EQC New Zealand Earthquake Commission

New Zealand Earthquake Commission

The New Zealand Earthquake Commission has its origins in an insurance pool set up in 1941 to address war damages. It later was expanded to cover earthquake damages and in 1993 became the Earthquake Commission. The EQC is an instrumentality of the government of New Zealand and holds the Natural Disaster Fund, which pays claims. In addition to managing the fund, EQC buys international reinsurance and has a government guarantee to pay all claims.

EQCover is compulsory for all residential property owners who buy fire insurance through private insurers. Non residential property owners are not required to hold EQCover. Private insurance companies add a flat EQC premium to the cost of the fire insurance and forward the premium to EQC.

The cost of EQCover is $0.5 per $1,000 of property value, up to a maximum of $100,000 for dwellings, $20,000 for contents (as of February 2005, 1 NZ$ = 0.716 US$). With a goods and services tax of $7.50, the maximum cost per year of the EQCover is $67.50. Premiums are flat and do not vary according to geographic location or dwelling type. Additional coverage can be provided by the private insurance company through which the EQCover has been purchased.

EQCover covers 99 percent of every claim over $20,000 in property; claims under $20,000 have a $200 deductible. Land damage is covered at 90 percent for claims over $5,000; claims under $5,000 have a $500 deductible.

The fund responsible for paying claims is funded both by the compulsory EQC levy assessed on the purchase of fire insurance for residential properties and investment income. The EQC has invested in New Zealand fixed interest securities, and in an effort to reduce reliance on income subject to disruption by the same disasters it is insuring, has begun investing in international equities. In FY 2003, its income before reinsurance cost was NZ$354.6 million, of which 88 percent came from investment income and 12 percent came from premiums. The EQC’s reinsurance costs that year were NZ$39.6 million. The fund claims-paying capacity stood at NZ$4.5 billion, comprised of $1.5 billion in capitalized reserves and $3 billion in other reserves. The EQC was given an AAA rating (extremely strong) by Standard & Poor’s in 2003.

In 2003 the fund paid out 4,793 earthquake claims totalling NZ$17.822 million. These figures were considerably higher than figures for the past five year average, which for earthquakes was 1,860 claims totalling NZ$4.7 million.

source: earthquake insurance in New Zealand - World Bank