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IAG Canterbury Recovery Update Dec 21


21 December 2012


IAG has 67,000 earthquake-related claims. Of these, 35,000 are residential claims covering 18,000 properties in Greater Christchurch.

IAG has confirmed with all earthquake customers whether their property is a rebuild or repair. Customers should have this week begun receiving letters confirming which quarter in the next two years the work on their property will start.

IAG will complete its rebuild and repair programme by December 2015.

Although the numbers are yet to be finalised, the IAG rebuild and repair programme is currently about 1700 rebuilds and 3000 major repairs (over $100,000+GST).

New builds average about 42 weeks, with 22 weeks on site. Repairs average about 38 weeks, dependent on the repair.

IAG is prioritising its worst-affected customers, with uninhabitable properties first, then based on criteria similar to that used by the Red Cross. It is envisaged worst-affected customers will be resolved or well into the build phase during 2013.

Customers are encouraged to keep their claims case manager informed of their personal circumstances to ensure their priority status is up to date.

IAG is leading the rebuild, with data (excluding Fletchers) showing IAG rebuild and repair activity is ahead of its market share. At one point IAG was leading half of all rebuild and repair activity (excluding Fletchers), though this gap has narrowed as other insurers rebuild activity increases.

Key facts

• IAG has already assisted 900 customers to purchase a new home.
• IAG has completed 102 new homes, and will complete 500 by July 2013.
• It has completed 50 major home repairs and will have completed 450 by July 2013.
• At peak, the programme will deliver 85 new homes a month, and 150 major repairs.
• At peak, the programme spend will be $50 million per month.
• IAG is aiming to complete its rebuild and repair programme by December 2015.
• About 2200 IAG overcap customers (with damage greater than $100,000+GST) are in TC3.
• About 1800 properties on the flats and 540 Port Hills properties will require drilling.
• Although not all properties will need to be drilled due to sharing of drilling data, each property will have the oversight and sign-off of a geotechnical engineer.
• IAG is working across Greater Christchurch and is progressing TC3 claims, even where EQC has not finalised a land settlement. This can be achieved in many cases with a deed of assignment over any EQC land settlement.
• IAG has paid and closed approximately 57% of material damage and business interruption claims lodged across all events.
• IAG has paid more than $1.35b in material damage and business interruption claims.
• IAG has assisted in the reinstatement of over 200 commercial properties.

IAG confirms rebuild and repair status and property reinstatement timeframes

IAG has met its 20 December deadline to confirm the rebuild or repair status of customers properties.

Customers should have begun receiving letters this week confirming which quarter of 2013 or 2014 the reinstatement of their property would begin.

Customers progressing in the first quarter of next year have been phoned by their claims case manager to ensure they could progress in the short timeframe. There is capacity in the programme for customers to swap dates if scheduled dates did not suit.

IAG has prioritised its worst-affected customers, with uninhabitable properties first, then based on criteria similar to that used by the Red Cross. It is envisaged worst-affected customers will be resolved or well into the build phase during 2013. Remaining red zone owners can enter the programme when it suits them.

TC3 properties have been confirmed as rebuilds or repairs based on assessments of the above ground structure, using standardised foundation costs. Geotechnical drilling and analysis was planned in parallel so that it would be available when reinstatement was scheduled to begin.

Rebuild and repair determinations are based on non-invasive assessments conducted to date. IAG anticipates that when reinstatement work starts, a small number of repairs may become rebuilds.

Working with EQC and other insurers

IAG continues to fund six staff at EQC to advance apportionment of IAG claims.

It also continues to work with EQC and other insurers on issues including cross-lease properties, retaining walls and shared accessways, to streamline resolutions where multiple insurers are involved.

The majority of IAG policies provide for top-up payments for retaining walls, above what is paid by EQC.

IAG is working to identify shared retaining walls and those with single owners in order to progress with owners and other insurers where retaining walls need repair to ensure this does not hold up the Port Hills rebuild and repair programme.

IAG has been working with EQC on TC3 claims that are near-cap and have foundation damage. EQC has this week agreed to handover 26 of these claims to IAG and provide a cap payment. IAG expects to provide certainly to other similarly affected TC3 customers early next year.

Geotechnical drilling

The geotechnical data generated by drilling is vital to determine site specific foundation options for TC3 properties when these are required.

The EQC drilling programme focuses on undercap properties and should be finished by the end of 2012. Insurers will focus on overcap properties with significant foundation damage that requires a building consent to reinstate.

IAG has resourced its programme to drill about 1800 TC3 and 540 Port Hills properties, though this number is expected to decrease as shared data from EQC and other insurers is made available via the Canterbury Geotechnical Database.

This means that the geotechnical data used to assess an IAG customers property may be from drilling not conducted by IAG, but is close enough to provide sufficient information to proceed once analysis of the data is completed.

Regardless of the source of the data, each property will have the proper oversight and signoff of a geotechnical engineer. Decisions on whether a site needs to be drilled or whether existing data is sufficient will be made by geotechnical engineers.

IAG has sourced geotechnical engineers nationally and internationally to ensure capacity to read the data generated by the drilling programme. It currently has more than 30 geotechnical engineers in the programme. The time from drilling to report is set at about six weeks.

IAG will initially drill 180 properties for four months to front-load the programme, thereafter drilling at a rate of 120 properties each month. This approach will ensure that geotechnical information needed for each property will be available when it is needed at the relevant time in IAGs rebuild and repair programme.

The IAG drilling programme should be complete by the end of 2013. The drilling programme is planned slightly below the available capacity to ensure that this date can be met.
IAG is keen to ensure the programme is efficient, and to avoid unnecessary drilling, will confirm there is a customer commitment to reinstate a property before drilling goes ahead.

Worst-affected customers properties will be drilled first, with other properties that have committed to reinstatement being drilled as programme efficiencies allow. Properties that will not be reinstated will not be drilled.

Flood management areas

Recent media coverage has highlighted the repair and rebuild of properties in flood management areas where land has settled further as a result of seismic activity.

Insurance policies respond to property damage or loss, not land damage, which is the responsibility of EQC. EQC has indicated it will cash settle land damage in these areas and that it might take until 2014 before that process is complete.

There is no requirement to lift properties that are undamaged, or do not require significant repairs. The Councils flood management area guidelines do not require owners of undamaged or lightly damaged homes to raise their properties to account for the new flood management guidelines.

IAG is progressing work in these areas, which may involve a deed of assignment over EQCs land settlement if the settlement is needed to fund something like enhanced foundations which effectively are the land remediation.

IAG repair assessments focus on customer properties that are overcap. EQC is responsible for leading repairs on undercap properties, unless the owner opts out of the process.

IAG is also working with EQC and other insurers to streamline processes with cross-lease properties, some of which are in flood management areas.
Port Hills s.124 notices

A s.124 notice is imposed by the Council under the Building Act 2004 due to life risk issues and deprives owners of the use of their properties with immediate effect. Where these life-risk dangers cannot be effectively addressed and the notice cannot be removed, it causes permanent loss of the property, triggering the constructive total loss provisions in the insurance policy.

IAG expects some s.124 notices may still be removed, and sought information from the Council to confirm which properties were likely to be permanently subject to s.124 notices. IAG has received this information and is seeking further engineering advice to determine if a property can be considered a constructive total loss.

IAG will progress these claims on an individual basis as soon as it has the information needed.

IAG customer forums

IAG ran a series of customer forums in November covering all aspects of the IAG rebuild and repair programme. It also supported similar forums for commercial partners BNZ and ASB earlier this month.

More than 700 customers attended the forums, taking the opportunity to ask questions and meet with claims staff. IAG recorded one forum and will make a DVD of it available to customers who were unable to attend. Customers can request a copy from their claims case manager.

Crown acquisition of CBD properties

CERA has identified over 800 land parcels, mainly commercial, that are affected by the central city blueprint. Many of these are now cleared sites, but where a building remains, CERA will also acquire the building.

CERA will try to negotiate a voluntary purchase in the first instance, but will only be able to provide purchase offers to building owners that have provided the requested information about the likely cost of repair. Valuations on acquired properties will be based on the current market value. If a building is damaged, the valuation will take into account the value of the building in an undamaged state, less the value of any outstanding repairs.

In the absence of a negotiated settlement, the Crown will revert to compulsory acquisition, and on completion of that process, all outstanding rights under the insurance claim will lie with the Crown. An owner would then have to pursue its claim for compensation within two years after the proclamation by submitting a claim to the CERA chief executive, with compensation ultimately decided by the Minister.

While most acquired buildings will be demolished, it is quite possible that some buildings will be repaired and retained, especially if their future use can be made consistent with the purposes of the designated area.

Compulsory Crown acquisition of CBD properties

The Crown can compulsorily acquire properties. If this happens, it is neither a requisition nor a confiscation and therefore the confiscation exclusion contained in most IAG insurance policies does not apply. The Crowns acquisition does not activate the constructive total loss memorandum.
Buildings that are acquired by CERA and are a total loss will be settled at the lower of the reinstatement costs or the indemnity value if the insured does not reinstate. Other options, if policy wording allows it, are to rebuild on an alternative site or the purchase of an equivalent building. The Insurance Council of New Zealand (ICNZ) commercial group, which includes representatives of insurers and reinsurers, is in continual dialogue with CERA to better understand the Central City Recovery Plan and the insurance implications of the acquisition process.

Issues raised in IAG’s submission to EQC review

• IAG supports the aims of the review and believes the Act must change.

• The events in Canterbury have highlighted the shortcoming of the current model and its implications for recovery; significant duplication of effort by EQC and insurers; inefficient use of scarce, specialist resources; reduced quality of decision making; significant delays to the recovery effort; reduced public confidence in the EQC and insurers; increased recovery costs.

• The current model does not meet the Governments aims. It does not support the contribution of a well-functioning insurance industry; it has not minimised the fiscal risk to the Crown; it does not support an efficient approach to the overall management of natural disaster risk and recovery; and it has not minimised the distress and loss of homeowners.

• The current model sits outside the normal arrangements the insurance industry has when multiple insurers are „on-risk for the same event and property. This makes EQC a „dual-insurer and embeds duplication throughout the claims management processes, negatively impacting the efficiency of recovery and increasing the distress of homeowners.

• The current model has entrenched within it an institutional dislocation from the insurance industry that has - despite reviews and the lessons of previous events, created limited operational capability for the EQC and insurers to effectively work together after a major event. This has exacerbated the inefficiency of the model and the distress of homeowners.

• The current model is unable to quickly and efficiently scale its response to large natural disasters. This has created structural, cultural and governance issues which have also impacted the effectiveness and efficiency of the model.

• IAG supports the Commissions role in funding research and believes it should be extended.

• The EQC role in educating the public is also valuable, but that its focus should shift away from the science of earthquake risk to how it can be managed; encouraging individuals, households and businesses to take action to increase their ability to withstand and recover from natural disaster.

• Ensuring that the Act enables the Commission and Insurance Industry to provide the best response earthquakes, while important, is in our view just one part of a bigger issue: ensuring New Zealand is best able to adapt, respond and recover from all natural disasters. The current approach to this is fragmented and dominated by research and response. More emphasis is needed on reduction and mitigation and on ensuring the overall approach in joined-up, effective and efficient.

NZI provides contract works insurance in Canterbury
New clients undertaking new construction in Canterbury will be able to apply for insurance covering the building phase under a new facility announced by NZI.
NZI is providing contract works insurance on a case-by-case basis for new clients carrying out new building work in Canterbury. Applications can be made via brokers.
In a press statement released on 11 December, Karl Armstrong, Executive General Manager NZI, said the latest change is part of the companys ongoing support for efforts to rebuild Canterbury after the earthquakes.
“Were delighted to announce this enhancement to our insurance provision in Canterbury, which shows our ongoing commitment to getting the region back on its feet,” said Mr Armstrong.

“The new facility will primarily be available for new commercial construction in the Christchurch CBD, but well also consider the outer areas of Christchurch and residential construction.”

Anyone wanting to find out more about contract works insurance should talk to their insurance broker or see www.nzi.co.nz for more information.

Provision of contract works insurance does not commit NZI to providing cover on the completed building. This will need to be discussed this separately with a broker.

Mr Armstrong said NZI would continue to make more insurance available to existing as well as new clients wherever possible and as changing circumstances allow.

NZIs contract works offer follows the IAG move from 1 October that saw all IAG brands (including NZI) considering new personal home insurance for both new and existing clients in parts of Canterbury on a case-by-case basis. IAG is the largest general insurer in the region.

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