Impacts of EQC Changes – Video

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The EQC have changes coming effective 1 October 2022.

Key points below:

  • EQC Cap currently $150,000 plus GST per unit rising to $300,000 plus GST per unit effective 1 October 2022.
  • Premium increasing from $300 plus GST per unit to $480 plus GST per unit.
  • Natural Hazards Insurance Bill will replace the Earthquake Commission Act 1993.  This looks like it may happen around 1 December 2022 dependent on assessment and unless deferred by order-in-council.
  • The amount of FENZ Levy changed should be unaffected by this change

The Earthquake Commission, EQC, provides natural disaster insurance for residential homes and some of the land under the homes. The Earthquake Commission Act (EQC Act) defines natural disaster as an earthquake, natural landslip, volcanic eruption, hydrothermal activity, or tsunami or natural disaster fire. For residential land only, natural disaster includes storm or flood. EQCover in 1993 consisted of a $100,000 cap per residential dwelling and $20,000 of personal contents per policy. In 2019 the residential dwelling cap increased to $150,000, cover for personal contents was stopped, and the rate of EQC levy increased to 0.20%. EQCover automatically applies to residential dwellings insured for the peril of fire, but not for residential dwellings insured for natural disaster fire only. Where a fire policy exists, and the terms of the EQC Act are met, EQCover is compulsory. Although the EQCover cap is doubling to $300,000, the levy charged per residential dwelling is not. Instead the EQC levy is reducing to 0.16% (down from 0.20%) equivalent to a maximum EQC levy of $480 plus GST per residential dwelling.

When EQCover was increased to $150,000 in 2019, the change occurred when each policy renewed. In the words of EQC, it took twelve months to implement the increase in cap as it was effective as of the insurance renewal date for existing polices or the inception date for new policies. EQC are currently unable to confirm the same will occur with the new increase but it is assumed it will. The previous change sets a precedent, and increases in FENZ levy operate in the same manner.

The Earthquake Commission Act 1993 is to be replaced by the Natural Hazard Insurance Act. The EQC Act, and how it affects the amount of EQCover available, can be difficult to interpret currently and these changes should enable better community recovery from natural hazards and clarify the role of the commission in the cover provided.  According to EQC, the Natural Hazard Insurance Bill 2022 is in the final stages of drafting. The public should have the ability to comment on the proposed bill once it has received the approval of cabinet. The Natural Hazards Insurance Bill was introduced on 16 March 2022. Once the bill has had its first reading, you can follow the bill’s progress on the Parliament website.

There is some valuable information from Vero in the YouTube video below.

Impacts of EQC Changes – YouTube

 

What is New Building Standard (NBS) and How Can it Affect a Building’s Insurance?

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NBS is simply the assessment of the earthquake rating a property is expected to have when built to the current building code.  NBS therefore changes to reflect code changes.  NBS is calculated as part of a seismic assessment of how the building has been constructed.

 

The percentage of NBS rating is not a measure of the building’s ability to handle an earthquake without damage for insurance purposes but is about “life-protection”.  As such NBS is unlikely to alter the insurance premium unless the NBS is substantially below the current threshold.  Any increase in the NBS percentage may however improve the building’s expected performance in protecting life.

 

When a seismic assessment is performed by a structural engineer, this will result in an NBS rating being given to an existing building.  The assessment calculates the percentage NBS achieved.

 

Significantly NBS is measured at the lowest defective point in a building, so if there is a particular weakness which is rated 30%, the whole building will be rated 30% until the defect is addressed.

 

A building with a rating of less than 67% NBS is deemed to be an “earthquake risk”.  A rating less than 34% NBS means the building is “earthquake prone”.

 

If a building, or part of a building, is earthquake prone it is believed it will ultimately have its capacity exceeded in a moderate earthquake and if it were to collapse, would do so in a way likely to cause injury or death to persons in or near the building, or injury/death or damage to adjacent property.

 

If a building is found to be earthquake prone this doesn’t necessarily mean it shouldn’t be occupied.  The Building Act provides a period of years for strengthening or demolition work to be undertaken.

 

New Zealand is categorised into three risk levels

Source: How the system for managing earthquake-prone buildings works

The link below identifies what regions of NZ are in which risk category:

Seismic Risk Areas Map

 

For further information please contact Body Corporate Manager Alex McAllister: alex@bbcl.co.nz

EQC Charges on the Rise

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Residential owners should be aware the residential building cap covered by EQC has been increased from 1 July 2019 to $150,000 (plus GST).  This is up from the previous base of $100,000.  The increase will be helpful in natural disasters where comparatively minor damage occurs.  In circumstances where a total loss arises then the EQC cap will invariably need to be topped up by natural disaster cover under the Body Corporate’s material damage policy.  The top-up for natural disaster is already included in all Boutique policies.

As with any change in cover, the premium increases and EQC’s take will go up from $200 plus GST per unit to $300 plus GST.  This will be reflected in insurance renewals from 1 July 2019.  In theory the insurer’s premium should reduce to reflect the increase in EQC cap  – time will tell.