Will EQC changes impact premiums?

Insurance companies remain unclear on whether planned changes to the Earthquake Commission (EQC) will affect how much people pay for insurance.

EQC Minister Megan Woods announced planned changes to the EQC Act on Tuesday, which included increasing the disaster insurance agency’s liability cap to

$150,000 plus GST, ceasing the

$20,000 of contents cover, and extending the period when people could lodge claims to two years.

The proposed changes, expected to come into effect on July 1, 2019, will increase EQC levys by $69 annually due to the increased liability cap.

Customer pay the levy to private insurers to pass on to EQC.

Private insurers will directly insure $30,000 less per household, which will be picked up by EQC. Customers’ overall coverage will not be affected.

It is unclear whether the levy increases will be added to insurance premiums, or if insurance companies will absorb them as the amount they need to insure will decrease.

Woods said she had been advised insurance companies would receive an offset from the changes. The pressure to reduce premiums for buildings is expected to be larger than the pressure to raise premiums for contents.

How this will play out in the real world is not yet clear. Insurance Council of New Zealand

"We expect premiums to vary between customers and their specific circumstances ...''

IAG national home portfolio manager Brendan McGillicuddy

chief executive Tim Grafton said each insurer would make its own decision about appetite for risk and how to price it, taking into account a range of factors.

Insurance Brokers Association of New Zealand chief executive Gary Young said insurers worked out risk on buildings and contents independently of each other. ‘‘I don’t think you can compare the two and say one is more risky than the other.’’

Each insurer would have a different business model to work out its premiums, so the effects of any EQC Act changes could vary from insurer to insurer, he said. It would depend if EQC could provide the cover for less than the insurer could, or vice versa.

IAG national home portfolio manager Brendan McGillicuddy said it was too early to say what impact the proposed changes would have on insurance premiums.

‘‘We expect premiums to vary between customers and their specific circumstances as it does today for the insurance protection they have.’’

AA Insurance and Tower Insurance could not provide a response by the time of publication.

EQC provides limited insurance cover for those affected by natural disasters, including earthquakes, landslides and tsunamis, as long as they have private home insurance policy that includes fire cover. If the damage is worth more than EQC’s cap, the agency pays to its limit and the claim is passed to private insurers.

To fund EQC, those with private insurance pay 20 cents plus GST for every $100 of home insurance cover they have, which is currently capped at $276 a year. This levy is charged by private insurance companies and passed on to EQC.

A Treasury spokesman said EQC would insure each household for $30,000 more overall – from

$50,000 more building cover and

$20,000 less contents cover.

He said the current 20 cent per

$100 premium rate would apply to the extra $30,000, which would increase the annual levy maximum to $345 annually – an increase of $69 per household.

In June 2017, the National Government announced planned reforms to the EQC Act including increasing the cap to $150,000, stopping contents cover, standardising all excesses to $1000 and having claimants lodge claims to their private insurer, which would then be passed to EQC.