Wednesday, November 11, 2015

Earthquake insurer Southern Response sets aside $4m for legal fees


Government-owned insurer Southern Response has set aside $4 million for its legal costs over the next year, as it faces a lawsuit from disgruntled Christchurch customers angry with its work on earthquake repairs.

However, the insurer says it is not concerned about covering any cost blowouts from its earthquake repair programme, despite a $300 million increase in estimated claims.

The company, which handles failed Canterbury insurer AMI's earthquake claims, revealed in its annual report that its estimate of claim costs had increased by $300m, after an unexpected amount of new claims passed to it by the Earthquake Commission (EQC).

The insurer estimated it would need $942m of taxpayer money to complete its $2.7 billion of claims - close to the $1b already committed by the Government.

Southern Response chief executive Peter Rose told the finance and expenditure select committee the company had not spoken to government ministers about any additional funding, as it believed it had enough money to cover the claims.

"Our valuation shows that the number of claims that we expect will come within the current cap available, so barring any more unexpected claims, any blow-outs of valuation, we should have sufficient capital - but it's too early to say for sure."

Chief financial officer Tony Feaver said the company expected there would be another 300 to 400 claims transferred to it from the EQC, and had "reasonable clarity" that that number would not increase.

Rose said Southern Response had spent $10m on legal fees since it was set up by the Government, and had budgeted another $4m for the next year.

A class action lawsuit against the insurer was launched in September by more than 40 disgruntled customers, claiming it had misrepresented policies and understated the true costs of repairs.

Labour's Canterbury issues spokeswoman Megan Woods said it was "beyond belief" that Earthquake Recovery Minister Gerry Brownlee had not met Southern Response to discuss their budget and how they would deal with cost over-runs.

"We know Southern Response are already getting towards the edge of that [$1 billion]...I would expect a responsible minister to be tracking this, to be meeting with the CEO, checking that this is all going to plan."

Woods said she was also concerned about "mounting legal costs" at Southern Response and the EQC.

"I don't think it's good enough for the Crown to continue to lawyer up at the taxpayer's expense to take on the people of Canterbury over their insurance issues."

Brownlee dismissed Woods' concerns about funding, saying a Crown guarantee backing the insurer had "implicitly" been in place since the Government took over AMI's liabilities.

"This whole business about plan B etcetera - good God. You have a budget that you try to work to, but a Crown guarantee means that you are going to be solvent at all times."

Brownlee said he had "no problem" with Southern Response's legal budget, as it needed to defend action taken against it.

 - Stuff
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