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In which I grumble about insurance companies profiteering on disasters - Tactical Ninja

Sep. 27th, 2012

10:27 am - In which I grumble about insurance companies profiteering on disasters

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I just paid our hugely inflated body corp fees for the quarter. For those who've been distracted by world events, we had an earthquake here 18 months ago that didn't kill a lot of people but flattened the CBD of one of our main cities. Thing is, that city was considered to be not earthquake-prone*. The city I live in, is earthquake-prone. And the Christchurch earthquake caused two things to happen in the world of bureaucracy:

1. Councils got really paranoid about old buildings and how they'd perform in earthquakes.
2. Insurance companies got really paranoid about old buildings and how they'd perform in earthquakes.

It's not just buildings listed as earthquake-prone (of which there are over 250 in Wellington), it's pretty much all buildings that are suffering insurance hikes. Our building is on the earthquake list. There's a plan, it's being sorted, the building will be brought up to the latest code in the next few years, but these things are expensive and we have to save for it. Meanwhile, insurance companies are charging extortionate prices** to insure buildings. They can do this because the law requires the buildings be insured, which means we have to pay whatever they ask or be in breach of the law. Our insurance premiums have quadrupled. This is not a joke - this year we are paying four times as much in insurance as we did last year, and this has effectively doubled our bodycorp fees. I'm told other bodycorps are in similar situations and even people in modern, stand-alone houses that were built to the latest code and are not in the CBD are suffering insurance hikes.

Apparently it's a country-wide problem, because insurance companies might have NZ domain names but most policies are actually owned by multinational corporations that don't know Timaru from Taranaki and thus have just gone "NZ = Earthquake risk!" since the Christchurch quake. So most kiwis are paying a premium on their policies now. This flows into rental costs for those who don't own and blahdeblah housing crisis that I've been going on about for ages.

The saving grace, I'm told, is that as long as we don't actually have another earthquake, the insurance companies will recover a lot of their losses (yes, through extorting it from the rest of us but still), eventually someone in the higher-ups of the insurance companies will start to undercut someone else on the premiums, everyone will switch to them and a price war will ensue that hopefully brings the premiums back to something realistic. It's expected that will take a couple of years. Meanwhile, us in our building are quietly tucking away money to have the building strengthened and I expect that'll happen within a couple of years as well. That should reduce our premiums by us no longer being considered earthquake-prone. And eventually, we'll stop having to pay that earthquake levy.

And by the time that all happens we will be very accustomed to paying exorbitant BodyCorp fees (seriously, ours currently adds up to $1000 a month - without the EQ levy and extra insurance it'd be about $400 a month). It'd be nice to think that when we don't have to pay that any more it could be going towards reducing the mortgage, eh? And that is the silver lining in all this for me - that we can actually afford to pay all this extra stuff that's been bunged on because of the earthquake, and that in the long run it'll help us pay our debt quicker through being used to paying for it. It makes me very sad to think of those who can't afford it - which, due to the recession and our stupid government, is a lot of people in this country. What, exactly, are those people supposed to do?

tl;dr Welcome to NZ, where wankers in other countries get to dictate our living expenses through insurance extortion.

* If such a thing even exists in a country that is only there because of tectonic plates bumping uglies.
** I know, if there was an earthquake they'd still be out of pocket. But insurance is gambling, and in gambling it's always stacked so the house wins.

PS Added for future reference:

"Hi Wendy, You are definitely the sort of person we would like at honours level – we ask that students have a B+ average so your grades are fine. And you can also come back and do honours whenever you like – in 10 years of you want!! There is also the option of taking two years to do it and doing two papers per year – I did have a student who did 1 per year for 4 years. Kind Regards, CrimProfPerson."

Comments:

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From:tatjna
Date:September 26th, 2012 10:58 pm (UTC)

Re: Insurance is gambling

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They are dealing with it - by making us pay for the privilege of them being in our game at all. They know that without them in the game, we have no fallback option for recovery if our building falls down in an earthquake.

The problem is, the government is complicit in the game through the regulation that makes insurance compulsory. Perhaps it should be our choice not to be insured, but where does that leave those left without a home when a house they don't own falls down and won't be rebuilt?

I can see why the compulsory insurance regulation exists, however in this situation it stacks the deck in favour of the insurance companies. What do you think the government should do to avoid the insurance companies using this for profiteering purposes?

Funny how gambling terminology fits so well in this discussion, eh?
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From:tatjna
Date:September 26th, 2012 11:23 pm (UTC)

Re: Insurance is gambling

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The question of who regulates multinational corporations and how is one of the ones that had me very depressed after studying state crime a couple of years back.

When you boil it all down, they more or less regulate themselves. What could possibly go wrong?

I like your idea, btw - although it would have to have some stuff in it to prevent unscrupulous types from deliberately allowing buildings to become run down to avoid insuring them and then renting them out ghetto-style.
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From:tatjna
Date:September 26th, 2012 11:34 pm (UTC)

Re: Insurance is gambling

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I am not really sure what the definition of elegant solution is in policy. That one has me completely stumped.

But then, I'm a ditchdigger, and I like 'just works'.
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From:tatjna
Date:September 27th, 2012 01:14 am (UTC)

Re: About those ditches

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Well, yes. That's why even though elegant solutions (hey look, new word!) are the ideal, the reality as that we often end up with sort-of solutions that are cobbled together to patch a hole in policy, because as anyone who's thought for more than 5 minutes about climate change, drug policy or how to solve the building crisis will know, elegant solutions to wicked problems are not exactly jumping out from behind bushes and going "Oi!" at us.

If there's one thing I've learned at University, it's how to do a good long run-on sentence.
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From:ferrouswheel
Date:September 26th, 2012 11:29 pm (UTC)

Re: Insurance is gambling

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Alternative is to provide this compulsory insurance through EQC? At least then any profit goes to NZ economy. Although I guess that all gets outsourced too, and then even if it was profitable, the government would try to sell it off again. Doh.
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From:anna_en_route
Date:September 26th, 2012 11:45 pm (UTC)

Re: Insurance is gambling

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I think if the government is going to mandate something then it has an obligation to provide a cheap very basic option as an alternative to commercial gouging.

Say a very low cost option that offered 90% of gv on the place but with no added contents insurance etc.

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From:elven_ranger
Date:September 27th, 2012 09:18 am (UTC)
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Our house insurance company tried to put us a flood risk as we live "near" a stream. They had to backpeddle when we proved that we live on the top of a high hill, at the bottom of which the stream (which you can jump over) runs.
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From:tatjna
Date:September 27th, 2012 09:05 pm (UTC)
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It blows me away how they promise security then do everything they can to wiggle out of providing it.
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From:kehleyr
Date:September 27th, 2012 07:24 pm (UTC)
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Ah man... that's insane.
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From:tatjna
Date:September 27th, 2012 09:07 pm (UTC)
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Yeah it's all a bit eye-opening. You see that stuff about disasters on the telly and it's all awful, but the ongoing awfulness that happens as a result of disasters never makes the news. And we have it pretty easy here compared with, say, Haiti. I can't imagine what this sort of thing is like for them.
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From:maholic
Date:September 30th, 2012 06:32 am (UTC)
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EQC levies trippled, in essence the government charges the insurance company

$100 more + GST for a dwelling

$20 more + GSt for contents

end result $138 more levies from the government

the re-insurers doubled their bill to the country (the insurers who insure the insurance companys, the re-insurers paid most of the eqc replacement costs, aka 15billion$ or so) so these increased bills were passed on to the people getting insurance (20-30% insurance hike in the last 12 months alone for most companys)

end result, hard to work out unless you know the exact formula and risk factors in how your premiums are calculated

but a yearly premium hike of 30-40% is likely for most average places (depending on how big the place is, the smaller the place the bigger the % hike due to EQC levies being a fixed amount) ... not sure how your body corp is calculated but that increase is NOT insurance, that is other things too ? i guess body corp includes the rates ? which are stupidly high in wellington (blame the local government for having >200million $ debt and high interest bonds to service)

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From:maholic
Date:September 30th, 2012 06:41 am (UTC)
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also insurance for earthquakes is seperate in most other countries... in california people don't get earthquake insurance very often as its too expensive... its like an addon to normal insurance

i think the excess is $5000 as well

NZ may lose its earthquake insurance being bundled amongst normal house insurance cover... at which point premiums drop but there is no cover in event of an earthquake unless that cover is selected additionally...



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From:maholic
Date:September 30th, 2012 07:10 am (UTC)
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also in most massive natural disasters the insurance companys tend to all go belly up... and sometimes even a re-insurance company can do if they have too much of that market reinsured...(think of katrina and new orleans in usa, the government had to step in as the insurance companys died...)

2 of the nz companys have pretty much gone belly up, one got gobbled up by an australian company (ami) and tower is struggling, i have noticed them dumping all old dwellings from their insurance books in the last 6 months (they transfer to other insurance companys)

insurance is a funny beast, the risk models greatly underestimate the black swan events, (the same models for the financial market) but no one is prepared to pay the premiums required to cover the actual risk involved... so insurance companys just exclude things from cover (read your policy document, if your apartment gets hit by a missile or radiation or other events, you get no cover as it is excluded...)

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From:tatjna
Date:September 30th, 2012 08:05 am (UTC)
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Actually it is the insurance that's increased by a factor of 4. Our bodycorp provides an itemised annual budget, and it's in there - insurance used to be ~$70,000 a year, now it's $280,000 for the same cover. That's all insurance (fire etc) but yep, it's the earthquake and the new perspective on earthquake risk that's made the difference.

Also, rates aren't included in bodycorp fees in our building. We pay them separately. Annual rates here are actually pretty reasonable IMO.
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From:maholic
Date:September 30th, 2012 08:12 am (UTC)
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dang thats some serious insurance premiums! though you live in a huge building

how many seperate dwellings in the bodycorp?

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From:tatjna
Date:September 30th, 2012 08:19 am (UTC)
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It's a combination of retail and residential. There are 31 properties altogether, about 21 of them are apartments.

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From:maholic
Date:September 30th, 2012 08:24 am (UTC)
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do you get to see the breakdown of body corp fees? sounds like the apartments are paying more than the 10 other properties?

it doesnt average out very well

280/31 = 9k per year, if you're on 12k per year, who is paying less? etc
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From:tatjna
Date:September 30th, 2012 06:36 pm (UTC)
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For a start, the $12k is the total bodycorp fees, not just the insurance. The insurance component of that is about $6k. Second, the fees are based on percentage share of the bodycorp - ie, property size/value. I don't know the exact equation but the 2 brm places pay less than me and the 1st floor place that takes the whole floor pays heaps more.

I'm not being ripped off, don't worry - except insofar as we all are on insurance premiums.
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From:maholic
Date:September 30th, 2012 08:20 am (UTC)
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i am assuming 24 dwellings in the bodycorp, seems insane premiums to me

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