Christchurch assets such as pipes and roads remain significantly under-insured. 

The city council is grappling with how to increase its coverage, looking at alternative ways to finance the risk, and insurance methods that provide levels of coverage based on specific scenarios. 

There is $480 million of insurance coverage in place for the city's $8.2 billion of "below ground assets" – its roads and freshwater and wastewater pipes.

Up to 60 per cent of damage to essential infrastructure is covered by the Crown currently, meaning the council only needs to be able to cover 40 per cent of repair costs – but the Government is considering making changes to the policy. 

That means any damage up to $1.2b would be covered now, but the city would have to pay 40 per cent of any additional repairs from its own books.

For reference, the local and central government alliance SCIRT, which repaired much of the the city's earthquake damage, spent about $2.2b on below ground infrastructure – though much of the city's roads and pipes are still in poor condition. 

A council report notes it could "theoretically" raise the money to cover any shortfall, but it would be preferable to increase the insurance coverage. 

Working out the shortfall is not as simple as subtracting the amount of insurance coverage from the total value of the assets.

Council finance and performance committee chair Raf Manji said the cost of the damage from a disaster would lower than the city's total asset value because not everything would be damaged so badly it would have to be replaced. 

Modelling could work out a "probable maximum loss" in any specific event, which was the cost of repairing or replacing anything in a worst case scenario, he said.

The council has worked out the probable maximum loss for its "above ground assets" (which are mostly buildings), and is working it out for its below ground assets. 

Manji said the council was "certainly over-insured" for above ground assets, but under-insured for its horizontal infrastructure. 

It was in "as good of a position as we could be" and a better position than when the earthquakes happened. 

Insurance for below ground assets was both expensive and difficult to get, he said. 

The council was looking at options to shift some coverage to insurance linked securities, and considering policies that specify levels of coverage for different scenarios, such as more coverage for a magnitude-7 earthquake than a magnitude-6.

Manji, mayor Lianne Dalziel and chief resilience officer Mike Gillooly met with insurers in June to discuss moving to a more risk-based approach. Manji said feedback was positive. 

If another disaster were to happen, much of the damage would be to assets already "knackered" by the last earthquake, while the new infrastructure should be much more resilient, he said. 

For "above ground assets" (largely buildings), the council has $2b of insurance coverage for $3.5b worth of assets, a shortfall of $1.5b. The value of the city's above ground assets is expected to rise to $4b in the next year as the city continues rebuilding. 

The probable maximum loss for above ground assets was modelled to be about $1b, meaning the city's current insurance level would still cover some of the under construction projects such as the metro sports facility.

Council-controlled companies such as lines network Orion and fibre network Enable were well covered with their own insurance on top of the council's coverage, Manji said. 

The finance and performance committee has asked staff to look into other risk management options to go alongside traditional insurance. 

Insurance Brokers Association of New Zealand chief executive Gary Young said it was good the council was taking a proper look at its risks and analysing how to best manage them, rather than passing them onto an insurance company without thinking about the real risks it faced. 

Christchurch probably knew better than anyone what happened to underground services after a major earthquake, so should have a pretty good idea what was likely to happen if there was another one, he said. 

Coverage for specific events was likely to become more refined as insurers became more knowledgeable about the risks in New Zealand, Young said. 

Stuff