Warren Buffett’s Berkshire Hathaway was recently granted an insurance license from the Reserve Bank. They are now capable of providing earthquake insurance, which will cover reconstruction needed because of the earthquake that hit Canterbury. We learned this in the Financial Stability Report that was released today.
“Berkshire Hathaway International Insurance Limited, a UK-based member of the global insurance group Berkshire Hathaway Inc., has obtained a New Zealand insurance license and intends to provide earthquake cover for construction in Canterbury,” said the regulator of the insurance sector, the Reserve Bank.
We also learned from the central bank that the overall insurance sector is going to continue processing claims which stem from the Canterbury earthquakes. As of this time, only one third of the claims have been paid out thus far. It’s expected that the overall total claims cost will now be “well in excess” of NZ$30 billion.
“Total insurance claim payments for the Canterbury earthquakes currently stand at NZ$10.8 billion, comprising NZ$3.8 billion by the Earthquake Commission (EQC) and NZ$7 billion by other insurers. This represents about one third of the ultimate total claims costs, which are estimated to be well in excess of NZ$30 billion. Claims cost estimates are still increasing and have risen by around NZ$1.5 billion since May.”
There are lots of pertinent issues in regards to these claims that still haven’t been resolved. The central bank also adds that uncertainty in regards to total insurance claim cost estimates remain high. There is a roughly NZ$10 billion difference between the lowest estimates and the highest estimates given by the Reserve Bank.
Here are some examples of the most significant issues that still remain, which will affect the costs that individual insurers have to pay:
- resource constraints will bring on inflationary pressures
- there are reinsurer disputes
- new and amended regulations are coming into play, such as changes in the building codes and flood management roles
- allocation of expenses between private insurers and EQC in regards to specific events
- litigation costs which are beginning to take place
- changes in the conditions of the land that aren’t covered by EQC, or where EQC cash settles instead of fixing the damaged land.