Insurance is all about peace of mind. For a modest sum of money, you enter into a contract with an organisation skilled in understanding risk, which agrees to reinstate your asset in the event of loss. When times are good and you have no need to draw down on it, you can rest easy; and when catastrophe strikes, your insurance policy sees you right and gets you back on your feet. In New Zealand, a country carved up by fault-lines, pockmarked with volcanoes, and exposed on all sides to tsunami risk, we’re insured to the hilt against an array of catastrophes that could strike at any time. It’s belts and braces stuff: in a natural disaster, the Earthquake Commission covers the first $100,000 of the loss on a home and private insurers top that up – commonly (at least until the aftermath of the Canterbury earthquakes) with full replacement cover.
“Insurance is a wonderful product,” says Dean Lester, who spent 25 years as an insurance underwriter and is now working to help hundreds of earthquake-hit Christchurch households make progress on their claims. “This should be the industry’s finest hour.” But it’s not. What ought to be a key tool of recovery is instead at risk of creating its own secondary disaster. Having come through the quakes, Cantabrians are being consumed by the bureaucratic liquefaction of our two-tier insurance system, and the prospect of years of fighting to get their homes back. For thousands of householders with wrecked and battered homes, trying to wrest any progress out of EQC and their private insurer involves a constant battle to piece together incomplete, fragmentary and often contradictory information.
Two years on, recovery has yet to begin for many. The Minister for Canterbury Earthquake Recovery, the insurance bosses and the head of EQC insist there is a symphony of goodwill and collaboration at the top, and that the pace of progress is on the verge of ramping up. But in the cracked living rooms and rented temporary accommodation of displaced families, it continues to look as if nothing much is happening and no one is in charge. Stories of paralysing uncertainty, financial fear and terrible living conditions are so commonplace they are no longer news. The circumstances of the following four families are neither unique nor remarkable in post-quake Christchurch; rather, they’re a small sample of the thousands locked in stasis while the insurers figure out how to deliver on their promise.
The front of Bryony and Dan Bedggood’s Richmond home broke off in September 2010, and in the February earthquake it separated in two other places. They’ve lost the use of the bedrooms, so the parents sleep on the floor of the lounge each night, sharing the room with one child while the other sleeps in what was a home office. They hold the windows together with industrial tape and bog up the cracks in the walls with expansion foam, which gets chewed out regularly by rats that come up the creek that runs along their boundary (still contaminated with sewage from the immediate aftermath of the quakes). They are all on antihistamines because of the detritus that comes down from the cracked ceiling. It’s only in the past couple of weeks that their insurer, AA, confirmed the house is a write-off. They have continued living in it because they were told by a loss adjuster that it could be eight years before their house is rebuilt. (AA denies any of its representatives said this, and claims it’s an urban myth.)
They are fearful of the financial consequences of moving out, given their insurance policy will support them in rental accommodation only for a year. Although a Government earthquake accommodation subsidy is available, it falls well short of current rental prices and there is no guarantee it will remain in place. Their land is in the cursed technical category 3 (TC3) – meaning it’s prone to liquefaction and lateral spreading in future earthquakes but is deemed able to be built on with appropriate geotechnical investigation and engineered foundations. In the meantime, their insurer won’t do its own geotechnical drilling on the land and move forward on the rebuild because it wants to wait for the results from a wider drilling programme being run by EQC. There seems to be nothing they can do to hasten the process. “I just want a home for my kids,” says Bryony.
Janice and Maarten Westerink, aged 73 and 79, feel they are in a “void”. Their home, on TC3 land in the suburb of Parklands, is comfortable and liveable, but the floor slab is cracked in places and they don’t know the extent of the structural damage. They last saw someone from EQC in April 2011, when they were told their damage was worth under $100,000 and EQC’s project management company, Fletcher Building, would be fixing it. They’ve heard nothing since. When Janice rang to ask their insurer to come and look, she was told “no way”, because EQC had assessed the damage as under the $100,000 cap. “We have been with [AMI] for 50 years. They made us feel like fools,” says Janice. Neither has good health: Janice has atrial fibrillation, which means her heart stops and then races; Maarten had bladder cancer three years ago. They have advised EQC of their health, but to no avail. They had a place booked in a retirement village before the quake, but had to let it go because their property is probably unsellable given the uncertainties over the land and level of damage. They feel stuck, powerless and sometimes depressed. “I tell our kids this might end up being their problem, because we could be six feet under,” says Janice.
Jim and Janice Downie, aged 76 and 74, are warm and dry in their home, not far from the Westerinks. But their land also suffered serious liquefaction, the house is on a lean and the floor slab is cracked. They, too, await the outcome of geotechnical investigations into their TC3 land, and their insurer, State, won’t tell them anything until that information is available. They have no idea how long that will take, and still don’t know whether the house is repairable or will have to be rebuilt. Janice has developed emphysema – she thinks it may be because of the fine silt deposited through the area as a result of the liquefaction. They try to put the stress and uncertainty out of their minds, but it’s difficult, and Janice no longer sleeps well. “What’s hardest is the not knowing.”
Bill Keay’s home, like many of his neighbours’, was destroyed in the February 2011 quake. He and his family have been renting since. His Port Hills property was zoned green (meaning it’s considered suitable for residential construction) by Cera last December, but there’s been scant progress since. His claim is being handled by Vero, which says it won’t move on the rebuild until EQC has assessed and paid out on damaged retaining walls that must be fixed first. When he asks EQC when that might be, it can’t tell him. He has contemplated taking a cash settlement from the insurer so the family can buy somewhere else and move on, but it can only give a “ballpark” figure until EQC settles on the retaining walls. He asked EQC and the insurer if his own builder could fix the walls, and was told no – he must wait until EQC has finished scoping them. Vero says it hopes to give people time frames for their rebuild by the end of this month, but Keay has been told by various people involved in handling his claim that it could be years before the family home is rebuilt. Like thousands of others, he rings up once a week to prod for signs of progress. “We are inching forward, and some things have happened, but nothing that allows us to actually start rebuilding or start a negotiation.”
6000 DISPLACED HOUSEHOLDS
In Christchurch, we are at risk of learning to tolerate the intolerable. Roughly 6000 households are still displaced from their damaged or demolished homes. Of the 21,000-plus homes that have sustained more than $100,000 of damage or are irreparable, and are therefore in the hands of the private insurance companies, fewer than 150 have been repaired or rebuilt. That’s less than 1% of the task. Fletcher Building, which is charged with fixing the 100,000 homes that fall within EQC’s jurisdiction, is busier. It has repaired 20,000 homes and promises to have the rest done by the end of 2015. But these properties are, by definition, the least damaged. While Fletchers is busy replastering and painting homes that in many cases have only cosmetic damage, people like the Bedggoods and the Keays, whose homes are destroyed, face years of waiting. And while this mountain of construction work waits to be done, some builders are struggling to keep their employees busy because there isn’t enough work coming through from the insurers, says Canterbury Master Builders vice-president Alastair Miles – although he sees signs that things may be about to pick up.
For many families, the stress of dealing with the insurance bureaucracy and the sense of powerlessness is debilitating. Leanne Curtis, of community advocacy group Can-CERN, says people are “dropping left, right and centre. Half the people I know are medicated.” She fears people are becoming too exhausted to fight, and that the elderly in particular are “sliding into defeat”. Every month, 200 new clients are having counselling under a free post-quake service funded by the Government. Jo-Ann Vivian, national practice manager for Relationships Aotearoa, says most have never been to a counsellor before. Commonly, their struggle is not caused by the earthquakes and aftershocks, but by the ongoing uncertainties surrounding their homes and the inability to move forward. “Most of us are used to a reasonable degree of control over the decisions that affect our lives, but in this situation it’s beyond our control and potentially going to remain so for several years. That’s a very unusual stress.”
Some are venting their rage in street protests, others in tense exchanges in public meetings with embattled insurance company middle managers, others in online comment threads or on the letters pages of the Christchurch Press. And a recent survey of 1000 householders by post-quake consumer group InsuranceWatch has left the industry in no doubt that homeowners feel they have been failed. Led by community leader David Stringer, the InsuranceWatch survey has yielded a “magnitude of misery” scale, in which the performance of the biggest insurance companies, IAG (which owns State, NZI and Lantern and recently took over AMI) and Suncorp (Vero, AA and SIS) were rated by quake-affected householders as “poor to awful”.
In reply, insurers point to all the reasons progress has been difficult: the setbacks caused by multiple aftershocks, the need to divvy up the liability between EQC and the private sector, the need to wait for geotechnical information on damaged land and for new foundation guidelines to be drawn up, and the need to keep reinsurers happy so they won’t abandon the New Zealand market. Jimmy Higgins, who heads Vero’s earthquake programme, says given New Zealand’s size, Christchurch is “the world’s largest and most complex natural disaster”. The pace of progress is “consistent” with the scale of the damage and in line with recent disasters in Australia, including the Queensland floods and Victorian bushfires. “In any disaster there is always a long lead time before hammers start swinging,” he says.
There’s no doubt the insurance bosses get the message that people are angry, and that their explanations are increasingly sounding like excuses. But apparently that’s normal, too, in a post-disaster environment. “I’m very, very aware of the sentiment,” says IAG chief executive Jacki Johnson. “That’s not unusual when people have been under such stress and strain and there has been such uncertainty and complexity.” All the big insurers have produced bold lists of figures showing they have hundreds of repairs and rebuilds under way, thousands of claims going through “pre-construction” paperwork, and cases where the owner has negotiated a cash settlement. Most companies say they are aiming to give people an idea of time frames for action within coming weeks. But trust that the industry can deliver is being leached away by the waiting. And having come though a second post-quake winter with little progress, thousands of badly affected families are starting to realise there may be many more winters yet before they are back in control of their lives. Can-CERN’s Curtis: “I honestly just don’t know yet that we have a fix on how bad this is going to get for people. They say year three [after a disaster] is the worst – I can’t even imagine that.”
So, what is going wrong? Why, given that 95% of householders have insurance, are Cantabrians not being helped back onto their feet more quickly? The overriding problem is the system itself: the double-decker regime of EQC and private insurance cover, underpinned by a historically uneasy relationship. Former EQC chief executive David Middleton, who stepped down in early 2010, says the private insurance sector “always seemed to see EQC as a competitor. It was always rather difficult to make too much headway with them.” Middleton, who now works for risk-management consultancy Kestrel Group, thinks both EQC and private insurers have done a good job in Christchurch considering the scale of the catastrophe is far greater than anyone had planned for. But “the difficulties we always seemed to have over talking to each other – the EQC and private sector – have come to the fore a bit”.
A bit? Former underwriter Lester believes a fundamental problem is a lack of trust between EQC and the insurers. He says it was always understood that in the case of severe property damage worth over EQC’s $100,000 cap, it would simply hand the claim over to the homeowner’s private insurer to sort out. Instead, it took months for a protocol to be set up to allow that to happen, and in the meantime EQC wasted precious time and resources painstakingly assessing and scoping houses that were clearly over the cap – only for those properties to be assessed all over again by the private insurer. This in an organisation that had no experience as a large-scale claims processor and was having to scale up from a “peacetime” staff of 22 to an eventual peak of 1650. Much of this was foreseen in a 2009 review of EQC’s core planning document, the Catastrophe Response Plan, which pinpointed the lack of collaboration between private insurers and EQC, warned of costly and wasteful double-handling of claims and multiple assessments, and predicted bottlenecks while private insurers waited for EQC settlement decisions.
The demarcation line between EQC and the private insurers was made infinitely more complex after the High Court ruled in September last year that after each major aftershock, EQC’s $100,000 cover was reset. This decision – which has saved the private insurers an estimated $1 billion – has led to a convoluted and messy process of sorting out how much damage was caused to a property by each event. Some 20,000 homes are still locked in this “apportionment” process, and it has taken until mid-2012 for EQC and the private insurers to figure out a way to handle it. EQC says it will take another nine months to finish working through those cases. In the meantime, nothing is happening to fix the damaged houses or settle the claims.
A “THEM AND US” ATTITUDE
David Stringer, who has organised countless community meetings in his badly hit suburb of Brookhaven to enable residents to ask questions of their insurers, agrees a “them and us” attitude between EQC and the private insurance companies has been a significant blockage to progress. Although EQC has been vilified for its clumsy systems and abysmal communication with householders, Stringer reserves his strongest criticism for the private insurers, most of whom sat and waited for EQC to hand over the files for severely damaged homes rather than getting their own assessment work under way. Further, he says, most of the insurers failed until recently to develop strategies to prioritise their elderly, sick and vulnerable policyholders struggling in damaged homes.
Peter Rose, chief executive of Southern Response – the state-owned company that has been formed to handle the earthquake claims of AMI – acknowledges the system has been bogged down by the interface between the private insurance companies and EQC. Both sides of the demarcation line operate to different definitions – EQC’s responsibility is to return the property to “substantially the same” as before; his company’s policies promise to repair “as new”. This issue has given rise to vast disparities between EQC and private insurance assessments, including cases where EQC deems the house a repair job worth under $100,000 and the private insurer assesses it as a rebuild. The homeowners are the meat in this messy sandwich, which is why CanCERN has been pushing for months for the two sides to “work out what their relationship is with one another”. Lately, tensions between EQC and the private insurers have erupted into public sniping over the handling of claims on the most difficult land – so-called “blue-green”, or technical category 3 (TC3).
Around 28,000 houses fall under this heading, of which 10,000 are rebuilds or require foundation repairs. Most of the private insurers say they don’t yet have enough understanding of TC3 land to start rebuilding; they say they’re waiting for the EQC-led process of area-wide geotechnical drilling to provide the information they need, and they want to find out exactly how EQC is going to compensate for land damage. EQC denies it’s to blame for the delays, points to the fleet of 15 drill rigs it has on the job and says there’s nothing to stop the private insurers getting on and doing their own drilling. All of this is generating a fog of confusion and bewilderment for the affected homeowners – particularly for those like the Bedggoods, who are on the most vulnerable TC3 land and who know they are in for years of waiting. The insurers and EQC insist they are doing all they can, as fast as they can. Dean Lester doubts it. “Insurance is a worldwide industry with experts from around the world. Why are these resources not being brought into Christchurch?”
TAKING A LEAD
Leanne Curtis says it’s time for the powerful Canterbury Earthquake Recovery Authority to take the lead. “As far as I am concerned, Cera needs to say to [the insurers], ‘You have less than a month to deliver your green zone rebuild/repair plan, you need to say where you will be working, how you will communicate it and to what time-frames, what choices people have, where there will be hold-ups and what you’re going to do about it.’” But Earthquake Recovery Minister Gerry Brownlee says he can’t make such demands, and the impression that Cera has wartime powers is quite wrong. “We have a limited range of tools to sort these things … I don’t have the capacity to direct different behaviour to what we have now. I can encourage it; we can do everything possible from our end to eradicate or solve some of the problems and get agreement on those, and we have been constantly doing that. But we don’t have a magic wand to fix it.”
Well, no one asked for a magic wand. But people are asking for a coherent and wellled route out of this disaster. And there is a hint the insurers, whose decisions and processes control tens of thousands of lives, are coming to realise the patience and endurance of homeowners have worn to a shred. “The time is being probably
reached where we have to find a way as leaders of insurance and Government and the primary organisations in Christchurch – who do come together – and say ‘enough is enough’,” says Ron Burke, Vero’s head of communications. “You tend to reach that point in every major disaster I have been involved in, and when you do it is the start of the real step forward in terms of progress.” It’s time, he says, “to perhaps be less prone to give excuses as to why we’re not making progress, and more prone to demonstrate where we are and how we are getting on with it.”
As a result of Christchurch’s disaster, the Earthquake Commission’s payout scheme will soon get a longoverdue overhaul.
By the time of the September 2010 earthquake, the Earthquake Commission had fallen victim to policy neglect. The maximum levels of EQC cover ($100,000 for a home and $20,000 for contents) were set in 1993 and hadn’t been adjusted. The maximum premium of $67.50 had also been untouched for 17 years. In 2008, EQC advised John Key’s incoming Government that neither the caps nor the premium were adequate, given years of property price inflation. It recommended a review of the scheme, and said the maximum payout on a single property should rise to $200,000. That advice was ignored – former EQC boss David Middleton says they didn’t even get the chance to discuss it with the minister As a result of Christchurch’s disaster, the scheme – which has its origins in the Earthquake and War Damage Commission, set up in 1945 – will soon get its long-overdue overhaul.
The Government has already trebled the annual premium to start rebuilding the depleted Natural Disaster Fund, and a more wide-ranging review will get under way by the fourth quarter of 2012, says Gerry Brownlee, the minister in charge of EQC. One near certainty is that EQC’s coverage of the first $20,000 of contents will be ditched. “I don’t think anyone would think that’s a good use of their time and resources,” says Brownlee. More complex is EQC’s coverage of land. New Zealand is unique in having land insurance, and Brownlee points out it has been the basis for the key land-zoning decisions in Christchurch, including the red-zoning of the most severely damaged areas. Without it, there would have been a “disastrous situation where people were site-by-site having to prove the viability of their building projects”.
A premium for land insurance has never been charged, yet this has turned out to be one of the more costly aspects of the Christchurch disaster. In its 2011 post-election briefing, EQC recommended that land coverage be reviewed, pointing to the lack of alignment between those that make key decisions on land use (local government) and those that bear the costs of risky landuse decision (EQC). The briefing also floated the idea of differential pricing of risk, so that homeowners would have greater incentive to reduce their exposure to natural disasters by choosing more resilient building styles and avoiding high-risk areas.
A major area of discussion will revolve around how EQC and the private insurers should share the risk on private homes, given the confusion and duplication that has arisen in Christchurch over the assessment of homes with more than $100,000 of damage. Among the options are removing the cap so that EQC takes all the premium and all the risk on natural disasters; or inverting the current system so the private insurers take on the first layer of losses, leaving EQC to deal with only the most severely damaged properties over a certain cap.