The Extent of EQC Liability for Damage from Sea-Level Rise

Abstract

This paper considers the extent to which damage associated with sea-level rise is covered by insurance administered by the Earthquake Commission (EQC). EQC provides a natural disaster insurance scheme to help households recover from disaster and manage the fiscal risk to the Crown from natural hazards. While sea-level rise is not an insurable event, it will substantially increase damage from storms, flooding and landslips, which is covered by EQC. EQC cover complements private residential building insurance by providing cover for land underneath insured buildings damaged by natural disasters, and is bundled together with private insurance, meaning that if private insurers withdraw cover due to increased risk, EQC cover is also withdrawn. While EQC’s role is in post-event recovery, it has a range of methods available for settling claims, including replacement, reinstatement, and relocation, and is able to require that claim settlement payments be used to repair damage, meaning it also has an indirect role in pre-event resilience. Further, EQC’s recently adopted approach to settling claims for increased flooding vulnerability by paying the diminution of land value arguably extents its role beyond its primary focus of immediate recovery from disaster. However, EQC does not currently have discretion to take pre-event resilience into account when electing claim settlement methods. An inquiry into the EQC scheme is currently underway, focused on the Canterbury earthquakes, and as such the scope does not encompass climate change issues. The inquiry will inform legislative changes. While it is imperative that the inherent nature of EQC as a natural disaster insurance scheme is preserved, it is also clear that there is room to investigate changes to EQC’s policies to enable it to take a direct role in supporting pre-event resilience, within its existing scope. This could be undertaken alongside the current inquiry. EQC considers there is a time-bound dimension to managing the impacts of climate change, with the most significant effects likely to occur in the short term while longer-term planning is undertaken by local and central government. This does not preclude policy change in the short term; and reconsideration of EQC policies on relocation, replacement, and reinstatement, in particular, could also support longer-term planning by other agencies.