The Labour Party is going into the insurance business. If it becomes the Government, it says, it will create a company called KiwiAssure to compete for general household, contents and car insurance. The set-up capital will come from taxpayers but Labour's finance spokesman, David Parker, says the company will carry no government guarantee if it fails.
The idea seems to have come completely out of left field to impress the party's annual conference at the weekend. It gave new leader David Cunliffe something to announce that would be state owned and immune to foreign purchase. It was also designed to appeal to Christchurch where the conference was held and where Labour needs to win a byelection shortly. But in practical terms it is hard to see what purpose another insurance company would serve.
Since it would have no government guarantee it would face the same risk as any other, and have the same need to spread its risk as widely in the world as possible. The global reinsurance industry is charging a high premium for New Zealand risk after the Canterbury earthquake sequence and there is no getting around that, even for a government-owned insurer.
Ironically, the frustrations experienced by home-owners in Christchurch have much to do with government insurance in the form of the Earthquake Commission. The commission covers damage to land rather than buildings, which are covered by private insurance. Assessors from each have not always agreed on what needs to be done for a particular property.
Nothing in the policy announced by Mr Cunliffe at the weekend dealt with any of the real insurance policy issues arising from Christchurch. The announcement was little more than a replay of a commercial for KiwiBank which, like it or not, could be saddled with the insurance company. "KiwiAssure will work for all New Zealanders," Mr Cunliffe declared. It would be "a service-focused, state-owned company that has their best interests at heart". It would "keep profits from this crucial industry in New Zealand".
Wisely, he did not quite claim it would offer cheaper premiums than existing companies. Christchurch had an insurance company that did that. AMI had come to dominate the local market by undercutting competitors and the earthquake exposed its inability to meet all of its liabilities.
The AMI experience is salutary for national taxpayers, too, when they hear Labour's assurance that its company would not carry a government guarantee. The present Government quickly came to the relief of AMI's policy holders, taking over the worst liabilities and selling AMI as a going concern to the multinational IAG. It is hard to imagine a Labour Government acting any differently if a state-owned insurer fell into the same trouble.
Insurance is almost the last business that should be nationalised. Its purpose is to share risk internationally. Labour's company, like KiwiBank, might appeal to those who dislike profit-seeking private enterprise and prefer to deal with a state agency, but they will be under-written by a global insurance network of private enterprise. The profits of insurance provide security for all its subscribers.
The illusion of a "home-grown alternative", as Mr Cunliffe calls it, has a powerful commercial appeal.
Members of the Insurance Council do not relish competing with a new state company for that reason. Taxpayers should be wary too. When a political party goes into business for no reason better than ideological satisfaction, it is likely to create a commercial lemon requiring ever more capital to survive. Let us hope this is one we will never see.
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