Under-insurance tackled

Coran Lill

Saturday 17th April 2004

The new president of the Insurance Council is looking to the government and the community to help solve the problem of people having no insurance or under-insurance a problem highlighted by this year's February floods in the lower North Island.

David Smith, who is also chief executive of IAG New Zealand, which houses the NZI and State insurance brands, has started a two-year term as the council's president.

He blamed some New Zealanders' inadequate insurance on government relief packages. He said they were understandable and necessary but created a false safety net.

"If you look at it purely from an insurance industry perspective, [packages] do not necessarily encourage people to take out adequate insurance coverage, because people think: 'If something happens to me, then I'll be helped out.' The reality is the help they will get is not anything near what they would have got if they'd had proper cover."

The Insurance Council had estimated as many as one-quarter of Kiwis are uninsured and in smaller communities the figure might be as high as 40%.

The solution, Smith said, was for the council and the industry "to raise the awareness" in the community of the effect of inadequate insurance, to encourage people to improve their insurance and for insurers to produce more innovative products.

This would involve the council working with insurance companies, government and regional councils, Smith said.

"This is a discussion that requires communities to get involved. It's a discussion that the government needs to have and it's one the insurance industry needs to have as well.

"I'm not demanding full insurance. What I'm saying is people are not aware that they do not have adequate coverage to preserve the lifestyle that they have.

"What I get troubled with is when I actually see victims of these disasters who don't have that coverage and only then realise."

Inadequate insurance became a community and government problem in a disaster not an insurance industry problem, he said.

However, he agreed it was a problem for the insurance industry to help solve.

"The time that people look at the adequacy of their contents cover . . . is at the time of the loss. Wrong time to be looking at it."

Smith said there was a lot of room for innovation in the insurance industry to target people for whom insurance is not "top of mind."

This included tailoring products to specific areas and producing more basic products to encourage uninsured people to buy policies.

IAG has commissioned research to look at New Zealand flood patterns in conjunction with Environment Waikato (the area's regional council), NIWA (National Institute of Weather and Atmospheric Research) and Australian researchers.

Smith said a major issue for the insurance industry was climate change and an emerging trend in New Zealand for more frequent severe storms.

"What we're looking at is the flood incidences in New Zealand and mapping that. Then we can actually engage government and communities in what is very much an issue for them.

"You can't avoid the floods but maybe you can do something to minimise damage and mitigate some of the risk," Smith said.

The problem of inadequate insurance is just one of the items Smith has on his ambitious to-do list.

He was definite that compulsory house and contents insurance had no place in New Zealand but he wanted third party motor vehicle insurance to be compulsory.

He would be part of the constant industry-wide battle against insurance fraud, and intended to reignite debate on the "unfairness and inequity" of the Fire Service levy.

The levy should be paid by property owners, he said, but he acknowledged the industry had had difficulty getting any real traction on the issue in the past.

He's also keen to see discussion about whether New Zealand needs a pool of funds for terrorism cover similar to the Earthquake Commission.

"All I want to do with this is have the debate.

"It may be determined that we are in such a low-risk zone that it's not required but at least let's have the debate."

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