Shake up in post-quake port insurance
Lyttelton's post-earthquake reinstatement has its insurer backpedalling
New Zealand's port sector is expected to face significant increases in insurance costs and potential truncated coverage in light of the two Canterbury earthquakes, writes Iain MacIntyre.
While Vero withholds a progress payment on what is understood to be the largest single corporate insurance claim in the Southern Hemisphere - expected to be over NZ$300m (US$232m) - another port is already feeling the repercussions.
South Port has advised that securing full coverage for its NZ$100m ($US77m) assets has seen a “several hundred percent” jump in costs.
Insurance Council of New Zealand communications manager Brett Solvander confirms it is a “given” the cost of insurance will need to increase in the circumstances.
Barbara Versfelt, special counsel for Auckland lawyers Lowndes Jordan, says that insurance is a completely voluntary agreement between two parties.
“That means no-one is obliged to provide insurance and anyone that does can ask as much money for it as they want,” says Ms Versfelt.
“The insurers would only want to provide cover if they can get proper reinsurance, because insurance companies in New Zealand are not big enough to cover everything, so they spread out the risk over a much larger group of overseas insurers. If those reinsurers say this is a waste of money and pull out, then there is no way you are getting insurers here.
“It is likely that if you have such a big loss as this one, the reinsurers will want better premiums from the insurers and the insurers will of course want to off-load that onto the people they insure.
“The way to do that is asking more premium and dramatically increasing the deductable - for example, they could say to ports if there is an earthquake you take the first $20m on your own account.
“Or they do more exclusions; they say if there is any one-year period of earthquakes they will not pay out more than $50m rather than for each tremor there will be $50m. The insurance company can steer its risk in that way.”
On a positive note, Vero New Zealand has moved to assure the country that fears of a withdrawal of major insurers and reinsurers from the market here are misplaced. Nonetheless, it confirms that insurers are “reassessing the risks and costs associated with providing earthquake insurance”.
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