The Natural Hazards Insurance Bill was introduced last week to replace the Earthquake Commission Act 1993. 

At a time when climate change and natural hazards are again in the news, its timely to see the Government’s move to implement change to an important Crown Entity charged with not only responding to claims but also reducing the impact of natural hazard damage, improving community resilience to and recovery from natural hazards and reducing the cost of recovery. 

It comes almost two years after the Report of the Public Inquiry into the Earthquake Commission. The Inquiry, chaired by Dame Sylvia Cartwright, highlighted significant shortcomings in EQC’s preparedness and response to the Canterbury Earthquakes, saying the shortcomings in EQC’s response resulted in unacceptable stress, distress and delays in some people’s recovery and repair of their home. The Inquiry called for lessons to be learned and for relevant legislation to be updated. It also highlighted the impact of climate change on the frequency of flooding in particular, with extreme rainfall events expected to become more frequent in most parts of the motu.

EQC’s role has always extended beyond earthquakes to wider natural disaster damage, but this was not always clear to the public. It’s all in a name and we think there was general confusion or uncertainty about EQC’s role because the Act’s title and EQC’s name highlighted earthquakes only. The new Bill clarifies that. It moves away from an apparent focus on just earthquakes by:

• Making it clear from the title of the Bill that the scope of the legislation reaches further than the impacts of earthquakes to natural hazards. The Bill covers damage caused by earthquakes but also hydrothermal activity, landslides, tsunamis, volcanic activity, floods and natural fires. 

• Proposing a name change for EQC to ‘Toka Tū Ake - Natural Hazards Commission’ which translates as ‘the foundations from which we stand strong together’. 

The Honourable David Clark, introducing the Bill, said it ‘takes into consideration the important lessons we’ve learnt over the past decade’, referencing the experiences of Cantabrians after the 2010/2011 Canterbury Earthquake Sequence, and the Government’s intention to incorporate a number of recommendations from the public inquiry into the Earthquake Commission. 

The Bill aims to improve claims handling and settlement by clarifying the Commission’s obligations on claims (including an obligation to settle claims ‘as soon as practicable’), introducing a dispute resolution scheme and a code of insured persons’ rights. The Bill would also allow for independent review of unresolved complaints, extend the Commissions ability to delegate claims settlement functions to private insurers and allow the Commission to decline claims in certain situations.

In addition to streamlining the claims process following natural disasters, the Bill aims to:

• Clarify rules for mixed and multi-use buildings.

• Extend the damage period for volcanic activity from 48 hours to 7 days.

• Clarify repair standards for buildings and land cover, including specifically excluding cover for seismic upgrades for earthquake prone buildings.

• Improve cover for retaining walls and bridges and culverts and standardise building cover for items located beyond the boundary of the land.

• Update and standardise claims excesses.

• Update the list of excluded property and allow for future amendments to be made to the list by Order in Council.

As the Bill is still in its first reading, there could be significant changes yet to come. For now, we think:

• The plain language of the Bill is a significant improvement, but more will still need to be done to help insureds understand their rights (particularly around concepts like the role of construction professionals, the ‘when new’ standard and ex-gratia settlements). 

• The move to establish a Code of Insured Persons’ Rights is positive. The purpose is clear - to set out the rights of insured persons to have their claims managed and settled in a fair and timely manner. There are also high level statements of what the Code will contain, including the fact that it must confer rights on insured persons and impose obligations on the Commission for how it deals with insured persons, and remedies for Code breaches. A draft Code has not yet been developed. Our guess is that the content is likely to mirror the current ICNZ Fair Insurance Code.

• The delegation of powers to private insurers under clause 127 of the Bill was expected after positive experiences in claims handling after the Kaikōura earthquake. Insureds reported fewer experiences of being stuck between EQC and insurers because private insurers carried out assessments on EQC’s behalf.   Formalising the ability to delegate claims handling is positive, but the details of these possible delegations are still vague - it is uncertain when the Commission may decide to delegate its powers or how the Commission will ensure private insurers deliver on the Commission’s obligations under the new Code. In the Report of the Public Inquiry into the Earthquake Commission, Dame Sylvia Cartwright spoke positively about the Kaikōura experience but cautioned against a one-size fits all agency model where functions were simply delegated to insurers. The Inquiry referenced a ‘toolbox’ of options which EQC had available to it and which would be actioned in difference scenarios. This is not information which is easily accessible to the public, and we think it should be.  A key theme from the Inquiry was the lack of clarity about EQC’s role, and further improvements are still needed. Although the Bill makes significant improvements in clarifying the role of the Toka Tū Ake - Natural Hazards Commission’ it will be important for the Crown Entity to share information on what this means in practice and how it will, in fact, respond in different scenarios. Currently there is no clarity on when Toka Tū Ake might delegate its functions to insurers. We think there is value in making this public so there is certainty about what will happen, and when, and which organisation will be tasked with. 

• The delegation of powers to insurers should also allow greater and more efficient cooperation between Toka Tū Ake and insurers, for the benefit of insureds. However, the Inquiry said insurers and EQC will need to commit to this. It will be important for those parties to continue to engage so that this focus, momentum and new-found understanding is not lost.

• There will be challenges in aligning the rights, powers and obligations with the proposed Insurance Contracts Bill. For example, we think that care should be taken when the wording is amended to ensure that gaps do not emerge between when the Commission and private insurers can decline or limit cover.

• In a Bill dealing with the Commission, it is not surprising that the proposed Code only relates to it. Given the ability to delegate claims handling to private insurers, however, we would not be surprised to see an expansion elsewhere of the codification of rights to private insurers. The Insurance Contracts Bill has made significant steps particularly in disclosure requirements but there has not yet been a move, for example, to codify claims handling rights and obligations. Currently, that is dealt with by the ICNZ Fair Insurance Code which applies to all ICNZ member companies. 

The Bill is intended to come into effect as early as 1 December 2023 (or 6 months after Royal Assent). Insurers were involved heavily in submitting on the Bill, and we suspect will be watching with a keen eye as the Bill progresses. We will keep you updated as the Bill progresses including letting you know when the Select Committee calls for submissions. At a time when the insurance industry is undergoing a lot of change, with various legislative reforms underway, it is important to have your say.

The proposed Bill can be accessed here. 

Special thanks to Sam Hider and Morgan Couch for their assistance in writing this article.