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Rob Stock calls for post-quake reforms

Written By: - Date published: 11:51 am, September 12th, 2010 - 18 comments
Categories: housing - Tags: ,

In today’s, Sunday-Star Times, Rob Stock picks up on a topic I’ve been writing about:

THE EARTHQUAKE has exposed a policy that must be changed immediately – the way the Earthquake Commission is funded.Significant numbers of people will get nothing from the commission because it is funded by a levy on house insurance. Those without it do not qualify.

The government is making noises about not paying to rebuild uninsured homes – apparently incautious investors and unwary leaky-home buyers are worthy, but imprudent homeowners are not..

…As a taxpayer, I am suffering from bailout fatigue, but I can’t help feeling the country walked blindly into this mess because of the foolish way the commission is funded, which, incidentally, is the foolish way the Fire Service is underfunded.

The commission levy is made on private insurance for the same reason the Fire Service levy is. Insurance companies invented fire services, says Chris Ryan of the Insurance Council. When a national fire service was created, the funding mechanism remained, and it was convenient to keep the same system when the commission was set up.

This guaranteed that not everyone would pay for the Fire Service and that in every massive natural disaster there would be those lacking insurance, because there are always households without cover, some for understandable reasons – redundancy, illness and so forth – and not because they are feckless ne’er-do-wells.

We could have done better, and indeed, the Insurance Council told the Sunday Star-Times that the last Labour cabinet discussed ways of shifting the Fire Service levy on to a universal payment such as local authority rates.

That the commission should be funded that way too is an idea worth debating, and the council – which would be delighted if its members could offer cheaper policies by stripping insurers of their role as tax collectors – believes the idea could now get a fair hearing. …

… Switching the levy on to rates would not be popular with local authorities, already understandably sensitive about the sheer size of their rates demands, but it would mean total coverage of households in the event of earthquakes.

We could fix the Fire Service’s funding at the same time.

No hat-tip, Rob? 🙂

Seriously though, this would be a simple fix that would see everyone covered while avoiding the moral hazard of bailouts. Hopefully, the government will move ahead with it, and the disaster income insurance I’ve suggested.

[Edited title and author of article…RL]

18 comments on “Rob Stock calls for post-quake reforms ”

  1. ianmac 1

    Sounds like a good idea. Total mutual sharing of the risk. A bit like ACC perhaps.
    But wait. There’s more. There are those who want every man and every woman and every child to be responsible for themselves. If you can’t buy it, you must be a lazy ignorant person, so don’t expect we rich folk to pay for your ignorance and your laziness. We in Act and within our National Party want everyone to be like our great Leader and pay your own way!
    No money? No cover. Live on the street you bums, -but not my street!

  2. D14 2

    >’s, Sunday-Star Times, Rod Oram picks up on a topic I’ve been writing about:

    Rob Stock not Rob Oram

  3. tsmithfield 3

    OK. No problem with funding the EQC through our rates. But should we then bail out people who get behind with their rates in the case of another natural disaster?

    • Draco T Bastard 3.1

      Generally, people who get behind on their rates lose the house anyway.

      • Uroskin 3.1.1

        Rates are a feudal relic. They should be abolished and replaced by a Government bloc grant to local authorities comprising of a portion of the locally collected income tax and a part of the locally generated GST.

        • mcflock

          agreed on central govt grant, but not on GST. Eradicate GST and pay according to regional requirements from income, corporate and transaction taxes.

        • ghostwhowalksnz

          Once you get money from the government, then they will want to decide how its spent.
          Rates are not feudal, they are a good way of providing local services

      • J Mex 3.1.2

        Generally, people who get behind on their rates lose the house anyway.

        Citation please, Draco.

        • Draco T Bastard

          Perhaps I should have said: Council gets the rates anyway

          Rates unpaid? Councils dip into mortgages

          COUNCILS HAVE taken millions of dollars in unpaid rates directly from homeowners’ mortgages in the past year.

          A little-known legal clause gives local authorities the right to force people’s banks or finance companies to cover unpaid rates – at worst this can put mortgages into default, with the ultimate sanction being the sale of a home from under the owner’s feet.

          Serepisos owed $116,000 in Hutt rates

          Councils ultimately always collected outstanding rates – they were a charge against a property and if it was sold the debt had to be cleared. The only way a council could lose would be if a property sold for less than the sum outstanding.

          Generally speaking there is no reason for people not to be covered by the EQC being funded via rates.

          • J Mex

            I agree that councils almost always get their rates.

            People behind on their rates hardly ever loose their house, however.

            • Draco T Bastard

              I heard of a few here and there where the council has forced the sale of the house to get the rates.

  4. Ed 4

    For earthquake and other natural disasters, it is reasonable for all to be covered to a minimum total claim level. Beyond that level, there should still be some obligation on individuals to assess their own insurance needs, and it is desirable that all have an incentive to mitigate risks. This is even more true of Fire insurance, where risk depends on a lot of factors that can be controlled by the owner or occupier. In practice I understand fire services do fight fires regardless of whether there is insurance – whether claims are then sorted out I don’t know. There used to be a loophole where commercial property owners insured overseas and avoided the levy.
    Ambulance is another emergency service that should be provided nationally without individual charges – but most ambulance services also provide transport for patients between home and hospital and between hospitals – I don’t have a clear idea who should pay for that.

    For all of these, rates are probably a reasonable basis for charges, but possibly with those charges going to a national fund as for EQC – levies should vary between regions to reflect higher or lower risk, and shuld be able to be identified by Councils.

    As for those in arrears, we do need to be better at chasing arrears in a lot of areas, but it should not hold up provision of emergency services.

    • mcflock 4.1

      ISTR that both fire and ambulance can charge, but generally choose not to because of the risk of people putting off the call to avoid paying. The exception (definitely for the Fire Service, not sure about ambulance) are nuisance calls, e.g. repeated false alarms due to faulty equipment or just a rubbish fire in a banned area for the xxx-th time.

      I do believe that the ambulance charges a fee for non-urgent transport to hospital (my parents became members because this service is free for members and they’re getting on a bit).

  5. MikeG 5

    The issue of how the Fire Service is funded is a long standing one – I last remember it being raised 10 years ago while Roger Estall was at the helm of the Fire Service. At that stage it one of the issues was that large buildings were being insured off-shore and so avoided paying the Fire Service levy.

    • ghostwhowalksnz 5.1

      Thats been fixed by a law change , to ‘assess’ the levy for those who insure elsewhere.

      But of course the FB comes to your fire whether you are insured or not.

  6. OleOlebiscuitBarrell 6

    Significant numbers of people will get nothing from the commission because it is funded by a levy on house insurance. Those without it do not qualify.

    But everyone with a mortgage has to have insurance. So it is only people who have a mortgage-free home who have elected not to insure who suffer. And if everyone else had to subsidise them, no doubt you would all (rightly) be screaming about the poor bailing out the rich.

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