Insurance and risk

David Cunliffe.
David Cunliffe.
A labour government will set up a Kiwibank-style insurance company to provide a local alternative in an industry dominated by foreign-owned businesses, new leader David Cunliffe says.

The Labour Party held its annual conference in Christchurch last week and announced two policies designed to switch voters from supporting National to voting Labour.

Apart from the establishment of the insurance company, called KiwiAssure, Mr Cunliffe also announced the party would build 10,000 affordable KiwiBuild homes in the region in the first four years of the programme.

Labour, it should not be forgotten, needs to comprehensively win a by-election on November 30, filling the vacancy created by the election of former Christchurch East MP Lianne Dalziel as the Mayor of Christchurch.

The idea of KiwiAssure was seen to come out of nowhere, but it was designed to strengthen support for the party in Christchurch East.

Labour won the seat at the 2011 election, but not the party vote, and the result on November 30 is seen as a test for both Mr Cunliffe and Labour.

At the weekend, Labour entered into a bidding war with National on which party can put more money into the earthquake damaged city.

Both KiwiAssure and KiwiBuild - which promised, among other things, to revitalise New Brighton in the heart of the worst-damaged part of Christchurch electorate - will strike a chord with voters disheartened by the slow pace of progress.

While those policies may be vote winners, the lack of detail is concerning.

The suggestion KiwiAssure will be run by Kiwibank is not sensible.

The success of Kiwibank will be put at risk by tacking on an insurance company with a domestic focus.

Voters only have to look at the downfall of AMI, a Christchurch-based insurance company which substantially undervalued its reinsurance obligations and ended up with the Government - and taxpayers - having to step in to bail it out.

Of course, a government bail-out is exactly what will happen to KiwiAssure if it does not spread its reassurance risks widely.

Reinsurance for a totally-owned government-controlled insurance company will be expensive.

There can be no discounted policies on offer; it does not make sense.

Residents of Christchurch, and other cities and towns, should be asked how they feel about the state-run EQC, or the many people waiting for some help from ACC, to get some indication of whether they feel comfortable with a state-owned insurance company looking after their interests.

Overseas-owned insurance companies, although receiving much criticism for the slowness of their reviews and delays in payments, at least have a global reach of funds on which to draw.

Earthquake Recovery Minister Gerry Brownlee says Labour may hate private insurance companies, but in fact, they are paying for $20 billion of the Canterbury rebuild - twice New Zealand's annual corporate tax take.

''The fact of the matter is you can only undercut insurance competitors if you're prepared to take greater risk.''

Two insurance companies were doing that when the Christchurch earthquakes hit, both of them New Zealand-owned, and both of them collapsed.

Labour's insurer will be completely exposed to events in New Zealand, a country at major risk of incurring heavy losses from natural disasters.

The idea of KiwiAssure is worth investigating, but on first view insurance is one of the last businesses which should be nationalised by a government.

Kiwibank appeals to loyal New Zealanders who like the idea of investing their money where it will be used for the benefit of fellow Kiwis in obtaining mortgages, extending businesses and generally contributing to economic growth.

There is no such incentive for taxpayers in owning an insurance company.

Political parties do not have a good history of being in business.

New Zealand Post is the latest state-owned entity to run into problems, even though it is propped up by Kiwibank.

Appointing Kiwibank to prop up an insurance company is the wrong option.

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