There are many building companies with virtually finished houses on their books that they cannot hand over, and many frustrated would-be home owners as a result. You would probably have seen this sort of thing quite frequently on the news recently.
This is something of a bizarre set of conditions when you think about it. It is safe to assume that there is already contract works cover on the properties that the builder took out at the start, so the insurance company is already exposed to earthquake risk, and will continue to be so until the property is sold.
So it is not going to be exposed any more than it is at present. So why not let things carry on, allow the home owner access to funding so they can settle, allow the builder to get the final payment and stop putting pressure on construction resources in the Canterbury region.
Contract works insurance has all but dried up too. Those with annual policies that include earthquake cover are ok for the moment — well, temporarily anyway.
But we understand that on renewal of the policies, the earthquake portion is being removed. Those that apply for contract works insurance on a job-by-job basis are, frankly, out of luck altogether.
The upshot of all this is that work has effectively ground to a halt. Builders in the Canterbury area are under severe pressure as it has now been the best part of 12 months with little new work available.
We are losing capability at the very time we need to retain it, as it will be the locals who form the backbone of the recovery and rebuild — assuming they survive.
Now to be fair we can understand the plight of the insurance industry and the uncertainty they have to deal with. With the magnitude and frequency of the aftershocks it is rightly causing them to wait until the situation is clearer and things have “settled down”.
However, there is no need to have such a harsh policy — ie, a blanket “no new earthquake cover policy”. This is too severe.
They can take a more risk-based approach by identifying regions that are not prone to liquefaction and the like.
The building code has been recently strengthened, and there are many properties that are able to be fully insured whose risk profile has not altered so significantly that providing earthquake cover at this time is commercial suicide.
Furthermore, we have no idea how long it will be before they re-enter the market and provide the catalyst that Canterbury so badly needs. Even if we knew some time parameters (all things being equal of course) then builders would be able to plan and structure themselves with more certainty.
If circumstances change with a new major aftershock then so be it, and we would expect that. But they must have some parameters in mind for their return, so why can’t we know what they are?
We are also aware that the issue is not just a local one — and by local we mean New Zealand insurers. The matter is very much in the hands of the offshore re-insurers who have undoubtedly been hit recently with not just the Canterbury problem but those disasters in Japan, Queensland and, now, the United States.
The decisions are not made locally at all, so the ones who pull the strings are in Europe, Britain or the United States. No doubt they are watching and waiting, so can we really point the finger at our local companies?
Maybe not — well, not entirely. The local insurers must be providing updates and advising the re-insurers so they do have the ability to influence their decisions.
We hope they are passing on the options for re-entering the market, even on a piecemeal basis. We hope they are aware of the financial stress the Canterbury construction sector is under, and that they are doing all they can to avoid this situation.
I only hope that by the time this goes to print my comments are out of date and redundant. Wouldn’t that be nice?