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Monday, November 19, 2012

Are insurers trying to shift costs to EQC and elsewhere?

In the most recent EQC Annual Report (here), EQC Chairman Michael Wintringham stated on page 4 that there was an incentive for insurance companies to minimise their own costs by attempting to pass them on to EQC or elsewhere.

In this environment, there is an incentive for insurers to reduce their own liabilities by shifting costs to the Crown or to other parties.

It would not have been out of place if he had continued to say that not only were there incentives for insurance companies to shift costs elsewhere, but also strong incentives for them to minimise costs by attributing as little value as possible where damage had occurred. The most obvious example is the exercise to turn rebuilds into repairs. Less obvious would be classifying some damage as pre-existing, or proposing repairs that weren’t like-for-like.

Insurance website insuranceNEWS.com.au reported today (here) that both VERO and the Insurance Council of New Zealand (ICNZ) reject Mr Winteringham’s statement and provides a lengthy exposition of both VERO and ICNZ’s position.

The report ends with the following:

New ICNZ CEO Tim Grafton wrote to Mr Wintringham, copying the letter to Earthquake Recovery Minister Gerry Brownlee, saying the comments convey a false impression and the council’s members reject any suggestion they would manipulate or reduce their own liabilities by inappropriately placing them on others.

Mr Grafton, who started at ICNZ a week ago, told insuranceNEWS.com.au he intends to work constructively with the EQC and wants to make it clear insurers will meet their legal obligations.

“The insurance companies are very clear that they will not be moving beyond the strict confines of all, or any, contracts in place in the wake of the Canterbury earthquake,” he wrote.

“Members of the Insurance Council feel strongly that the words used indicated that insurers may act in an unethical way and this will not be the case.”

My first impression on reading this was – yeah, right.

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