DCC plans self-cover

Insurance companies refusing to cover Dunedin's infrastructure because of post-earthquake fears about their own exposure are not turning down business.

"They are saying we will take your business, but you will have to pay for it," city council financial controller Maree Clarke said.

Mrs Clarke reminded councillors at last week's finance, strategy and development committee meeting the council had no infrastructure insurance. For instance, if a train hit the railway bridge beside the Dunedin Railway Station, as happened in 2008, there would be no cover.

Dunedin has begun work to insure its assets itself after a debate on the issue late last week.

The council voted to set aside up to $100,000 for a consultant to evaluate the city's risk and work out the maximum possible loss the city could face.

That was despite an argument by Cr Richard Thomson that the work could be done by each council department, as staff should know the cost of their assets.

It emerged recently the city's $2.4 billion network of above- and below-ground infrastructure assets had been left without insurance after the Christchurch earthquakes.

International reinsurers, worried about their own exposure, refused to offer new cover for underground assets, while council staff refused to pay inflated premiums for reduced cover for above-ground assets.

The council is instead considering self-insurance to cover 40% of any repair bill, a requirement for obtaining 60% support from the Government.

Cr Thomson asked what might come out of spending $100,000 that the council could not "guess for ourselves" with the knowledge staff already had.

"We will be left with uncertainty, regardless," he said.

Mrs Clarke, who presented a report on the issue to the meeting, told councillors the money would not necessarily all be spent, but staff "want the facility there".

"We don't have a good feel for what our exposure to risk is," she said.

Each department had done work but needed to know the maximum loss to which the council could be exposed.

Acting chief executive Athol Stephens said the real issue was around probability, and what sort of damage earthquakes of different strengths could inflict, considering aspects such as the age of assets.

Cr Thomson asked whether staff had questioned the insurance companies about "non-earthquake insurance", as risks apart from earthquakes had not increased.

Mr Stephens said that had not happened, but would.

After the September 2001 terrorist attacks in New York, "people said we would never get insurance cover back again".

"Within a couple of years, people were back in the market," Mr Stephens said. "We think the market will start to respond, eventually."

Cr Thomson said he would prefer staff to consider the matter, but Cr Lee Vandervis said despite not being a supporter of bringing in consultants, in this case, it was "such a specialised area" that one was needed.

The committee voted to approve a carry-forward budget from a finance department surplus of "up to" $100,000 for the work, and approved setting up a strategic risk fund for self-insurance for infrastructure assets.

An update on the issue would come to the committee on October 17.


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