Most underwriters frown disdainfully on anything reduced to a numbers game; a pursuit lacking intellect or integrity; hardly worthy of the effort; something a machine should really do. From time to time, however, numbers get them cross, reinsurers especially. Not always numbers that jump out at you screaming for attention, but those that creep along in the wrong direction. The pantomime villain in the media spotlight for a while has been the Australian insurance heavyweight Suncorp. They declared, a little conveniently to some, higher claims figures for the Brisbane floods just days after the market renewed their treaty programme in 2011 and have been at it again this year, adding £270m to their Christchurch Earthquake losses when virtually every other insurer has reported static claims reserves for some time.
Whilst emotions might be running on the high side in the London Market, at the end of this long chain of insurance on the other side of the world, the 28,000 homeowners who suffered earthquake damage in Christchurch are hardly whooping for joy either as a good friend of mine from New Zealand recently confirmed. Of course disasters are sadly a fact of life and recovery can be a slow and difficult process; just look at New Orleans or Haiti, but Christchurch seems to have its own troubling character. There were two quakes some time and distance apart plus many after-shocks so the personal and financial impact was felt by a high proportion of the city’s residents, not confined to a small locality as is often the case. The Canterbury area was clearly a seismic risk but did not have all the danger signs in the public consciousness compared with say Tokyo or San Francisco. As a consequence there remains massive political uncertainty and indecision and many urban planning decisions left unanswered as those that govern Christchurch determine what sort of city they want to rebuild; how, where and when. Many of those that were affected want to get on with their lives but are simply unable to do so and inevitably insurers are easily caught up in the citizen’s backlash.
In the early days and weeks in the aftermath of the Christchurch earthquakes, the wider insurance industry was caught on the back foot. For many observers, international claims adjusting expertise, stretched to capacity, was slow to make an impression. However a degree of market coordination did eventually emerge and since then the communication, and more importantly the flow of funds, between local insurers and their reinsurers has been good by all accounts. The greatest challenge has been for the New Zealand Earthquake Commission (EQC); short of resources and hemmed in commercially by its requirement to settle claims according to statute. However, as recently as last week the EQC Chief Executive Ian Simpson described his reinsurers as “amazingly supportive” settling claims within a few days. That said, in the same week, a cabinet minister Gerry Brownlee used a news conference to criticise insurers for the delays in providing residents financial compensation, so unfortunately it is not all sweetness and light.
Too rarely our industry looks back at its performance on the ground in the wake of natural disasters; how our actions and decisions have impacted customers; surprising given the colossal sums we do in fact pay out. The Christchurch client experience would be a good one for us to measure. We have a lot of unhappy policyholders down there and to the extent that this is due to what we have done or not or whether it is due to external pressures as might be the case, is not clear. If we spent a fraction of the sums paid out in claims on qualitative market research we might learn something useful. However, whilst underwriters might hate the numbers game, it seems refuge in numbers is a course that most actually feels more comfortable following.
2 thoughts on “On Christchurch”
As an update, Christchurch now has the new city blueprint, providing an ideal opportunity to create a fantastic new city from the rumble. Yes, it is big job but Rome wasn’t built in a day.
It is correct that insurance companies are not getting good press at the moment but all things considered they are not doing much to increase their positive profile. Insurance companies are reluctant, if not outright refusing, to accept any new policies in Christchurch due to the earthquakes. This knee-jerk reaction has upset the public at large mainly because previously we looked to insurance to provide us with surety and protection but now we are being told that the risk is too high. But isn’t that how insurance makes its money by taking the risk? Christchurch homeowners (and business alike) are dumbfounded to hear that Christchurch is now a high-risk area due to earthquakes. By that reasoning then the whole of New Zealand should be a similar high risk. Take Wellington for example, our lovely capital city that regularly shakes with earthquakes. There is an earthquake everyday somewhere in the country. Every time there is an aftershock (and we have had thousands) over 4.0 the insurance moratorium of 90 days kicks in stifling rebuilding and planning.
There has been much criticism in the ranks regarding the EQC been slow in dealing with the claims but thank goodness they are there. It was set up after the devastating Napier earthquake in 1931 to provide a backstop for homeowners. Everyone with insurance contributes to the fund and it is regulated by statute. But, a claim can only be made if the house is insured. There are a significant number of claims that will fall under cap with EQC (less than $100,000 to repair) so the insurance can step back and not have to pay out on that claim. However, homeowners are then being told (in many instances) that their insurance will not be renewed after the work is complete or at the end of the current term. As a result, a homeowner cannot claim with EQC as they will not have commercial insurance if, and hopefully not soon, there is another significant event.
With over 8,000 homes written off and compulsory purchased by the government, whole neighbourhoods wiped off the map, thousands more with claims, not to mention the huge task of putting back the infrastructure and over 3,000 buildings in the CBD demolished it is not hard to understand the frustration when people want to move on and re-build but are restricted by the growing cost and restrictions by insurance. Christchurch will re-build. It may be smaller, newer city than before as we have lost our wonderful Victorian gothic heritage. Building and construction businesses are looking to Christchurch as an opportunity to invest (and profit greatly) in this significant re-build. Why are the insurance companies being so short sighted? Is this a case of deep pockets and short arms?
And this is the problem. We still have to pay premiums until our houses are repaired/rebuilt and in the meantime they deteriorate. We also have to pay the mortgage AND rent on another property whilst the insurance industry find another way to string it out.
The comments at the end of this article should be enlightening for the industry.