The Earthquake Commission (EQC) regulatory system reduces the impact of natural disasters on people and property by:
- investing in research and education regarding natural hazards, the damage they cause, and ways of reducing natural disaster damage and improving resilience and recovery, and
- encouraging high uptake of catastrophe insurance. This helps homeowners recover after a major natural disaster and reduces the need for ad-hoc Government intervention.
International experience suggests that in the absence of an EQC-type scheme, voluntary purchase of insurance cover for infrequent natural disaster events tends to be low, likely due to cognitive biases, and price and availability challenges in obtaining private insurance cover, particularly in higher-risk areas.
This description has been agreed by Treasury and EQC.
The system provides for capped, first loss natural disaster insurance cover for residential buildings and associated residential land against damage from earthquake, volcanic eruption, tsunami, landslip and hydrothermal activity. Residential land is also insured against storm and flood damage. EQC cover is mandatory for residential buildings privately insured against fire. EQC premiums collected by private insurers are passed on to EQC and held in the National Disaster Fund (NDF), from which disaster insurance pay-outs are made. In the event that the funds in the NDF cannot meet EQC's liabilities, the EQC Act requires that the Crown fund any necessary shortfall (known as the Crown Guarantee).
The significance of this system is driven by New Zealand's geography. There is a significant public interest in ensuring that New Zealanders insure their properties against natural disaster damage.
Minister Responsible for the Earthquake Commission
- Earthquake Commission Act 1993
- Earthquake Commission Regulations 1993
- Crown Entities Act 2004