COMMENT
Insurance is one of the world's more fair-weather products. We all know it is sensible to have it, yet some of us are happy to regard it as an optional extra when confronted by other, perhaps more instantly attractive, spending priorities. However obvious the risk of not having cover, such people are prepared to accept it. They are even more likely to take a chance if they know the Government will bail them out should their property be stricken by earthquake or flood. Indeed, they are being provided with an incentive not to insure their household because they know they will not have to bear the cost.
That mindset seems to have become disturbingly prevalent. The Government has discovered that about 60 per cent of the homes seriously flooded this year in the Manawatu region and the Bay of Plenty were uninsured. The percentage may be particularly high there because of the relatively low cost of houses in rural areas.
But the Insurance Council estimates that up to a third of New Zealand homeowners do not have household cover. These people were doubtless comforted by the Government's readiness to provide handouts to the uninsured victims of this year's flooding - and will have felt little need to seek their own cover.
The burden for providing relief for the uninsured falls, of course, on the taxpayer. In effect, many people who have voluntarily taken their own insurance precautions are being imposed upon by those who have not. The insured are subsidising the uninsured. By any yardstick, there is an element of unfairness in this. It is, therefore, reasonable for the Government to have begun investigating whether some form of compulsory household insurance is needed, so that everyone is covered against disaster.
The Finance Minister, Michael Cullen, says a review will examine whether it is possible to "incentivise" the uninsured to take out cover. Such a path is fraught with difficulty. Much money may be spent for little effect. The issue of household insurance has strong parallels with that of superannuation. Concerted publicity has done little to persuade more people to take greater responsibility for their retirement, even though most acknowledge that responsibility. Indeed, at least one survey has suggested that almost three-quarters of people favour some form of compulsory superannuation. They recognise, in effect, that they will need savings additional to those provided by the New Zealand Superannuation Fund - but that they will struggle to accomplish this voluntarily.
Compulsory superannuation is an issue that no political party is keen to grasp, especially since a proposal bearing Winston Peters' name was overwhelmingly defeated in a referendum. That, however, is no excuse for failing to grapple with the less weighty matter of compulsory household insurance. The obvious vehicle, as the Insurance Council suggests, is a levy collected through the rates of uninsured property owners. This would ensure that every household has at least basic cover for floods and earthquakes. As much as local councils may be loath to accept this extra burden, they are the logical body to oversee such a levy.
Almost certainly, the present situation will not improve unless the Government imposes compulsory household insurance. Homeowners are a party to what economists term a moral hazard. Those who decide not to insure their properties are reacting in much the same way as workers who do not value their jobs because a hugely generous benefit is the lot of the unemployed. In the workplace instance, behaviour will change only if much of the comfort of life on the dole is removed. In the case of the uninsured, it will be necessary to remove the Government bail-out option. It is not draconian to expect every property owner to be insured. Indeed, in the final analysis, it is only fair.
AdvertisementAdvertise with NZME.
Latest from New Zealand
‘Stupid, archaic’: Kiwi model and Weinstein accuser on decision to overturn rape conviction
Women still face misogyny - she's been called a 'Harvey Weinstein reject', Zoe Brock says.