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Jim Mora’s Panel discussion – ‘moral hazard’ in earthquake claims

  • January 31st, 2011

  I discussed the following this afternoon on Jim Mora's Panel after reflecting on a matter raised at two great parties in Canterbury this month.   

Cantabrians now have insurance assessor stories to add to their “sick of the aftershocks” stories. They are not boring, at least to a Wellingtonian waiting for the big one. But I was particularly interested in worries expressed about the culture  engendered by the claims hoopla, and the morality it rewards.


Though some have lost significantly, many have lost very little. But I'm told there is a climate of claiming for everything, and being encouraged to claim. The media and official assurances are legitimising overclaiming, and a sense of grievance among people if they are not promised prompt help to have even trivial cracks and cosmetic damage repaired.


One guy told me he’s had between $10k and $20k of work approved for what he says are cosmetics though he would have been quite happy if they’d said , "Sorry mate, too trivial, we’ve got important things to spend money on". As he said, "I’d be a mug to object, indeed I’d be a mug not to claim when we’re all being urged to claim. I could have filled the cracks in the Gib and repainted myself". He went on “I’m benefitting, but I worry about where the money is coming  from, what it will do to insurance premiums for everyone, and the useless helplessness people are encouraged to think is normal”.

An engineer who is 100% on claims investigation told me that quite a few of the houses owners had been told were “written off” could easily be fixed and made perfectly liveable. There may be a loss in value, for which compensation could be paid. But people have been encouraged to think their lives are on hold for what could be years till Father Christmas decides their future.


According to him the Earthquake and War Damage Commission is too scared of critical headlines over sob stories, to tell people who should be told – "harden up". Meanwhile people who really can not help themselves are in a queue twice as long as it need be. 

I thought of this when John Key was asked by Katherine Ryan last week what was the most important issue facing New Zealand. John said “the economy”. Perhaps – But I think at a level below that – the issue could be loss of the soul and spirit of New Zealand, our traditions of stoicism and self reliance. Canterbury reports of people whining about their lives till the authorities have made them whole are not a great foundation for us getting back to paying our way in the world, earning as much as we spend, which we last did nearly 50 years ago. Ever since we’ve been living high by borrowing the savings of others overseas.





Unless you plan on redefining "moral hazard" this isn't an example of it. I don't see where there is an asymmetry in information here.


No No its not true,   Anyone can tell you that hardly any houses in Christchurch had cracks in the walls before September, and that their piles were floating straight and true on the bog, and all our doors opened with precision :
And also this was a strange earthquake, it was because God was sick of Bob Parker, and people like me who had 16 television sets noticed that they all stopped,   and after our chimneys fall down water got into different parts of the house and stained the carpets different colours, and paint cans flew off the shelves in garages and sideways into cars causing damage, and of course most of our computers fell over and wiped out at the Microsoft Visa operating system place, and even if their is a moral hazard its only big foreign underwriters and  its not fair.

  • Stephen
  • February 3rd, 2011
  • 3:45 am

I realize Paul that the term has a technical meaning not strictly apposite here. But in common language the process of insurance claiming, especially to an insurer ‘owned’ by politicians terrified of having prudent scepticism vilified as hard-heartedness, raises big risks of corrupting the morality of the claimants. Peterquixote captures the risk well in his comment.

  • Phil
  • February 3rd, 2011
  • 9:00 am

Get real insurance is paid every year to protect the value of our investments, EQC takes a portion of that money to cover the Natural Disaster componet. Yes there is some minor damage tah t has been claimed however that wall crack is posibly hiding structual damage to the house.
You blog and its title sickens mee to my back teeth and is done by somebody who has no idea what it was like down here and as to what the extent of the damage done to our houses and lives.
Yes we can fix the minor issues ourselves however who pays for it, suddenly we find ourselves with unexpected repair bills, the home owner and still have to pay insurance premiums or hang here is an idea this is what we took insurance out for in the first place, so therefore it is paid for my the Insurance company.
If a house is written off it is not because of a few cracks there are more underlying issues a perfectly good house may be written off because the land underneath it can no longer support the house etc. If you just try to fix it up and along comes another event somebody could be killed as the house crashes around them.
To cap it off the EQC money comes from a fund that home owners with Insurance specifically pay into to cover these issues, if you do not have insurance at all then you are not covered. This fund is seperate and does not come out of the Government operating budet from taxes etc and is only available to people with Insurance, who took took insurance to ensure thier investment is protected.
The Engineer you talked to if he inspected the house why did he write it off? or is he just stiring

  • Murray Simmonds
  • March 16th, 2011
  • 8:05 am

Yep, Stephen, you've hit the nail on the head here.
Where large companies, local bodies, government , etc. are concerned, public image and the prime directive to appear blameless predominate in all respects.
I'm reluctant to put in an EQC claim for "cosmetic damage"  to our home, (minor damage that I could easily fix myself), but my wife tells me I'm crazy not to claim and then spend it on a holiday overseas!
Murray Simmonds

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