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National has expressed disappointment with the Government’s rejection of a proposed change to the Earthquake Commission Amendment Bill, which would allow claimants to immediately file claims with private insurers in the event of a disaster.
Stuart Smith, MP for Kaikoura and National’s EQC spokesperson said that the Memorandum of Understanding (MoU) signed between the EQC and private insurers after the Kaikoura events made the settlement process significantly easier, and led to speedier claims resolution and a high claimant satisfaction rate. He says lessons should have been learnt from the Kaikoura pilot approach, and that the Government’s reasons for rejecting the proposed change were “lightweight” at best.
“The Memorandum of Understanding (MoU) was put in place after the Kaikoura earthquake, and it allowed the insurer to act as an agent for the EQC,” Smith told Insurance Business.
“I wanted to place that into the Bill, as it would make it much easier for the insurance industry and EQC to react to natural disasters.”
“The Government said there would need to be ‘robust order and accountability mechanisms to manage the financial costs and risks of outsourcing claims handling’ – whereas in fact, it was stated during the hearing that insurance companies appear to be able to assess claims at a lower cost than EQC, and they already follow all order and accountability mechanisms for their reinsurers. All of those mechanisms were also accounted for in the MoU that operated after the Kaikoura earthquake.”
“The other reason they gave was that there would need to be ‘clear agreements around the quality of service provided to EQC claimants’, but that was also already in place,” he explained. “The EQC had the power to stop insurers from resolving claims if they felt they were in breach of the MoU. All of the reasons they put forward for rejecting the change were lightweight, and were all provided for.”
Smith says that the EQC may want an MoU in place on an event by event basis, but implementing that once an event strikes would still take time. Clearance rate satisfaction after the Kaikoura event was at 70% - higher than the average 50% in other events where the EQC was involved, and significantly higher than 43% for the Christchurch earthquakes. Smith says the level of satisfaction can easily be traced back to Kaikoura’s simplified claims process.
“We naturally have to admit that Kaikoura was a relatively simpler event than Christchurch, but if you look at other events, their satisfaction levels are also at 50%,” Smith said. “If we don’t have this MoU arrangement in place, it becomes a really bureaucratic two-step process; people have to put in a claim, and if it is assessed as being over the EQC cap, they have to go to the back of the queue of their insurance company. This is not putting the customer at the centre of the issue.”
“Insurers who submitted on the Bill during the select committee stage universally called for this kind of clause to be included,” he added. “This included several major insurance companies, ICNZ, and law firms such as DLA Piper. Insurance companies have a much larger standing army than EQC does, they are assessing and settling claims every day of the week, so they have the processes in place along with the expertise to do it.
“Natural disasters don’t like to fit in with bureaucratic timeframes. They just happen, and it is far better to be prepared.”
