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The Dunedin City Council now faces a $2.4 billion hole in its insurance cover, after rejecting "huge" premium increases and dramatically reduced cover for above-ground infrastructure.
The decision means roads, bridges, tunnels, viaducts and other pieces of critical infrastructure across Dunedin have also been left without insurance cover in the event of a natural disaster.
That was on top of the $1 billion in pipes and other underground infrastructure assets already left without cover on July 1, after council insurance brokers were unable to renew existing policies.
The latest loss of cover meant the city now had $2.4 billion worth of infrastructure assets without any form of insurance, council financial controller Maree Clarke confirmed late yesterday.
Council-owned buildings such as the Dunedin Town Hall were still covered, but only after the council agreed to pay inflated premiums rising from $435,600 to $1.1 million a year, she said.
"We've had to take some really tough decisions, and we've done a lot of soul-searching to make sure that we're getting the best possible outcome here."
Mrs Clarke said the existing council policy covering its buildings had been renewed on June 30, but council staff rejected "huge" increases that would have provided reduced cover for above-ground infrastructure assets.
The changes, driven by the Christchurch earthquakes, would have resulted in the council's premium for the assets rising from $37,500 to $250,000 a year, while the maximum claim allowed reduced from $25 million to just $5 million, she said.
Cover for council buildings also resulted in "quite a big increase" in premiums, with total costs rising from $435,600 to $1.1 million a year, she said.
That included a new, separate earthquake premium of $774,300 a year, which used to be part of the previous $435,600-a-year bill; new excesses of 5% for post-1934 buildings and 10% for buildings from 1934 and earlier, she said.
"Some things you just have to wear."
Mrs Clarke stressed the council faced less risk of a natural disaster than Christchurch, and was unlikely to face the sudden loss of the entire infrastructure network "in one hit".
"There's no need to panic. I think we've taken a very considered approach to what we're doing here. We continue to work with our insurance brokers on what is the best possible scenario."
Councils were required to provide for 40% of the cost of repairs in the event of a disaster, either themselves or through an insurer; to qualify for 60% support from the Government.
Council staff were now considering self-insurance, drawing on an annual renewals budget and other funding if required, which could together provide $35 million a year if needed, Mrs Clarke said.
That would provide "a start", but would need to be built up, possibly over years, she said.
A staff report detailing the options would be presented to the council's finance, strategy and development meeting on July 25. While alternative arrangements were being considered, council staff also hoped for a "change of stance" by insurance companies and their reinsurers in time, Mrs Clarke said.
Asked if so much uninsured infrastructure made her nervous, Mrs Clarke said, "That's where it comes down to taking a measured approach to how you manage this.
"And that's what we're working through at the moment."