E for Effort: The EQC Report Card (Part 1)

By Jesse Dykstra 30/08/2011

EQC_assessMARTIN DE RUYTER/The Nelson Mail

Perhaps it’s a good time to give the EQC a preliminary grade on their performance following the Canterbury earthquakes. After all, New Zealand homeowners pay EQC premiums every year to help ensure that our communities are able to recover from natural disasters. So, has the EQC met the expectations of the public that they serve? And are those expectations realistic, given the limited size (only 21 regular full-time employees) and resources of the EQC?

Who are the EQC? What do they do?

By now, many New Zealanders will be well accustomed to what may be the most-uttered acronym in New Zealand, EQC.

EQC was established in 1945 by central government to “provide earthquake and war damage cover for purchasers of fire insurance” (eqc.govt.nz). For nearly 50 years EQC premiums have been collected from residential property owners to build up the Natural Disaster Fund, which reached a pre-Canterbury Earthquake value of nearly $6 billion. During that time the EQC scheme has evolved, adding cover for other natural disasters, including landslips, volcanic eruptions, tsunami, storm, flood, and geothermal activity, and removing cover for war damage. In its current state, EQC cover protects residential property owners to a maximum of $100,000 (plus GST) for buildings and land under buildings, and $20,000 (plus GST) for contents.

The modern EQC is a small Crown entity which is governed by a board of commissioners appointed by the Minister of Finance. The EQC reports to the Minister through the national Treasury, and operates under its own act of Parliament, the Earthquake Commission Act (1993). The Act ensures that in a major natural disaster, the EQC will invoke its Catastrophic Response Programme (CRP), which is a detailed plan for accessing and mobilizing the resources that will be required during such a time, including additional staff and equipment.

The 2009 Review of EQC’s Response Capacity

The EQC’s capacity to deal with a significant disaster was recently reviewed independently by a panel of external specialists, led by retired General Peter Cosgrove of the Australian Defence Forces, and Karen Stephens, former emergency manager for Wellington City Council. That review was published in May, 2009 in a 32-page document entitled “Review of EQC’s Catastrophic Response Capability” (here). The report noted that during normal times (i.e. when the CRP is not in effect) the EQC has a total staff of only 21 persons. The report also noted that while the EQC may be called upon in a major disaster to respond to up to 150,000 claims, to date it managed events of up to 6000 claims only (i.e. the 2007 Gisborne earthquake). The 150,000 claim “worst-case scenario” was based on a future Wellington Earthquake. Prior to 2010, the EQC had performed well in its response to disaster events, but those events were one, or even two orders of magnitude smaller (at least in terms of claim load) than what was expected in a “major disaster”.

Here are just a few of the recommendations put forth by the panel in 2009:

• reduce duplication of effort in processing and claims approval between EQC staff, support services staff in Brisbane, and private insurance companies.

• government guidance on acceptable claim processing times.

• establish a “shop front” early after a major event, where people can obtain information and lodge claims.

• improve public communication.

• streamline audit process for claims.

• share resources with the insurance industry and eliminate duplication of claims processing, multiple call centres, multiple assessments and inspections, etc.

• develop relationships with engineering firms who can inform EQC loss adjusters on whether or not full engineering inspection/reports are required.

• consider providing training and other support for recently retired professionals who could quickly supplement loss adjustment staff.

The Reality Check: 2010/11 Canterbury Earthquakes

By now we all know that New Zealand experienced its first major disaster of the EQC era on 4 September, 2004. Nearly 157,000 claims were lodged with the EQC after the September earthquake, followed by a further 156,000 claims resulting from the aftershock of 22 February 2011 that devastated much of Christchurch’s CBD, and heavily damaged the eastern and southern suburbs. That’s a total of 390,000 claims (and counting), or nearly 65 times the number of claims from the previous largest disaster that the EQC has faced, the 2007 Gisborne earthquake.

See Part 2 for continuation