Importance of insurance in a natural disaster

In light of recent events like the Christchurch earthquakes, and the Australian bushfires and flooding, it really does hammer home the importance of having insurance in place for your residential and commercial properties. As lawyers, we see the repercussions for clients who face the devastating reality that they were not sufficiently insured for such events.

Not many people are aware that specified insurance can be required in areas of high risk of natural disasters. In particular, in areas such as Christchurch, we see an increased requirement from lenders that the insurance provider has earthquake cover specifically noted on the policy, as natural disaster cover is not specific enough. Furthermore, provisions can be made in the sale and purchase of homes for the potential to assign any Earth Quake Commission (“EQC”) claims or ongoing works applicable to that home. Thus, providing the benefit of a claim to the purchaser.

If you own private insurance that includes fire cover, when a natural disaster strikes you can also be entitled to insurance cover under an EQC claim. As of 1 July 2019, EQC has increased its coverage from $100,000 plus GST to $150,000 plus GST in accordance with the 2019 amendments to the Earthquake Commission Act 1993 (“the Act”). As of July 2020, the Act will also seek to phase out any EQC cover for contents damage as a result of natural disaster. The Act has instead allowed for the increase in the total house cover, as noted above. For those without private insurance though, this option is not available.
As part of the 2019 changes to the Act, we have also seen an extension of the time frames for someone to make a claim, whereby as of February 2019, a claim may be lodged within two years of any incident, as opposed to the previous two-month period.

It must also be noted that an EQC claim can be limited in its scope, whereby a private insurer will need to pick up some of the other costs. Most insurers include this as an excess in your insurance policy, but it can cover damages to items such as the driveway, swimming pool and fences which an EQC claim will not cover.

As the saying goes, “you don’t know you need it, until you need it”, it is much the same for insurance. As most home owners in NZ have lending over their property, they will already have some form of insurance coverage to protect them as a requirement of their lenders. However, the vulnerable can be those who own their homes outright and are not necessarily required to hold insurance.

If we can take anything from the devastating disasters like the Christchurch earthquakes and bushfires in Australia, a natural disaster can be unpredictable and devastating in nature. Ensuring that not only do you have cover for the property in question, but you are also confirming that you will be entitled to further EQC cover, is a vital move for any home owner or business owner to minimise the impact of a disaster.
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We would always suggest that insurance is a vital consideration of owning any property or home. In particular, if you live in an area that is known to be at risk of a natural disaster then the idea of insurance and potentially choosing further natural disaster add-ons to your insurance policy should be a very serious consideration.