No choice next year?

Press, 3 June 1989, Page 19

No choice next year?

Home Line

with

Bill Harrison

Replacement insurance

Homeowners’ earthquake risk awareness is about to receive a jolt through their pockets. New Zealand's traditional low-cost, she’ll be right approach to disaster insurance ends next April. A recent front page headline, “Insurance bills likely to rise next year,” probably got little more than a “so what’s new?” glance from most readers. It was the lead paragraph that caught my interest as I read: “Homeowners' insurance bills are likely to rise next year under Government plans to make people fully insure their houses against natural disasters.” The story went on to report the Associate Minister of Finance, Mr Neilson’s release of a Government White Paper on disaster insurance policy.

Mr Neilson had said that the Government was concerned that if there was a major disaster many people would not have enough insurance cover to replace their homes.

He went on to explain that from April next, homeowners will be required to have replacement insurance cover. Estimates of the new insurance charges would be ready by the time legislation was to be passed.

“Homeowners in Wellington could expect to pay a couple of dollars a w r eek more in insurance,” Mr Neilson said.

The story concluded with the advice that the public had until July 1 to make submissions on the draft Disaster Insurance Bill.

The Minister’s announcement appeared to pass without public comment, but something about the story stayed with me until I decided to find and read the White Paper for myself. “Yes,” the Government Bookshop did have a copy.

‘How much?” “$9.95.” “Really! Have you sold many?” “Well, actually yours is the first inquiry.”

“Thanks, but I think I’ll try the Public Library.” Success. The library had a copy in unused condition. A quick read and I found the reason the story had stayed with me. It wasn’t the price of a weekly Lotto ticket being added to the house

insurance, it was the word compulsory that stood out.

It seems that I am about to lose another option of choice. That concerns me because life in a

free society is all about having the right to choose.

From April next year a commission will decide the replacement value of my house and bill me for the Disaster Insurance cover I will be required to buy.

But to be fair, the White Paper does propose leaving me one option. I could opt to buy my replacement cover from an approved insurance company of my choice. Self

insurance may not be an option. The present situation which has existed since 1944 requires a levy of 5c on every $lOO of any fire insurance cover a property owner chooses to buy to be paid to the Earthquake and War Damages Commission. Today, the commission has funds of about S3B dollars. The Government’s concern is that the cost of a major disaster in a main population centre such as Wellington could run to SISB for which it would have to meet any short fall by the E.O.C. It is interesting to note the proposed Disaster Insurance Commission will no longer cover war damage. It is intended to cover earthquake damage only.

Being preoccupied is my excuse for missing the release of the Minister’s discussion document on the subject last July. The White Paper lists the

respondents to that document. Not surprisingly, the majority are insurance companies. Only four of the 54 respondents appear to be individual homeowners. A recent change in legislation now requires the Earthquake Commission to pay a dividend, taxes, and a fee for the Government’s guarantee of its ability to pay. Presumably these costly requirements will be inherited by the new Disaster Insurance Commission whose stated objectives are: © To reduce stress associated with disasters © To improve the Government’s financial position in the event of a major earthquake © To allow people greater freedom of choice of whom they insure with where that is compatible with basic policy. It will be compulsory for two reasons. (1) To avoid widespread non-insurance.

(2) To reduce the effect on a government obliged to cover noninsured with assistance, therefore compulsion is needed for the protection of individuals as well as governments finances.

Having read the Minister’s White Paper, the purpose of the E.O.C.’s dramatic TV advertisement repeatedly demonstrating the awesome destructive power of an earthquake now becomes clear. As a homeowner I am being conditioned to accept a necessary but costly, compulsory, taxable, insurance scheme.

If this story has raised questions about the cost of your house insurance from next year perhaps you should clip this column and send it with your questions on disaster insurance, post free, to Mr Neilson’s office, or your M.P., c/o Parliament Buildings, Wellington.