There could be a “knee jerk reaction” from the insurance industry if New Zealand suffers another large scale earthquake, an expert has said.
Speaking at a building industry conference held in Wellington this week, Scott Hawkings, from reinsurance giant
Munich Re, warned that as the insurance industry continues to grapple with large earthquake losses in the country, commercial building owners could face coverage problems.
“The provision of insurance might be something that becomes unattainable, which would be an undesired consequence for the economy,” Hawkins said, according to Stuff.nz.
Hawkins added that the country wants to avoid a scenario where insurers refuse cover to those with any hint of non-compliance to building codes, as this could prove detrimental to the economy and businesses
There is a danger investors would stop funding reinsurers for those insurers operating in New Zealand as investors would stop funding reinsurance as the level of risk is too high for return which, in turn, would lower the amount of insurance coverage available for earthquakes, Hawkings continued.
With the final cost of the Kaikoura quake still unknown, but well past $1 billion according to estimates, Hawkings said the industry needs to look towards further risk management tools.
“[The insurance industry] absolutely cannot deal with the earthquake risk that New Zealand faces purely in New Zealand, nor can we do it purely by insurance,” Hawkins said. “Insurance is a risk management tool, [but] it’s not the only risk management tool.”
John Lucas, insurance manager at the Insurance Council, said that New Zealand is still a way off the point where those needing coverage have to worry about a reduction in earthquake cover.
“That would be a long way up,” Lucas said, according to the publication.
While insurers are starting to be more diligent in the cover they place, Lucas said that if those with at-risk properties do not act now they could face changing terms and rising costs.
“It could become more expensive or restrictive in cover for certain building owners. But not at this stage,” Lucas continued.
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