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Council flats in Christchurch - Source: ONE News -
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You have to be a certain age - but not old exactly - to remember it was once the Earthquake and War Damage Commission.
Times change and the public insurer, set up in the shadow of World War II, got its new act and new title in 1993. But in the wake of the Christchurch quakes it faces its next upheaval, and there are big changes in the pipeline that will affect the insurance cover of all householders.
With its reserves drained, its coverage in question and its level of service under attack, Treasury has made the first rough pass at drafting terms of reference for a full review of the scheme.
Earthquake Recovery Minister Gerry Brownlee says the big questions are clear; did EQC gear up quickly enough to handle claims, was the level of cover adequate, was EQC in the right part of "the stack" in covering the first $100,000 of building insurance cover, was the land cover sufficient, and should it continue to cover contents?
Brownlee says he is in no great hurry to get the review under way, arguing EQC has enough on its plate without diverting resources - and the December 23 aftershock showed how things can change "damned quickly".
But some changes seem certain to emerge, even before the formal review starts.
Dropping EQC's contents cover, which tops out at $20,000, seems a no-brainer. The commission had to hire a lot of staff to cover relatively minor claims.
"$20,000 for claims? It's neither here nor there in a total loss situation," Brownlee says.
Private insurance covers contents in other circumstances and including earthquakes would likely add only a marginal cost to premiums.
EQC chief executive Ian Simpson is on the same page.
"Personally, that's the one I am relatively strong on and I haven't heard anyone argue against it so far."
Of the $2.834 billion paid out by EQC so far, only $385 million was for contents.
"It's a relatively small percentage of the actual cashflow."
He too points to the high administrative costs of handling contents claims.
EQC had undertaken a big advertising push, and had teams taking photographs of the evidence.
"Contents are the area where we are more open to fraudulent claims so we have to put that care into it."
Private insurers were better placed to handle that side of the business.
"This is what they do. They have got all the front-end mechanisms, they have got the supply chain; just go to Harvey Norman and replace it and you are covered. So it just makes sense that we pass that across," he said.
Private sector insurers could also offer more flexible excesses than EQC's set $200.
But EQC's continued existence seems not to be in doubt. "I am very firmly in the camp that it was worth having and thank goodness we had it," Brownlee says.
"The review is not going to take the position, 'Do we need EQC or not?' I would expect that to be answered fairly quickly. In the circumstance it served us very well."
In the early stages, it gave Cantabrians certainty that if they faced a total write-off of their house the first $100,000 was immediately available.
"So if they had a mortgaged property they had mortgage relief immediately. If they had no mortgage they had $100,000 that was going to eventually be spent on their rebuild or their recovery. If they were waiting for the private sector to get all of that they would still be waiting."
Managing the repair process through the project management office (PMO) and Fletchers had also worked well, Brownlee believes. Paying cash instead could have undermined property values if it left future buyers suspicious of the quality of repairs, or homeowners spent the least possible.
"What concerns me is ... people buying properties and discovering that actually there are several piles in the living room that have sunk and had been spanned OK until now, but now the joist had broken and you had a major on your hands.
"So yes, it takes time but the repair jobs were always going to take time anyway. There's a bit of ruffling around the edges at the moment but at least we have got one place to go to outline our expectations about the level of quality in that work."
Also on the table is the maximum payout by EQC on buildings, set at $100,000 and not changed since 1993.
"That would have been at least three-quarters of the cost of a new build. Nowadays it is something north of 25 per cent," Brownlee said. In 2008, EQC said that $100,000 would have been $200,000 if it had kept pace with inflation.
Doubling EQC's maximum liability to $200,000 would not double EQC's risk, however, because the average cost of repairs to a house is only $30,000.
Whether or not EQC covers the first $100,000 or the last $100,000, putting private insurers ahead in the queue, as they do in many overseas regimes, has been raised.
But Brownlee sees no need for change. "I don't think that is going to be very hard to answer. It is that first $100,000 that served people well. Where they had total loss they could be cashed out quickly."
Simpson seems less certain. Being at the front of the queue for payments meant EQC was handling far more of the claims - 389,000 for buildings in Canterbury so far against 20,000 to 30,000 by the whole private insurance sector. That would fall dramatically if EQC was moved to the back of the payments queue.
Whichever way the review turns, it seems certain the $100,000 maximum will increase to at least $150,000.
Less clear is the future of EQC's land cover. It effectively limits any payout to the value of a minimum lot size (effectively eight metres around a house) which can often be much less than the value of the section. That in itself can leave homeowners out of pocket, but it also throws up gross inequalities.
For instance, the owners of a $2m property on Cashmere Hills would get a payout of more than $500,000 while the same-sized section in the east of the city would have been due less than $100,000.
One way to deal with that would be a differential levy.
Brownlee says the review would need to look at whether there could be a charge against the capital value.
"That's probably reasonable and that's where you should go to," he says.
Simpson also flags possible changes to the land cover.
He said the cover was added in 1973 after the Abbotsford slip disaster and was aimed at landslips. "What we are seeing is a different style of land damage in Canterbury; widespread damage but also damage that fixes itself. Liquefaction sets and fixes. We are trying to work through: how does our cover respond to this?"
EQC has put forward the idea of an indexed levy. Simpson says without such a mechanism there had been no incentive since 1993 (before this year's levy tripling) for a "step-change" in any one year. Labour has suggested the levy be applied through rates, rather than as an add-on to fire insurance.
Simpson is reluctant to buy into the political fight, but agrees one option would be to raise it through the rates, or to raise a proportion to cover land that way - allowing for a differential levy to reflect property values.
There are other complex and far-reaching issues that the review may consider. In its post-election briefing to Brownlee, EQC suggested pricing and cover based on construction materials and house size.
As Simpson puts it: "We are trying to start some work on what does the public own as risk. What about, where we build and how we build and all those sorts of issues?"
That could go as far as building codes, and whether there is an over-reaction to the Christchurch quakes.
"On the one hand, there is a risk post-Canterbury we massively over-engineer our building codes so that everything stays absolutely fixed in a decent earthquake, when we might not have another earthquake for 50 years, and we have invested all this money in the ground versus having something that is easily repairable."
There is a "social risk management" trade-off that needs to be built into the traditional financial risk management - that is more than just a question for EQC.
"We are quite keen to take a holistic approach."
Would it be better to use traditional wooden piles that allow a house to be relevelled - "whereas a lot of the stuff that was being built in Canterbury you can't - it's gone".
