Insurance follies

A few Christchurch stories that ought be read together.

Item the first: Insurance companies seem to be deliberately dragging their feet so that policy holders will give up and take indemnity payments.

We were insured with AMI. Its Christchurch Earthquake claims are now being handled by government-owned Southern Response, carved out of AMI before the rest of the business was sold to IAG. They have told us that out-of-scope claims like ours - the parts of the claim that are solely covered by private insurance and have nothing to do with the government's Earthquake Commission coverage - will be assessed "within 3 to 5 years". They haven't answered emails about the out-of-scope claims where the damage is getting worse because it's not been repaired. I think that they hope that I'll give up and fix everything myself out of pocket so they can then refuse to pay for the repairs. The "insurance is a scam" feeling gets stronger.

Item the second: If you want to have the terms of your insurance contract enforced, you need to sue them.

Item the third: The government has made it a bit hard to route around its preferred project managers, Fletchers. We have opted out because we wanted to specify our own builder, and we hope that will turn out well. Going with Fletchers seems a lotto ticket with a lot of downside variance. Read the comments section for different homeowners' experiences. The best advice I've there seen: videotape your whole house before the builders start and video it again afterwards.

Item the fourth:

An insurance advocacy service for quake-hit Cantabrians will be smaller than originally planned, Earthquake Recovery Minister Gerry Brownlee says.

In July the Christchurch City Council voted unanimously to ask the minister to establish an insurance tribunal and advocacy service in the city.

The service was being managed by the Canterbury Earthquake Recovery Authority and would help residents battling for information about when, or if, their homes would be repaired.

A spokesman for Brownlee said the need for such a service was "no longer as great".

"The need is lesser than it was and the [service Cera is] designing will reflect that."

I'm sure that this is because Brownlee figures everything's going well so the programme isn't needed rather than because successful advocacy would increase the government's liabilities via Southern Response. I'm rather glad that the University of Canterbury's Law School is here helping out.

The Dismal Science: Stadiums edition

The rather strong consensus of the academic literature shows that government subsidies to sports stadiums fail to deliver promised economic benefits. 

Massey's Sam Richardson, and co-blogger at The Dismal Science, has done the academic heavy lifting in New Zealand; most of the other bloggers syndicated at The Dismal Science have chimed in from time to time with our takes on things.

Close-Up highlighted some of Sam's work on stadiums; I popped up a bit but the serious work on this issue is Sam's. When Mark Sainsbury asked what Earthquake Recovery Minister Gerry Brownlee thought about the economic case for stadium subsidies, Gerry replied: 

"They say that economics is the Dismal Science. And you've found some really good exponents of that."

Indeed, Gerry. Indeed. 

I will be hitting some of the highlights of our collective prior efforts on stadium subsidies at The Dismal Science feed at SciBlogs. Enjoy the mini symposium! 

Sick of the Swiss

When Canada decided it needed some national nemesis other than the Americans (anti-Americanism having become ridiculously overdone at the CBC), we turned to our national comedy act, The Kids in the Hall. We've been at pretend war with the Swiss ever since.

When Cabinet decided New Zealand needed a national nemesis, they should have left it to the Topp Twins. Or, if they weren't available to hate on the Finns, Flight of the Conchords are almost as good.

Instead, we got this in the House from the Hon. Gerry Brownlee. (Vid HT: The Listener, who covers more of the controversy)

Brownlee goes just a bit over the top at 3:52.

But I did enjoy Federated Farmers's Twitter response to a quip about how they have Nokia and we have sheep:

@ChrisKeall 'More money selling a Nokia than a couple of sheep’? Nokia lost €954m in Q4 and sales were down 31%. C/W stats.govt.nz/browse_for_sta…
— Federated Farmers (@FedFarmers) March 26, 2012

Oh, Finland, it's so on.

Update: I'm so sick of the Swiss.

Picking the high variance play

Yeah, I know that Bill Easterly has thrown a big monkey wrench (data quality) into the notion that dictatorships produce high variance outcomes relative to democracies. But it's not implausible that a good choice of dictator could yield better than average outcomes. And far worse outcomes too.

No Right Turn lists some of the features of the legislation [draft as at first reading linked] under which Christchurch folk will be living for the next few... months? years?

CERA has the power to demand any information about anything from anyone. No warrant, no oversight, no safeguards. This is more power than the Serious Fraud Office, and with fewer checks and balances.

CERA, which means the Minister, also has wide powers to "assist" the rebuilding of Christchurch. They can:

• Overturn any planning decision;
• revoke or amend any resource consent;
• force councils to allow any resource consent;
• compulsarily acquire property without any public interest test;
• demolish your house even if it is undamaged;
• dissolve elected local bodies if they fail to do what Brownlee says.

And all of this without any effective rights of appeal and with only limited rights of compensation.

And to cap it all off, there's the same dictatorial power to amend laws by regulation originally seen in CERRA v1.0.

Dean Knight provides a few detailed objections.

Let's leave aside for now my usual weeping about the decline in rule of law and the lack of a constitutional spirit among voters that would restrain such things. Instead, let's look at the legislation as a high variance play.

A best case use of these powers could be really beneficial for Christchurch. If Ikea wanted to set up in Christchurch, they could probably start construction the day after buying some property out near the airport. We'd effectively be a special economic zone within New Zealand where competitors couldn't stop things through RMA objections. There will be at least some developments of this sort that come of the lifting of the regulatory lid; fast-tracking some of these kinds of projects through what would otherwise have been a multi-year regulatory approval process seems very beneficial.

But a plausible worst case use of the powers isn't particularly nice. I'm most worried about the potential for expropriation: consolidating some land titles downtown for urban renewal will be awfully tempting. I have a hard time imagining the worst case would be much worse than this; the government does face a re-election constraint. But I also would have had a hard time imagining a lot of what's already happened.

The case for expropriation is pretty weak. In normal times, government turns to expropriation with compensation as a solution to hold-out problems. In the US, this has often been used to steal people's homes and turn them over to developers (Go to Google, type Kelo v. City of New London); I've heard of nothing comparable here.

But imagine that government deemed it critical to reconstruction that some new private facility gets built downtown. If there were only one possible location for the facility, and if all the current owners knew that, each would try to extract maximally when setting selling prices; government might then try compulsory acquisition at post-quake prices, and hopefully they'd settle on something reasonable. But the earthquake has flattened enough of downtown that there ought to be multiple potential locations for any facility the government might want. Dominant assurance contracts should then have a good chance of working.

Here's a scenario. Suppose that sites A, B, and C are potential decent spots for some new project. Titles are spread over a dozen owners in each place. The developer approaches each of the three dozen owners and offers the following deal:

I'm looking to build and I'm eyeing up a few different sites. But I need a big enough space that I need to buy from a few folks to make things work. Here's the deal. I'll pay you $(some non-trivial amount) right now for an option to buy your property at the land assessment value from 2007. You get the cash in hand whether I exercise the option or not. If everybody else in the block of land where your property is signs on, I might exercise the option. Or I might go with one of the other sections if everybody signs on there. Point being - you get cash in hand right now if you sign on, and a great price for your land if I exercise the option. Can I get you a pen?

Holdout problem solved, and with it any need for expropriation is gone. I really hope that the government encourages this kind of thinking, or at least uses some of the properties Council already purchased over the last few years, before looking at compulsory acquisition.

Ikea for Christchurch

Remember back in 2008 when RMA considerations stopped an IKEA from opening up in Wellington? They would have been too popular, ruled the RMA boffins - the traffic would have been too bad to let them open. One wonders how much lobbying by Ikea's crappy NZ overpriced furniture competitors was involved. As a side note: if you're moving to NZ, fill up whatever space is left in your shipping container with IKEA flat packs, then sell them here on TradeMe for double the price.

Anyway, Susan suggests an excellent idea. If Gerry Brownlee is a one-man zoning-and-regulation-overruling machine, let's get an IKEA for Christchurch. Stuff the RMA processes where IKEA competitors wail and moan about lost amenity value or increased congestion. Now's the time to do it.

Lots of us need to buy new stuff due to quake damage. Gerry could designate a pile of land around the airport as being some new business development zone such that farmers could easily sell out to folks wanting to put the land to higher valued uses. It's in the shadow of flight paths, so they've not wanted to allow it for subdivisions. An IKEA would fit in just nicely.

Gerry, make it so. I'm hungry for some meatballs with lingenberries. Please tell IKEA that no red tape stands in their way if they want to open in Christchurch in the next year.

IKEA: if you've any kind of Google Alerts on your name and Gerry doesn't get in touch, and if you were still at all interested in a New Zealand location, now's the time to move. Please? Please!

Susan gets the credit on this one - her excellent idea.