Govt’s new ’quake cover under attack

Press, 18 May 1989, Page 7

Govt’s new ’quake cover under attack

By

PATTRICK SMELLIE

in Wellington

People would be put to needless expense with the Government’s proposal to make total house replacement insurance compulsory, said a former professor of geophysics at Victoria University, yesterday.

The Government’s new disaster insurance scheme exaggerated the likelihood of a big earthquake and the costs one would create, Professor Emeritus Frank Evison said. His comments were rejected by the president of the Insurance Council, Mr Murray White. Professor Evison said New Zealand faced a far lower risk of a devastating earthquake than many other parts of the world. Moreover, the widespread use of wood as a building material for houses meant many homes would not be destroyed in a big earthquake.

Wooden houses tended to be more flexible and were the safest structures to be in during a big earthquake. x Mr White said, however, Professor Evison

was ignoring the fact that more disasters than earthquakers were covered under the proposals. Volcanic eruptions, tsunamis, and other disasters also featured. Other insurance industry executives have also said New Zealand’s levels of insurable risk were relatively high and premiums for disaster insurance historically low. Mr White said overseas evidence showed that wooden houses were routinely damaged in earthquakes to the extent that they had to be written off, even if they have not been destroyed. He supported the new scheme, saying it was necessary on social, economic, and moral grounds. The main area of concern, however, was the ability of insurance com-

panies in New Zealand to reinsure against disaster with overseas insurers. Reinsurance is insurance companies’ way of reducing the risks they face by spreading that risk internationally.

The world reinsurance capacity for earthquake cover was volatile and could change dramatically if there was a big disaster. Mr White predicted the scheme would mean a significant increase in insurance premiums for home owners.

Reinsurance problems would be greatest, however, for commercial property owners, who would not be covered under the new arrangements. In particular, many people had not noticed that home contents would now no longer be covered by the new scheme.