The Dunedin City Council will consider funding its own insurance to avoid a doubling of annual insurance premiums - to $2 million - because of the Canterbury earthquakes.
The idea of self-funded insurance was raised by Cr Lee Vandervis at yesterday's annual plan deliberations, after acting chief executive Athol Stephens confirmed premiums were set to "double" because of a flood of Christchurch earthquake claims.
The council was paying $1 million in annual insurance premiums for $200 million in "first loss coverage", which protected its $3 billion portfolio of pipes, plant equipment, buildings and other infrastructure.
However, advice from the council's insurance broker, FMR, was those premiums would rise due to the hit delivered to international reinsurers by the earthquakes.
The brokers' preliminary advice to the council was to double its budget for insurance premiums to $2 million for the 2011-12 financial year, Mr Stephens said.
Uncertainty also remained over the excess the council would be required to pay in future before insurers paid out, he said.
Existing arrangements meant the council had a $10,000 excess before the council's insurers stepped in to pay 40% of the cost of a major natural disaster, with the Government contributing the rest.
However, the excess would also be renegotiated for 2011-12, with no guarantees about the outcome, Mr Stephens said.
That prompted Cr Vandervis to question the wisdom of continuing to pay insurance companies at all, especially if - he suspected - there were doubts about their ability to cover the cost of damage in a major Southern Alpine Fault earthquake.
He said insurance providers appeared to be "panicking" in the wake of the Christchurch earthquakes, and he asked why the council could not fund its own insurance.
"Why should we be playing the panic game? . . . I think that's something we should seriously look at." Mr Stephens said that was a "fair question" and would be discussed with the council's insurance broker and experts.
However, the council did not provide its own insurance because of the significant value of infrastructure involved, he said.
"I just think as a city, when you weigh up the consequences of a serious event, then we would choose to insure and pay our premiums and carry on, rather than face the chance [of the cost of a major event]," he said.
New Zealand had been seen as a "pretty good bet" by international insurers - many based in Zurich and Munich - over the last 15 years, but they had taken a substantial financial blow as a result of the Canterbury earthquakes, he said.
They were now "pretty scared and worried" about their exposure in New Zealand, and the new premiums would reflect that.
However, the risk of making other local arrangements for insurance could be seen in the fate of the Local Authority Protection Programme (LAPP) fund, which provided 40% cover against infrastructure damage for its members, he said.
The $40 million fund had been exhausted by the earthquakes, leaving 59 councils across New Zealand without insurance cover for infrastructure until at least the end of this financial year, he said.
• The likely cost of new premiums featured in a staff report on 2011-12 budget changes to yesterday's meeting, which detailed last-minute savings and extra costs, adding $45,000 to projected spending.
That included an extra $184,000 to cover Carisbrook operating costs until the end of the year, reduced debt servicing costs of $595,000 and staff savings of $794,000 a year for 10 years, and tweaked capital spending plans, among other items.
