EQC cover for homeowners doubles

Government earthquake cover for homeowners doubles from today, with insured homeowners covered for $300,000 of EQC cover, if their home is damaged by a natural hazard.

It’s the second time in three years that EQC cover has been lifted, with the cap having risen from $100,000 to $150,000 in 2019.

EQC cover is natural disaster insurance for residential homes, and some areas of residential land.

It’s paid for with a levy collected on private insurance, and covers natural disaster including earthquakes, natural landslips, volcanic eruptions, hydrothermal activity and tsunami.

It also insures residential land within limits against storm and flood damage, insurer IAG said.

To fund the increase in cover, Toka Tū Ake EQC will increase the amount homeowners must collectively pay in levies, though the levies for each $100 of cover are to drop from 20c to 16c.

EQC chief executive Tina Mitchell said: ‘‘House prices and building costs have gone up and this law change responds to those changes.’’

The new limits will come into force on homes when homeowners renew their existing house insurance policies, or take out a new policy.

Mitchell said even if a policy hasn’t been adjusted for the new changes when natural disaster damage occurs, any damage to a home that exceeds the $150,000 cap would be covered by private insurers.

For a house insured at over $300,000, the new maximum EQC levy will be $480. The current maximum levy is $300.

State Insurance said the levy change would be applied at homeowners next annual policy renewal between October 1 and September 30 next year.

‘‘It will affect home insurance premiums from all New Zealand general insurers and will show as Earthquake Commission Levy under premium advice on your policy renewal documents,’’ it said.

When the plan to increase the EQC cap was announced in September last year, Commerce and Consumer Affairs Minister David Clark said he expected to see a change in the premiums charged by private insurers as more natural disaster risk moves from them to EQC, which was guaranteed by the Government.

‘‘If insurer pricing doesn’t behave as expected, the Government is open to considering options such as a competition study to give consumers assurance the market is competitive,’’ Clark said at the time.

However, since then high inflation, especially building cost inflation, and rising claims costs for extreme weather events, have insurers warning policyholders not to expect to see their private insurance premiums fall.

In July last year, a Treasury paper suggested homeowners in high-risk areas such as Wellington and Hawke’s Bay would see the total cost of their house insurance fall as private insurers dropped their premiums to reflect the shift in natural disaster risk to EQC.

Some might see their total house insurance costs drop by several hundred dollars, the paper indicated.

By contrast, people with homes in areas of low earthquake risk such as Auckland, would see their overall insurance costs rise because the increase in their EQC levies would be larger than the reduction the premiums private insurers charged them.

Since the paper was issued, insurers have privately warned insurance brokers that the July paper’s forecasts were now outdated.

The EQC change would not affect the sum that homeowners have elected to insure their homes for, State said.