Pressure on Christchurch businesses

Disasters like the Maui gas pipeline outage and the Christchurch earthquakes have proved to be a wake-up call for the contingency planning efforts of New Zealand businesses. Photo / Supplied
Disasters like the Maui gas pipeline outage and the Christchurch earthquakes have proved to be a wake-up call for the contingency planning efforts of New Zealand businesses. Photo / Supplied

Chief executives are becoming increasingly concerned at rising insurance premiums elsewhere in New Zealand since the February 22 Christchurch earthquake, and the length of time it is taking to start the rebuild.

Most CEOs with Christchurch-based businesses plan to stay put. But 10 per cent are considering shifting elsewhere.

Eighteen per cent of those with Christchurch-based businesses have faced difficulties obtaining insurance cover after the February 22 earthquake. But 38 per cent have not had problems.

Mainfreight's Don Braid says his company wants to invest in new facilities in Christchurch but insurance issues are causing angst.

"There seems to be a lot of miscommunication around what we can do and can't do relative to cover for a new building. It also seems to us that the bureaucrats have strangled the ability to begin the reconstruction process." Another CEO said his company wanted to build a more efficient manufacturing plant in Christchurch but could not do so until there was clarity on insurance.

A business lobbyist urged a national approach to under-writing. "This needs to be considered, as the NZ insurance industry seems to be approaching the situation piecemeal. Business will be seriously disadvantaged and the rebuild will take far too long as a result. More creative ways need to be found both to secure insurance and to keep the costs from escalating nationwide."

This factor has already prompted Fletcher Building CEO Jonathan Ling to call for state-backed insurance.

Nearly half of the chief executives are against expanding the Earthquake Commission to provide base disaster cover for businesses as well as households; something that Vero chief executive Gary Dransfield has suggested. Thirty-seven per cent are in favour and 21 per cent are unsure.

Dransfield said the Canterbury quakes showed New Zealand's earthquake insurance approach had major weaknesses. He said this was not just a matter for insurance companies and their customers. "It is also a matter of national economic significance."

Dransfield has called for a review of earthquake insurance funding and management.

"We believe the priority is a viable and sustainable earthquake model built around the current EQC. Simply put, the economic conditions we were working to when the EQC model was put in place no longer exist."

A pressing issue for both businesses and the Government is the EQC's ability to cope with another big event. "There is no point criticising what we currently have. The priority is to get industry working closely with Government to quickly improve the current approach."

But an energy sector chief executive said the EQC has had major issues dealing with the earthquake. "The jury is still out on the long-term model for the EQC as a truly functional entity."

A Christchurch-based chief executive stressed that "business needs to be insured".

"If we can't get insurance with reasonable excess then the Government needs to offer EQC-type cover just for the insurance excess or uninsurable natural disasters."

Spare a thought for the insurers. They have to ensure their own solvency issues. "Being a general insurer we are faced with rate increases and need to ensure capacity and adequate pricing for future increases in the solvency standard through the Reserve Bank as well as an increased knowledge of natural perils such as earthquakes," added another insurance boss.

"In addition, with over 8200 aftershocks ongoing reinsurance to allow new business to be written is difficult."

Coping with a catastrophe

Ten per cent of chief executives responding to the Herald survey have no plans to deal with the impact of a major earthquake on their business. But 57 per cent have a contingency plan and 35.5 per cent have used it.

The devastating Christchurch earthquakes have brought home the necessity for businesses to be well-prepared for major disruptive events. Around 70 per cent of survey respondents are prepared to deal with tsunamis and volcanic eruptions and disruptions to energy supplies; 19 per cent have had to use their plan. Industrial sabotage (including cyber attacks and spying) and corruption among offshore partners are also
issues.

The Rena grounding was also cited by some exporters, adding freight disruption to the list.

- NZ Herald

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