Late payout akin to no cover: study
Research finds delayed insurance of little help to firms
Getting a delayed payment from an insurer resulted in the same recovery for a business as those with no insurance, research on the impact of the Canterbury earthquakes has revealed.
Researchers from Resilience to Nature’s Challenges have been investigating the role of insurance after the 2010-11 Canterbury Earthquakes as one of 11 government-funded national science challenges.
It surveyed businesses about their commercial insurance cover and found those with insurance who were paid promptly recovered much better than those without insurance.
But there was no significant difference in the recovery of those businesses who had insurance and whose payment was delayed and those who had no insurance at all.
Ilan Noy, lead researcher and economics professor at Victoria University, said this was a surprise.
“The primary assumption . . . is that insurance is a good thing.”
But the research found having it was not necessarily better than not having it if the claim payments were not functioning well.
“It is good, as long as it pays promptly.”
Noy said while there were a range of reasons why payouts were delayed, it was more of a systemic problem that there were no regulations around how long an insurer had to pay out a claim.
He said most countries had an insurance regulator which could set deadlines for payment and investigate delays.
New Zealand’s insurance law is under review at the moment and Noy said he had submitted asking for a regulator to be set up.
He said one reason for the delays was that some insurers had many contract types including one which had more than 100 different types.
“If each insurer had the same contract then resolution would have been a lot simpler.”
The Reserve Bank is the current insurance regulator but Noy said it only regulated the insurers to stop them from failing financially.
That came as a result of the global financial crisis when AIG collapsed in America and in New Zealand AMI collapsed under the weight of the Canterbury earthquakes and was then bought by IAG.
He said the financial aspect was only one part of the role a regulator should play. A regulator should also be looking at the types of contracts offered and claims resolution.
The research also looked at how and when the Earthquake Commission paid out and what economic impact that had on Canterbury.
“Insurance payments were staggered over five years, which [allowed us to] identify their local impact.”
Noy said for every 1 per cent increase in insurance payment for building damage, economic recovery increased by 0.36 per cent.
It also found cash payments contributed more to the local recovery rather than repairs done through the managed repair programme.
He said the managed repair programme was introduced because of fears people would spend the cash and either walk away or stay living in a substandard home.
Noy said it did not find evidence that people had walked away from their homes. But it did not know if they used the cash to fix their homes or spent it elsewhere.
“We really need the data from the insurance companies.”