Quake-hit business owners owed $50k by failed insurer

The owners of a now-demolished central Christchurch bar are owed $50,000 by failed insurance company Western Pacific, with few prospects of being paid out.

Richard Lummis and Scott Willis, who ran The Christchurch Temperance Society, said their insurance broker did not tell them who their policy was with, much less that the company had a poor credit rating.

Western Pacific was placed into liquidation two weeks ago, saying it had been "swamped" by the latest Christchurch earthquake and was unable to meet all its claims.

Liquidator Simon Thorn, of Grant Thornton, said the figures "weren't pretty".

At this stage, the company had unsecured creditors and unsettled claims worth $5.8 million, and assets of less than $4.7 million.

A lot of Christchurch earthquake claims were yet to be assessed and it was unknown how much Western Pacific could rely on from its reinsurers.

"There are a lot of things going on that we're trying to pull together."

Lummis said they only discovered who the bar was insured with after the September 4 earthquake.

It had been unable to operate since then and had received a $36,000 business interruption payout from Western Pacific.

The building was knocked down after the February 22 quake and the pair are now owed a further $50,000 in business interruption and fit-out loss insurance.

Lummis and Willis are angry they weren't informed of the risks of insuring with Western Pacific, which was known in the market as a cheap provider. Some broking firms would not offer its policies because of its low rating.

"There was no indication of who the insurance company was and there was no indication ... that they had a B credit rating," Lummis said.

"At the end of the day, you use a broker to protect you from those kinds of things."

Gary Young, chief executive of the Insurance Brokers Association of New Zealand, confirmed brokers had an obligation to inform clients about an insurer's credit rating.

"It's also normal therefore to say who the insurer is."

The identify of the insurer should have come up on invoices for the premiums.

The broking company concerned was a member of the industry body, he said. The Herald on Sunday has chosen not to name the firm as they could not be contacted for comment on the allegations.

It's understood there were concerns in the industry that Western Pacific paid brokers high commissions to sell its policies.

Insurance Council of New Zealand chief executive Chris Ryan said the body was concerned about a lack of disclosure. Western Pacific had been declined membership of the Insurance Council.

It had yet to be tested whether Western Pacific would have complied with incoming and much more prescriptive regulations covering insurance companies.

Up until now, all a prospective insurer had to do was put a $500,000 deposit with the Public Trust and get a credit rating from a recognised agency in order to set up in business.

But, from next year, insurers would need to meet new capital adequacy, solvency, risk management and "fit and proper" requirements, he said.

"The ball game has changed fundamentally now."