Ongoing claims issues in NZ show quake isn’t always a short-tail risk

The Insurance Council of New Zealand said that private insurance and reinsurance firms have now paid out more than $18 billion to settle commercial and residential claims from the Canterbury earthquakes, but ever since the quakes the magnitude of the loss has been filled with uncertainty.

However, hundreds of customers are said to be yet to receive settlement offers, underlining potential complications with major earthquake events and highlighting the need for ILS funds and their managers to understand and where possible commute reinsurance losses from complex loss events.

The 2010 and 2011 Canterbury, New Zealand earthquakes highlight how complicated an event major earthquakes can be for the insurance and reinsurance industry, and suggests that quake isn’t always a short-tailed loss event.

Earthquake losses can take time to fully develop and the Canterbury earthquakes are an example of the potential complexities with such events, as in the six years since the quakes took place the volume of catastrophe loss claims have continued to rise, and a number of customers are yet to receive offers.

“Private insurers expect to have the vast majority of claims settled by the end of year. Insurers have now fully settled 93% of all Canterbury earthquake residential properties. This represents 21,005 over cap and 63,545 out of scope properties. We have also settled 94% of commercial claims worth $9.75 billion as at 30^th June 2016,” said Chief Executive Officer (CEO) of the Insurance Council, Tim Grafton.

Global reinsurers paid a significant share of the losses from the Canterbury quakes, and while certain insurance-linked securities (ILS) funds were exposed to the events, they elected to commute their losses early, in an effort to avoid any further adverse loss development.

The Canterbury quakes highlight the importance of settling reinsurance and retrocession claims where possible, particularly if an event could see claims filing dragging on, and the necessity of capping liability for reinsurance claims, as the ongoing deterioration cold prove extremely damaging further down the line.

IAG reported in 2015 that the Canterbury quakes had resulted in further impacts to its bottom-line owing to claims deterioration, and while this meant no fresh losses to reinsurers or ILS players, it demonstrates just how long large quake events can take to fully materialise and the losses to be fully understood.

Reinsurance giant Swiss Re also revealed ongoing loss creep earlier this year, saying that it was impacted by adverse development of its New Zealand earthquake losses during the first-quarter of 2016, further demonstrating the potential for quake loss estimates to deteriorate.

“Insurers have had an additional 394 properties transferred from the Earthquake Commission (EQC) in the last quarter taking the total to 1,620 for the last 12 months.

“It is extremely frustrating for homeowners and insurers to be receiving so many new property claims nearly six years after the events which stresses the need for changes in the future. Insurers should do all assessments for future natural disasters so that the most damaged properties can be rebuilt or repaired much sooner,” said Grafton.

According to reports from the Insurance Council, 340 customers are yet to receive offers from private insurers and 453 properties are still yet to make a decision on the offer they have received.

“Customers who have quires or concerns should seek help from the Residential Advisory Service (RAS). RAS is cost-free, totally independent and can help provide advice and assistance that may help people progress their claim. This service won’t be around forever so we are urging people to make contact with the RAS or their insurer if they are unsure about the offer they’ve received,” said Grafton.

At the end of June 2016, insurers had completed 6,114 major repairs and rebuilds, and cash settled a total 14,891 properties.

Since the impact of the Canterbury earthquakes and the lessons learnt, the EQC has sought to improve the coverage it provides in an effort to make it more financially sustainable and effective.