Thursday, 18 June 2015

State Insurance

When AMI didn't have enough reinsurance to cover Christchurch earthquake claims, it was rolled into a new government entity: Southern Response. Southern Response took over the claims, got the assets, and had a backstop from the government to cover excesses of the former over the latter.

This was always a bit dodgy. AMI was a mutual: its insured parties were its nominal owners. If it didn't have enough reinsurance coverage, nobody else should have been on the hook for that - and I say this as someone who was insured by AMI.

The fair response would have been to assess total claims costs, total assets, and then provide each member/claimant with a haircut. If total assets amount to only 90% of claims, the homeowners would get an honest assessment of what it would take to fix your house, but the insurance would only pay out 90% of that. You could tweak it a bit, with some of it paid up front and some held in reserve until there were a better picture of real total costs. But it would have been honest, and it would have been fair.

Instead, Southern Response, at least according to the folks looking at a class action lawsuit, just lies about the repair cost. Everybody still takes a haircut, but whether you're dealt with fairly is pretty random-draw. If you managed to get assessed early, before total costs were really known, maybe you did ok. As the pressure to limit payouts to the amount available became a bit more pressing, though...

Here's Georgina Stilyanou:
Mr Cameron said the repair or rebuild figure the homeowner received was, in many cases, vastly different to the dollar figure on the insurer's files.

He said Southern Response customers had been under "immense stress" since the earthquakes and said people's lives were on hold until their claims were settled.

The meeting included videos from Southern Response policyholders talking about their dealings with their insurer.

Among them was a man who had been given a repair figure of $255,000.
An independent engineer then found the property's foundations would likely need replacing and subsequently, a quantity surveyor estimated the cost of reinstatement would be upwards of $1.25 million.

Mr Cameron believed by lowballing claim amounts, Southern Response could end up making about $2 billion in savings.

He said it would take nine years for Southern Response to settle all claims at its current progress rate.
Glad to be out.


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