Whilst the position in terms of the impact of Christchurch’s quake on the New Zealand insurance market remains cloudy, it appears the insurer’s response will resemble post 9/11 where rates were increased virtually overnight and significant excesses have applied.

Most insurers to date have increased their earthquake rates drastically, as much as 70% for Auckland, despite being rated as the lowest statistical earthquake zone.  Buildings will also be rated upon their age, with increases of up to 20% on buildings pre-1935 likely.

Most significantly, is the excess structure will change from a minimum percentage of loss to a minimum percentage based on site value.  As a result, the current excess of 1% of loss may end up being many percent of actual loss – e.g. If a site was valued at $10 million and the percentage of site value is 2.5%, then the excess would be $250,000 for an earthquake, whether or not the extent of loss was $250,000 or $5 million.

The only thing that is certain is that costs will increase significantly, and only time will reflect the actual impact on premiums and budgets.  We will keep you updated.