Earthquake Excess Buy Down Insurance

As a response to the Christchurch Earrthquakes Local Insurers have changed the way the underwrite Earthquake Cover in New Zealand.

Apart from the substantial premium increases for Earthquake Cover Insurers have also changed their criteria for Earthquake Deductibles or Excess for Earthquake.  For example Wellington Earthquake Excess are now 5% of site value (including the business interruption value) minimum $5,000.

A typical example is a $20 Million building in Wellington.  The Earthquake Excess for this building in the event of Earthquake will now be $20M at 5% = $1M Earthquake Excess.

New Zealand Financial Brokers Limited in conjunction with Insurance Advisernet are pleased to offer Earthquake Excess Buy Down Cover.  

Background

Funnily enough Earthquake Excesses in Wellington have always been high.  It is only now they have been getting a bit of attention and the market (including mortgagees / banks) have realized the impact of this.  Earthquake Deductibles in Wellington have always been 5% of Loss (minimum $5,000). 

The subtle difference is 5% of LOSS as opposed to SITE VALUE.

If we take the same Building valued at $20,000,000 and it had a partial loss due to an earthquake say $200,000 then previously the earthquake excess would have been calculated like this

5% of Loss Method

5% of Loss           $200,000 = Earthquake Excess $10,000

Settlement           $200,000 less $10,000 Earthquake Excess = Settlement $190,000

5% of Site Value Method

Under the new method of calculating earthquake deductibles

5% of site value   $20,000,000 at 5% = $1,000,000

Settlement           $200,000 is under the $1,000,000 Earthquake Excess = no claim

Please note In the event of a total Loss either excess option would be the same. 

Impact on Banks Security and Clients

This has now caught the attention of the banks and lenders.  This issue has been around for at least 10 years and is only now being realized that in the event of a large natural disaster clients could be exposed to large uninsured losses.

Anecdotally some lenders are now insisting that borrowers have the funds to cover these large earthquake deductibles for commercial building owners.  The problem gets even greater if the borrowers have a number of buildings as the earthquake excesses would be for each building.

Therefore clients have to have the ability to fund these large earthquake excesses in the event of a natural disaster or banks won't lend.

The solution

The solution is Earthquake Excess Buy Down cover.  Shortly after the Natural Disaster in Canterbury Insurance Advisernet were the First company in the New Zealand Insurance Market to offer Earthquake Excess Buy Down Cover.  This product is exclusive to Insurance Advisernet members which New Zealand Financial Brokers Limited are proud members of.  

How does it work? 

Using the above example of a $20 Million Apartment Building it would have a $1,000,000 Earthquake Excess.

Using Earthquake Excess Buy Down you can elect what excess level you are comfortable with.  You could buy your excess down to as low as $25,000 or to a level that fits within your balance sheet. 

Premiums do vary from Region to Region, age of the buiding, construction of the building. 

If you would like a free no-obligation quote please contact us.