$320m HNZ insurance settlement welcomed
Hon Dr Nick Smith
Minister of Housing
12 April 2013
$320m HNZ insurance settlement welcomed
The settlement of Housing New Zealand’s insurance claim over 5559 damaged homes is a significant and welcome step in Canterbury’s recovery from the devastating earthquakes in 2010 and 2011, says Minister of Housing Dr Nick Smith.
“This $320 million settlement is the largest single insurance pay-out in New Zealand’s history. This is great news for thousands of Housing New Zealand’s tenants, for Canterbury’s economy and New Zealand taxpayers,” Dr Smith says.
“The negotiations were complex and challenging. They took several months to complete and involved not only our lead New Zealand insurer VERO, but other New Zealand co-insurers, London insurers and Lloyds of London and Insurance Broker Aon. I was concerned, given the huge sums involved, that this claim could have resulted in years of litigation. I congratulate all parties involved for working to achieve this pragmatic and fair settlement.
“The greatest benefit from this settlement is that it enables Housing New Zealand to proceed with its repairs and redevelopment at pace. It can now get on and demolish, repair or redevelop its housing without the slow and bureaucratic process of having to individually check off each property with the insurer. This settlement enables the repair programme to be shortened from five to three years.
“Housing New Zealand can now move forward and reconfigure its stock for the future social housing needs in Christchurch. The new housing will have a lot more one and two bedroom units and less three bedroom homes. We are also moving from concentrated state housing estates to mixed communities, as research shows we can get better social outcomes.
“This significant settlement gives us the opportunity to rebuild Christchurch’s social housing so it is safer, better aligned to the need and of better quality than prior to the earthquakes.”
Questions and Answers
What was Housing New Zealand’s total
claim and what was it based on?
The original total
claim was for $430 million ($460m less $30m excess). It was
based on what we could claim under our insurance policies to
repair the damage to our houses plus business interruption
costs.
The repair/damage portion of the claim comprised of costs across all technical categories: 17% Red Zone, 3% TC1, 36% TC2 and 43% TC3.
The number of properties under each classification is:
Damage category | TC1 | TC2 | TC3 | No TC | Total |
Structural | 4 | 241 | 351 | 15 | 611 |
Non-structural | 626 | 3060 | 759 | 359 | 4804 |
No damage | 26 | 82 | 6 | 30 | 144 |
Total | 656 | 3383 | 1116 | 404 | 5559 |
Why
is the final settlement less than the original
claim?
The submitted claim was based on a five-year
repair timeframe, which has now been reduced to three years.
This has reduced the escalation component of the claim and
due to early settlement Housing NZ will also earn interest
on settlement monies prior to paying for repairs. In
addition, we have a better understanding of the extent of
damage and the appropriate repair methodologies.
Will
HNZ be able to complete all the rebuilds and upgrades it
needs to from this settlement?
The settlement covers
the repair programme. Housing NZ has a 10-year rejuvenation
and rebuild investment plan of $1.1 billion that will
contribute to increasing and improving our housing stock.
This involves ongoing negotiations with CERA and the
Christchurch City Council.
How is the repair programme
progressing?
We will shortly be starting the large
scale repair programme following detailed scoping and trials
to confirm that we can undertake the repair work with
tenants remaining in situ. Already, 221 badly damaged vacant
houses have been repaired prior to this settlement. Repair
works on 180 houses are about to start in the Bishopdale
area and a further 200 houses in the northern suburbs,
including Kaiapoi and Rangiora, are about to be scoped for
repairs.
How will today’s settlement impact this
programme?
The settlement gives us the certainty and
flexibility to make smarter decisions about our properties,
particularly in relation to the longer term investment plan.
It also enables us to move ahead with the repairs in the
short term without needing to discuss each property with the
loss adjustors. This is also a time saving advantage as we
have shortened the original five year repair and rebuild
programme to three years. In addition it enables us to
accelerate work in the red zone to remove and repair
suitable houses and then relocate them to provide tenants
with accommodation.
How have repairs been funded prior
to this settlement?
Repairs have been funded from
reprioritising working capital that is available to manage a
large housing portfolio. If this settlement had not been
reached we would get to a stage whereby we would have
required part payment from insurers to continue with
repairs.
How much has HNZ spent on repairs to
date?
Approximately 27,000 urgent health and safety
and asset protection jobs have been completed to date
costing $8.3 million. The 221 vacant damaged properties and
other related repairs have cost $16 million.
Will HNZ
focus on repairing all its stock or will it also demolish
and rebuild?
Our focus is three-fold. The first
priority is to complete the 5000 repairs at minimal
disruption to our tenants. At the same time we to build up
to 700 new houses. Our 10 year investment plan details an
extensive work programme to demolish older stock and build
in a way that contributes to the revitalisation and
rejuvenation of some of the worst affected
suburbs.
Will the make-up of state housing change as a
result of this settlement?
The longer term investment
plan for Canterbury identifies a different approach to
social housing so that we are in line with international
best practice for mixed communities. This means developing
medium density housing and building new houses which will
reduce the average age of Housing New Zealand’s
properties. The settlement gives certainty to our ability to
get on with this work now rather than later.
Will there
be the same, more or less state houses available in
Christchurch as compared to pre-earthquake?
Our
commitment is to return the level of social housing stock in
Canterbury to the same as it was prior to 4 September, but
in a better state, by December 2015.
Over the next 10 years the average age of the Housing NZ properties will be halved to 23 years. This will occur through planned intensification on existing land by demolishing 1300-1400 current homes and replacing them with the same number of new homes and releasing new sections/houses for sale to the market. HNZC is looking to raise $439 million from the sale of up to 2700 houses and $122 million from the sale of land.
How many insurers are involved in this
settlement?
Four in New Zealand, led by VERO, and 23
in London/Europe.
Why did HNZ have EQC cover for just
the December 2011 claim?
HNZC was unable to obtain
private insurance for its properties in Christchurch for the
insurance renewal period 31/10/11 to 31/10/12 so EQC cover
was put in place.
What is the size of the EQC
claim?
EQC is still assessing our properties and we
are working closely with them. Our initial estimate is in
the range of $5m to
$10m.
ENDS