Earthquake Insurance

Dominion, Volume 35, Issue 285, 1 September 1942, Page 4

Earthquake Insurance

Sir, —The statement re earthquake insurance published in your issue of 22nd inst. by the Fire and Accident Underwriters’ Association is misleading in particulars which call for correction. Ina oldest office doing, earthquake insurance in New Zealand has nob required any franchise, £5O or less, for many years. It pays all valid claims, however small. Your informants say the companies cannot afford to do this. Surely that is passing a very serious slander on the financial position of the offices? The alleged loss of £300,600 in the two recent earthquakes is a mere bagatelle compared to the premiums paid to the companies in the eleven yars since the Napier disaster. If the premiums paid averaged only 5/- per £lOO yearly on only 40 millions of risk (your informant says 50 millions), they would total to much over £1,000,000, much more than three times the amount of the recent alleged losses. The real losses, however, ire only a fraction of the £300,000. All the companies reinsure the greater part of their earthquake risks with overseas underwriters. The companies are simply agents for the underwriters, who (pay a handsome commission for the business. The commission alone is a substantial set-off against the companies’ net claims, not losses. However, earthquake insurance -brings in another class of business which yields immense profits—fire insurance. The companies usually refuse to d<x your earthquake business unless you do your fire insurance with them. The office doing., the largest fire busi- , ness in New Zealand in 1940, the latest published figures, paid out less than 15 ' per cent, of its premium income in claims. Year by year its claims rates have been getting lower and lower. All underwriters know that a well-managed fire office can pay out 50 per cent, of its yearly premium income in claims and still do very well. So the companies have nothing to complain about as regards earthquake insurance and what it has done for them. Your informants say that two-thirds of every earthquake premium goes in income and other taxes. This statement is sheer stupidity. Every business man knows .that these taxes are not. based on the gross turnover in any business, nor ido they ever approach two-thirds of the turnover. If they did everyone in business would immediately become insolvent. In England and many other countries fire policies are commonly issued including earthquake risks, loss of rent due 'to fire, theft, storm, and all other domestic risks. In New Zealand and Australia these policies are issued. The earthquake risk (being abnormal here is excluded, but these policies usually cost less -per £lOO than the companies charge for fire insurance only. I shall, shortly give a complete 100 per cent, perfect plan of earthquake insurance for all New ZeaGand. It will cost less than a third of the current rates and place the Government in the happy position of being able to refund all the war damage premiums; that is, provided that war damage claims are light.—l am, etc., H. H. THOMPSON. August 24.