The Insurance Brokers Association of New Zealand (IBANZ) is concerned that the NHC’s discretionary power to decline cover where a Natural Hazard Section Notice is recorded on a property title is not sufficiently understood.
The Building Act 2004 requires local authorities to issue a building consent for building work on land that is subject to natural hazards where the building work will not accelerate, worsen, or result in a natural hazard on the land. In these cases, the local authority will place a Section Notice on the title.
The Section Notice is intended to make anyone with an interest in the property (such as potential buyers, banks, lenders and insurers) aware of the risk. However, IBANZ is concerned that the implications for NHC cover are not widely understood.
If a claim is made for damage caused by the same type of hazard specified on the Section Notice, the NHC has the right to fully or partly decline the claim.
While this issue does not form part of Treasury’s current review of Natural Hazards Insurance Act levies, IBANZ is recommending it broaden its focus to include it.
IBANZ Chief Executive Mel Gorham says there is the potential for NHC levy payers with section 72 notices to receive no cover up to the NHC cap. There is also concern that the above cap portion of cover could be impacted as some private insurers will only pay out once the NHC accepts its portion of the claim.
“Given the nature of the natural hazards this discretionary cover relates to there could be an increasing number of levy payers who stand to, receive no cover at all in the event of a claim for what seems likely to be the greatest natural hazard exposure their property faces.”
There is also an equity issue which puts some levy payers at a disadvantage to others despite all paying the same levy. “NHC does not have the discretion to decline cover for properties similarly exposed to the risk of earthquake or volcanic eruption.”
IBANZ also questioned in its submission how discretionary cover is funded or provided for by NHC and whether, how and to what extent NHC has reinsurance arrangements in place to respond.
IBANZ believes Treasury should not delay in considering the Crown and local authorities’ (taxpayers and ratepayers) exposure to current Section Notices on titles and how this may change over time if more houses and building work is consented on properties with Section Notices already on their titles, or added to them at the time additional building work is consented.
It warns that the increasing pressure for more new housing, coupled with climate change concerns, could see this become an important issue for more and more New Zealanders.
