + govt contributions for Chch were $7.5b, and that was only the eqc-insured fraction of the government’s earthquake costs.

      As the amount of capital in our cities grows, so does the cost of damage in a quake.

    • Colonial Viper 5.2

      Treasury can borrow the money from the Reserve Bank at 0% interest rates, and pay it back over time. Pretty easy. No need to let international financiers in on this operation.

      • Lanthanide 5.2.1

        Yes, which is essentially printing money.

        But much better to be up-front about it, as the Greens proposed, rather than be forced to do it in the aftermath of an earthquake.

        • Colonial Viper 5.2.1.1

          indeed. However, money is printed all the time anyway. Look at the Treasury charts of M1 over time. The only difference is that we will have the sovereign issue the currency, instead of commercial banks creating it via debt.

        • muzza 5.2.1.2

          In the case of the EQC, or any spending which would be infrastructure based, the money, if issued internally or borrowed externally at interest, will enter the system regardless.

          Appropriate taxation will remove the excess from the system as a counter to inflation, and the benefit of the interest free money, means that NZ does not become further beholden to the money creators!

          As CV indicates, its all money printing, it matters not where it originates from!

          That’s another slight of hand trick, making people believe that money printing is bad!

          • Colonial Viper 5.2.1.2.1

            Excess reserves can also be drained from the private sector in order to respond to interest rate and foreign currency markets.

  6. Zeno 6

    It is a bit like betting that Vesuvius would not erupt after the first few days of tremors ..

  7. vto 7

    If this corrupt government had not wangled the retail deposit guarantee scheme to give $1.7billion to greedy South Canterbury Finance investors, who mostly vote National surprise surprise, then that sum could have been used to start it off.

    Oh, and then there are all those businesses that make their money through capital rather than income. How about taxing their money-making like those of us who make our money through income? At the moment those business people bludge. Get them to pay their fair share and use that to kick start the fund again.

    Oh and there is a spare $400million going to support private dairy businesses. That is a double whammy isn’t it, because most dairy farmers make their money through capital gain at the end of the day and that is tax-free. That all on top of the $400 million for businesses incapable of getting by on their widdle lonesome in this big wide free market world. Need to hold hands with mother nanny state.

    Then they could reverse the tax cuts given to the richest people in New Zealand. There is probably a billion or two at least per year in there.

    Combine all those and voila.

    What say you Matthew Hooton?

    • Wayne 7.1

      VTO, I presume you mean disconnecting EQC from insurance and making it part of the general taxation, perhaps akin to the tax surcharge proposed by Russell Norman. Would this be a one off to get the Fund back up to say $1 billion, or would it be permanent?

      I note that your real agenda is to get the top rate of tax up to 39%, so that only high income earners would pay, but that is rather contrary to an insurance based fund.

      And of course an increase in general taxes would be permanent and ultimately not have much to do with EQC.

      Its an argument for higher taxes, but not really an EQC one (but at least you admit that).

      • vto 7.1.1

        It seems to me that something different will be required to get the fund back up to speed.

        I am merely highlighting some of the ways in which various free-loaders and scammers have got away without paying their fair share and by implication suggesting that they could be targeted to help the country out.

        Then, they could be made to register their 3-year olds at kindy…
        undergo regular drug testing…
        and have their children compulsorily given a tracking number at birth…..
        and if they squawk then take money from their bank account.

        That would be fair wouldn’t it Wayne, it’s for their own good, being the free-loaders and scammers that they are, of course.

        your lot really are genuinely despicable in these areas Wayne.

  8. BM 8

    I completely agree.

    This would be a massive vote getter for Shearer, he needs to get in the media and tell everyone that if Labour gets elected every ones house insurance is going to increase by at least $200 – 300 dollars a year.

    If there isn’t a 10% rise in the polls with that announcement, I’d be shocked.

    • vto 8.1

      Just tax people that bludge and don’t pay tax on their money-making endeavours BM. You know who they are. The true bludgers

      • BM 8.1.1

        You mean like employees that do cash jobs on the week end or at night? or house wives and bennies that do cash jobs here and there.
        Or how about those bloody old people on super doing cash jobs to give themselves something to do and get a bit of extra play money, thieving pricks.

        Once again, I completely agree we need to hunt these buggers done and make them pay back the tax they owe, bloody thieving shits, ripping off NZ.

        • ghostwhowalksnz 8.1.1.1

          The Trinity tax dodge , alone was worth around $1 billion.

        • Colonial Viper 8.1.1.2

          BM, you’d prioritise those evading millions in taxes first, obviously. Why waste time going after small fry mowing a couple of lawns a month for $20 cash? The IRD would lose more than it collected. (Which seems to be a favourite National approach, admittedly)

          • BM 8.1.1.2.1

            Bollocks, there’s 1000’s and 1000’s out there doing it.

            If anything these are the people that cost the country the most.
            Fact, kiwis are tight and dumb if someone knocks on the door and says $100 dollars cash to clean the house, they’ll take it, or if some one knows a mate who works on the weekend doing cashies they’ll use him or her.

            Or by “helping out” that solo Mum by giving her a bit of cash money for cleaning her house, she can comfortably stay on the bennie instead of moving on.

            What they don’t get is this is one of the reasons why wages are low or jobs hard to come by, legitimate business can’t complete with people not paying tax, they’ve got to cut their margins to the bone to be able to complete with the people doing cheap untaxed work.

            The moronic public lack the ability to see the big picture unfortunately.

            • felix 8.1.1.2.1.1

              Westpac.

            • Colonial Viper 8.1.1.2.1.2

              Bollocks, there’s 1000â€Čs and 1000â€Čs out there doing it.

              Of course. Many of them run farms which they pile all kinds of non-business expenses against, for instance. Then there are the banks who have been shown to try and avoid hundreds of millions in taxes, and medical specialists who have tried to duck hundreds of thousands in taxes.

              Interesting how you keep bringing up all the small fry of society though while giving an easy pass to the big fish. Why is that?

              • BM

                Because the big fish take a hell of a lot more work to land.

                Why focus on one big fish and let 1000 little fish get away?, that’s not to say don’t go after the big fish.

                As for the farms, if they’re doing a dodge, it will show up when they get audited.
                Once you’ve let IRD know you exist, you better play by the rules otherwise hard times are ahead for you.

                • Colonial Viper

                  A billion dollar payout from the bankers was well worthwhile the effort to reel them in.

                  That’s a lot of $20 cash lawn jobs.

                  • felix

                    Yeah but that only makes sense if your objective is to collect the maximum revenue owed for the least cost.

                • tricledrown

                  Yeah like google and facebook who pay less tax than a lot of workers every multinational is moving their profit to low tax regime countries!
                  Getting back on thread an easy way to bolster EQC would be to put a wide ranging capital gains tax on all property and put all that tax into EQC we are going to need a lot of money to bring EQC back to where it was!

            • muzza 8.1.1.2.1.3

              The moronic public lack the ability to see the big picture unfortunately.

              I would agree with that, and by your comments, you’re part of that group too!

            • Murray Olsen 8.1.1.2.1.4

              “Fact, kiwis are tight and dumb if someone knocks on the door and says $100 dollars cash to clean the house, they’ll take it, or if some one knows a mate who works on the weekend doing cashies they’ll use him or her.

              Or by “helping out” that solo Mum by giving her a bit of cash money for cleaning her house, ”

              Even if we accept your point of view, why then does the government go after the solo mum or whoever who cleaned the house? They do not go after the property owner trying to minimise their outgoings and take advantage of poverty to make even more of a capital gain when they sell the place. But I suppose those people are core NAct voters…..sigh.

        • felix 8.1.1.3

          Hi BM.

          I’m getting very mixed messages from you on the topic of tax avoidance and benefit fraud. It’s impossible to tell from your comments which opinions are genuinely held and which are facetious to make a point.

          Could you please clarify your position? Without sarcasm this time, so I know exactly what you’re saying.

    • Bearded Git 8.2

      So instead we adopt Key/English’s “head in the sand approach” just so they can pretend the government’s deficit has been eliminated at the election. Brilliant.

    • ghostwhowalksnz 8.3

      EQC is going to raise anyway. no matter who is elected.

      But there is one person who has their head in the sand- along with raising the age of super-

      What will really happen is that – Sell all remaining State assets to pay for ……( insert city) earthquake

  9. ghostwhowalksnz 9

    The fund isnt going to be filled at $ 200 mill a year.

    At current premiums levels and counting all costs ( it covers landslips and floods ) there is only about $60 mill left to go in the kitty

    Dont forget the Government takes a premium every year , maybe $20 mill , for its indeminity over and above what is the fund.

    Thats right for the last 25 years they have been getting a payment on the possibility of paying out- as has happened in Christchurch

    • Colonial Viper 9.1

      The government can credit the EQC account with the needed amount immediately, and seek the additional reserves required over a longer timeframe through increased taxation or levies.

  10. Vinscreen Viper 10

    Why should a State/Government sovereign in its own currency even need to create ’emergency funds’ for anything?

    Sure, a State that pumps money into its economy willy-nilly a’la Zimbabwe can just stoke inflation, but as the ‘QE’ in the US and UK in recent years demonstrates run-away inflation isn’t the automatic result and where the money is created to replace lost infrastructure and assets or fund employment which would otherwise not be required at all inflation is far less likely to occur.

    • Colonial Viper 10.1

      Indeed. There is no problem with the State issuing its own sovereign currency as extraordinary situations require.

      The State will continue to be subject to the disciplines of the budgetary process, spending will continue to be subject to scrutinised by the SSC and Auditor General, and the market will remain a strong disciplining force in terms of managing interest rates and exchange rates.

  11. muzza 11

    We are a sovereign nation, allegedly, with a treasury department that is linked to the RBNZ – Magic up the funds, and voila, it’s no longer empty!

    They don’t want to expose the bankers slight of hand though, so it’s unlikely to be discussed!

    • Colonial Viper 11.1

      You don’t “magic up” the funds, the Government requests that the Reserve Bank issues the money required on the Governments behalf, thereby allowing the RB to credit the EQC’s Westpac bank account with the funds required.

      The RB can be paid back over a longer period of time with an increased EQC levy.

      • muzza 11.1.1

        CV – What did you think magic up meant?

        Your explanation, describes the magic up, process required.

        The bankers slight of hand, is ensuring that option is not discussed!

        • Colonial Viper 11.1.1.1

          Well, let’s start discussing it then, but let’s do so seriously instead of taking the piss out of it.

          A sovereign nation can never be insolvent so long as it uses its powers to issue the currency of use within its borders, and so long as any debt it owes is denominated in its own currency.

          • muzza 11.1.1.1.1

            As I have said previously, the slight of hand can be found in the lies and deceit!

            It is a very serious matter, in fact its the most critical issue which needs to be discussed, before any other issues you can name, can be solutionized for the optimum human outcomes.

            As long as monetary supply is controlled, and regarded as scarce, and the open honest discussions about NZ being a soverign able to issue it own requirements, then this country, like all others in the Western World, are completely under the control of those who own the financial systems!

            Not long ago people thought such talk was conspiracy, now its widely accepted the monetary/financial markets are in fact, controlled, rigged and a fraud!

          • Murray Olsen 11.1.1.1.2

            A sovereign country can get itself invaded for changing the terms of its international trade and debts. Maybe not if it sells dairy, but if it starts shipping oil priced in Euros, for example.

            • Colonial Viper 11.1.1.1.2.1

              yes that’s true…and boy, you really want to avoid accepting things like gold (that “barbaric relic”) in exchange for your crude…

  12. infused 12

    Remove insurance and make owning property a gamble 😉

  13. Agneya 13

    I enjoyed Key’s demeanor as he expressed support through gritted teeth for the city he has spent so long demeaning.

  14. Sable 14

    Keys loves gambling with our futures, after all its not his money.

    • muzza 14.1

      Not his ideas/directions/instructions either.

      Those would belong to the people who also own, the money!

  15. Draco T Bastard 15

    Here’s a fact that no one seems to comprehend:

    Saving money is pointless as it’s not a resource.

    The only thing that needs to happen when disaster strikes, which it will, is that the government create enough money at the time to cause the correct distribution of NZ’s resources so as to do what needs to be done. The government would then raise taxes of a short term to take that money back out of the economy.

    Christchurch should have informed everybody that paying private insurance companies doesn’t get the job done as they then look for ways not pay out so as to maintain their profits.

    • unicus 15.1

      Not true – Insurance companies are happy to pay out as has been the case in CHCH on high end property – that expenditure provides and acceptable rationale for hiking the premiums on theior low medium end policys

      Look whos been paid down there – Cashmere Fedalton and the ten acre blockers round the city are creaming it as are the building owners in the CBD – everyone else is invisible and under the heel of a gross and ghastly dictator .

      • Colonial Viper 15.1.1

        But what use are insurance corporations which serve the 5%? We should just keep the premiums in NZ and tell them to fuck off.

  16. vto 16

    Why don’t we just give up on it and have no house insurance like the Japanese and like some of California, as I understand.

  17. tsmithfield 17

    I thought some people might find this resource useful for monitoring and understanding whats going on in Wellington at the moment.

    Its not limited to Canterbury. For example, by selecting “24 hours” and “New Zealand” you get a up to date graphic of the progression of the earthquake sequence in the Cooks Strait.

    Here are some insights I have gleaned from this site that readers might find useful. I am not a geotech by any means, so bear that in mind. However, you might find the following interesting.

    1. Selecting “last 100” and “New Zealand” leads to this screen. Then set the quake filter to “7+” This displays the history of large quakes in NZ.

    Of interest to me is that several decades before the large 8.2 quake near Wellington in 1855, there were two magnitudes 7s in the region. One of those was in the Malborough area. Given the time scale these events take place over, it is quite possible the two sevens were building pressure on the fault that resulted in the 8.2. A worrying take away from this is that it is possible that the current quake sequence could be building up pressure towards a larger quake. A more comforting take-away is that the region has had a good shake up in relatively recent geological times. So, perhaps a lot of the energy in the fault systems have been released relatively recently.

    2. Select “swarms”. This graphic displays the progression of quakes in the Canterbury sequence. As can be seen, the main quake started in the west, and each +6 aftershock shifted the aftershock sequence progressively eastwards. The current earthquake sequence seems to be following a swarm type pattern, and it will be interesting to see where it heads next. Hopefully, it will be away from Wellington.

    What worries me about Wellington is the fact you have a lot of reclaimed land up there. If you were to have a force 8 in close vicinity to the city, I suspect a large portion of the city could fall into the sea, judging by what we experienced with a much smaller earthquake in the vicinity of Christchurch

  18. Jackal 18

    Dear New Zealand,

    You do realise that this National government, if it’s allowed to continue the current detrimental regime, will get us into debt to a far greater extent than we can ever hope to repay?

    In that event, you will have a choice between being in servitude for the rest of your life, continuing the degradation of our decent society and being a tenant in your own country forever or effecting the change that’s required.

    Your choice will undoubtedly mean the survival or demise of the Kiwi way of life.

  19. RedBaronCV 19

    I had thought of doing this as a separate post but here goes.

    All we need to do is stop the insurance companies leaching off us.
    Now remember we are only talking about residential house insurance here, not contents or commercial which is outside EQC remit.
    Judging by my premium invoice the insurance companies are taking about $750 p.a per residential dwelling. Stats NZ gives a figure of residential houses in NZ of 1.6m to 1.7m. This gives a premium take for the Insurers from NZ home owners of $1.275 billion per annum.

    Now what are the payouts Insurers make.
    The Fire Service commision puts losses for domestic fires at $70m to $80m per annum and lets be generous and say they pay out another $30m for other things like water damage.
    This leaves the insurers with around $1.2b before their expenses of 2% to 10%.
    After expenses that still leaves $1billion in the trouser pocket a year.

    Oh but Canterbury was sooo expensive for them. Umm actually no. Only some 18,000 houses went above the EQC limit and at a generous $300k each this totals $5.4billion. Quite a lot but hey they would have reinsurance too. If it’s at the 2:1 level someone mentions above then payments before reinsurance cuts in are likely to be in the $1.5b to $2billion range. So two year’s premiums would cover their Canty payouts and the reinsurance premium. Not that they have paid out much.

    BTW IAG has about 55% of the NZ home insurance market (coy press release).

    So to me the real questions are:
    Just who the hell is the NZ homeowner subsidising with these inflated premiums? Commercial customers, large dividend payouts or something else..
    What exactly have the insurers done with the 79 years of premiums they have pocketed since Napier in 1931.
    Why isn’t John Key sending a “please explain” to the insurers.

    The answer is simple. Lifting the EQC cap to $300k to $400k would cover most houses in New Zealand. Take a bigger share of the premium income and buy more reinsurance, tuck more in the bank, invest in some real assets-a plantation of native timber and a sawmill are real handy when rebuilding. Marginalise the insurance companies for profiteering and seal the fund off requiring a 70% parliamentary majority so it can’t be robbed by right wing governments.

    We could have $6billion in just a few years plus a large lump of reinsurance and cheaper premiums.

    • Draco T Bastard 19.1

      As I said, private insurance is a rip off. The community could do it better and cheaper and it doesn’t need to save up money to do so as I said up thread.

      • RedBaronCV 19.1.1

        Yes , a community scheme would be best for most EQ damage. Feel free to quote the above, perhaps we can get somebody asking the insurers real questions. They need their feet held in the fire.

        • Follow the money 19.1.1.1

          The real rort in insurance isn’t so much the underwriters but the inefficency of the market and clipping of tickets along the way.

          Insure your home through a broker? Your broker will be taking 30% of your premium as commission.

          Insure through a bank? The bank will be keeping the profitable part of the business and pushing the risk to the underwriter.

          If you are a reinsurer? Recalibarate your risk models and aggregate sizes for NZ and up prices accordingly.

          Add on Fire Service Levies (which should be funded out of general taxation), GST increases and increases to the EQC levy and of your $750 premium that you are paying perhaps around 40% is actually covering the value at risk in your home.

          The rest is all various snouts in the trough… It is time for a shake-up NZers should be paying only what it costs to insure the value at risk not to keep a whole lot of unproductive ancillary business going. Lower value houses in NZ have also been subsidisng bespoke and high end home insurance in NZ for decades. As pricing begins to more accurately reflect risk high-end homeowners are squealing more than stuck pigs to ensure this doesn’t change…

          • RedBaronCV 19.1.1.1.1

            The $750 is the amount that stays with the insurance company. I had already deducted the Fire service levies, EQ premiums and gst of course. This $750 goes to the insurance company not brokers or anybody else. So it isn’t the ticket clippers it’s the isurer who no doubt would dearly love to blame someone else. BTW most domestic households don’t use brokers..

  20. Agneya 20

    Hey John, we know your people are reading this.

    How did Government House survive the quake ?

    It’s paid for by the taxpayer ..

    Cheers.

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