EARTHQUAKE DAMAGE

Dominion, Volume 35, Issue 289, 4 September 1942, Page 8

EARTHQUAKE DAMAGE

Criticism Of Insurance Companies

UNDERWRITERS’ COUNCIL

IN REPLY

A reply to the letter, published in "The Dominion'’ on September 1, in which fl. H. Thompson discussed the question of earthquake insurance with reference to a statement by the executive of the Council of Fire and Accident Underwriters’ Association last month, has been'issued-by. the executive. After stating that it; was not, when the .original statement was.issued, the intention of the council to enter, into any newspaper controversy, the present statement continues: — “As, however, a letter under the signature of ‘H. H. Thompson’ appeared in your issue of the Ist instant, In which Mr. Thompson describes certain portions of the council’s statement as misleading, the. council’s executive decided to reply to Mr. Tliompson’f» comments, for the reason that, the public are entitled to know that in all respects but one, Mr. Thompson’s own statements and figures are in themselves erroneous.

“Mr. Thompson states that the oldest office doing earthquake insurance in New: Zealand does not require a £5O franchise. It has now been ascertained that, without the previous knowledge of the council, one group of underwriters do insure against earthquake risk without a franchise, but it is doubtful if that group could accept any further earthquake insurance in the Wellington city area unless under special circumstances. “Mr. Thompson states that the lose of £300,000 in the recent earthquakes is a mere bagatelle compared to the premiums totalling over £1,000,000 which have been received by the insurance companies since the Napier earthquake. Mr. Thompson goes on to say that those premiums (£1,000,000) were ‘much more than three times the amount of the recent alleged losses.’ Mr. Thompson uses the words ‘alleged losses.’ . It is now estimated that the claims arising out of. the recent earthquakes against all . insurance offices will be nearer £500,000 than £300,000 (the previous estimate).

“Mr. Thompson, however, omits to make any allowance for taxation, which would exceed 50 per cent, of the £1,000,000, also that since the Napier earthquake substantial claims were paid as a result of the earthquakes which occurred in the Gisborne district in September, 1932, and in the Wairarapa and .Southern Hawke’s Bay districts in March, 1934. It is therefore doubtful whether the balance of the premiums left an-the hands of the insurance offices, even allowing a small percentage for expenditure,. M"ill be .sufficient to meet

the claims arising out of the two recent earthquakes, “As mentioned in the previous statement made by the council, if the shocks had been of slightly longer duration or of slightly greater severity, in .which case a conflagration would almost certainly have taken place, the losses to insurance offices would have been increased by many millions. This is a contingency which must be provided for. “Mr. Thompson says that the real losses to the insurance offices are only a fraction of £300,000, for the reason that the companies reinsure the greater part of their risk overseas. Mr. Thompson should know, first, that to reinsure a risk, whether overseas ,or locally, the same rate of premium must be passed on to the reinsurer as is received by the original company. Secondly, that if reinsurance'was not available overseas the insurance offices operating in New Zealand would, not have been able to accept the large amount of cover in New Zealand which they have been able to grant. Thirdly, that the ‘handsome’ commission which the insurance companies receive from reinsurers does not, in regard to earthquake insurance, equal the expenses of the insurance offices in New Zealand, more especially as the insurance offices in New Zealand are required to pay income and other taxes bn all reinsurances effected overseas.

“In Mr. Thompson’s concluding paragraph he says that the reference to taxation in the statement published on August 22 was ’sheer stupidity,’ and goes on to say that ‘every business man knows that taxes are not based oil turnover,’ etc. “The statement made by the council on August 22 was in reply to a remark made in the House of llepresentalives that during recent years when there 'were lio earthquake losses the insurance offices could build up substantial reserves to provide for losses when they did occur. . “The reply by th<( Council of Underwriters to,'that remark was. that during recent years when no earthquake losses occurred the earthquake premiums receiv, ed, after a deduction for expenses_, were profit, and would therefore be subject to income tax and national and social security tax, In other words, during those years,, the earthquake premium turnover. ' (less expenses) would require to be added to any profit made by an insurance office in its o.ther departments. "Mr. Thompson refers to.a perfect plan for earthquake insurance in New Zealand, and concludes by saying that his plan would enable the Government to refund all war damage premiums, provided the claims were light. It is to be sincerely hoped that the war damage claims will be light. If so. the War Damage Act. 1941,. provides , thut any surplus be .devoted to the granting of assistance to persons suffering financial loss or damage by reason of earthquake or other disaster.

“As previously stated, the executive of the Council of Underwriters will not reply to any further coi’resjiqiidenee appearing in the Press, as it is hoped the insurance offices will be afforded an opportunity of discussing the whole subject with the Government.’’