Birth of the Natural Hazards Commission

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This week marks the commencement of the new Natural Hazards Insurance Act (NHI Act).  Residential property insurers, who have been busy updating policy wordings and setting up new systems and procedures required by the Act, may take a quick pause for a breath now that the commencement date has arrived! 

Key changes introduced by the NHI Act include:

·       The renaming of EQC to the Natural Hazards Commission Toka Tū Ake (NHC) to reflect that the cover provided by the Commission is broader than for earthquake only.

·       EQCover becomes NHCover.  It is still only available where the residential building has a fire insurance policy in place.

  • A requirement to manage and settle claims in a fair and timely manner.

  • Building insurers will still manage NHCover claims as agents for the NHC under the partnership model, which has operated for several years.

  • The $300,000 existing level of cover available for residential buildings under EQCover has been maintained under the NHI Act. 

  • There is a change to the approach to mixed-use buildings.

  • The cover for retaining walls, bridges and culverts has expanded so that items located outside the property boundary can still be covered, provided the property owner has an insurable interest.  The Land cover for these items is on an “undepreciated value” basis, rather than indemnity value.  There are now also limits for these items.

  • Imminent damage is now covered by NHCover where a natural hazard has occurred and as a direct result of that hazard, loss or damage is more likely than not to occur within 12 months after the natural hazard.

  • Storm, flood or a natural hazard fire caused by the storm or flood are not covered under NHCover for residential buildings, but they are covered for land claims.

A couple of the changes introduced by the NHI Act will impact interactions between the NHC (and its agents) and insured persons.  These changes were made following the recommendations in the 2020 Report of the Public Inquiry into the Earthquake Commission.

Code of Insured Persons’ Rights

The Code of Insured Persons’ Rights (the Code) applies to all natural hazard claims being handled from July.  The Code outlines ten rights for persons insured under the NHI Act.  The rights cover fair treatment, communication, information and expected timeframes in relation to claims handling.  The Code also provides a complaints procedure for handling Code complaints, an independent review procedure and dispute resolution.  The Code also establishes corresponding obligations for the NHC. 

The Code is different from the Fair Insurance Code, and more extensive in some respects (such as the requirement for the NHC to provide an interpreter).  Where a customer’s claim exceeds the level of NHCover, or includes items that fall outside NHCover, both Codes might apply. 

Dispute Resolution

The NHCover Dispute Resolution Scheme (the Scheme) is a new service available for resolution of NHCover claims.  The Scheme is a no-cost service available for disputes about claim validity, claim settlement or declinature of claims (these are called referable decisions), but not disputes about the way a claim is proposed to be settled.  It includes mediation and adjudication but, unlike decisions made by industry dispute resolution providers such as IFSO or FSCL, decisions from the Scheme can be appealed to the Courts by both the customer or by the NHC.

Comment from Melissa Bell

In many respects the commencement of the NHI Act will mean business as usual, with a few new names and some minor changes.  However, the newly introduced Code of Insured Persons’ Rights, its independent review procedure and the new NHCover Dispute Resolution Scheme have the potential to add complexity to the resolution of natural hazard claims.  This might be problematic in a large-scale event scenario.  Where a claim exceeds the NHCover limit, a customer claim might be subject to two different codes and two different dispute resolution schemes and processes.  The rules governing access to the schemes also differ, for example, whether the dispute first needs to go through an insurer complaints process.  

The combined jurisdictional limits of the Scheme and the industry dispute resolution schemes mean that disputes of significant value can now be determined outside formal judicial proceedings.  Whether the dual dispute scheme process is the most appropriate approach for the resolution of claims involving complex technical issues, such as those seen following the Christchurch Earthquake sequence, remains to be seen.  Certainly, the additional complexity could undermine the rationale for the introduction of the Scheme in some cases.

Melissa Bell is a special counsel at fee langstone