Southern Response and Arrow Bleg

Tomorrow marks 1016 days since the February 2011 earthquake. It will also be the first day we will have had a visit from our insurance company.

New Zealand's insurance regime around earthquakes splits liability for earthquake damages between the Earthquake Commission and your private home insurer. Every home insurance policy comes with a mandatory EQC levy. EQC handles claims resulting from natural disasters, covering damages to your house up to about $120,000 and any necessary land remediation. They also cover outbuildings like garages. Damages to your house above $120,000 are called "over-cap" and require complicated negotiations between EQC, your insurer, and whatever builder you might wish to use. This substantially slows down the rebuild. We would do better to have private insurance companies handle everything and bill EQC for the amount up to the $120,000 cap, with some ex post audits to make sure this didn't just result in insurers providing free gifts to their clients on EQC's dime.

Damages to paths, sidewalks, driveways, swimming pools and fences are called "Out of scope" claims. These are handled by your private insurer as they do not come under EQC's coverage.

We might have expected quicker assistance from our private insurer on our out-of-scope claims than we've received from EQC. We're now on our fourth round of quotations going back and forth from our builder to EQC - this one on a newly revised EQC scope-of-works. I don't know when they'll get that sorted out. But at least we've had a half dozen visits from EQC. This will be the first time we see Southern Response.

Southern Response is the company formed out of AMI after the earthquakes. AMI was Canterbury's largest insurer. We signed up with them because their rates were reasonable and, with their name plastered all over everything in Christchurch, we expected there to be close to zero chance they'd ever fall over - no chance an insurer that's that prominent would be allowed to fail. Turned out that they hadn't bought enough reinsurance and so the total claim liability was a bit higher than their coverage. And so the government split out all their earthquake liabilities along with all their reinsurance assets and a bit of a government top-up into a new company, Southern Response. Southern Response has been very very slowly visiting everybody.

In September 2012, they told me:

At  this instant, I am not able to give you a specific timeframe as to when Arrow will move into the South New Brighton area; they are currently working mainly in the TC1 Grey suburbs where land remediation is not required. Currently Southern Response is estimating that the projected timeframe to have all out of scope claims assessed is approximately 3-5 years.

And so our visit is coming a bit ahead of when I'd expected it. There is no land remediation necessary at our house. But we have substantial heaving on one footpath (broken heaved cement), some broken cement on the drive, a damaged wooden boundary fence, and damage to the in-ground swimming pool.

Tomorrow comes with a bit of trepidation. There have been lots of angry stories about Southern Response and their affiliated contractor, Arrow. The stories suggest that Southern Response has been under cost pressure because the government is on the hook for anything above the reinsurance bundle. It's not at all implausible.

I wish that the government had taken a different approach to the AMI bailout. A better alternative would simply have had all of us take a haircut. Suppose that on a quick assessment total liabilities were 10% over total reinsurance and other assets. Give everyone a 20% haircut on the total value of their claim, then later distribute the remaining funds proportionately. Instead of chiselling costs down by dragging out the assessment process and giving everybody a rough time, they could have just been upfront about things, told us they only had enough money to cover a fraction of our total insurance claim, and paid us our fractional shares. The total amount each of us would have been paid out would not have been much less, but it would have been faster. And because we all would have known that we were getting a fractional payout, we'd move from the combative "I paid for full as-new replacement so dammit give it to me" to a recognition that we paid a discounted premium for a discounted product and that we all need to take our proportionate lumps. Assess each claim relative to its full value as though the insurance company hadn't failed, then pay out the fractional shares instead of pretending that some cheap repair job constituted full and fair replacement. In that world, it doesn't matter if quantity surveyors are highballing all the estimates: everybody's claim gets inflated by say a quarter, then everybody takes a bigger haircut relative to the highballed claims. Highballing can only affect your proportion of the fixed pool of money, but if everybody does it, it's neutral.

I welcome advice about dealing with SR and Arrow from those who've already been through the out-of-scope process.

Update: The surveyor measured up the paths and pave that need replacing, will book in somebody to come and look at the pool, reckoned the fence damage mostly not earthquake [it wasn't like that pre-quake, but damage also consistent with wood twisting over time so hard to prove either way], and will send through by February some quotes for cash settlement. I'll run those by our contractor to see if they make sense. Stay tuned.