Quake protection, up to a point
After the 7.1 earthquake in Christchurch, Farmer Freddy considers what insurance is best for his farm.
Farmer Freddy and his daughter, Pebbles, were sitting down over a coffee on a Sunday morning.
As Freddy was unusually quiet, Pebbles asked what was on his mind.
"Well, I've been thinking some more about the Canterbury earthquake," replied Freddy, "and how we'd cope in a natural disaster - and the farm, too. I mean, for example, do I have the right insurance cover? Would I be covered by the Earthquake Commission?"
"There are lots of different types of risk you need to consider, Dad," Pebbles said. "Some of them will be covered by the EQC and some won't. The first thing to understand about the EQC is that it only applies to residential buildings, residential land and to your personal property. It does not cover business assets."
"The second point is that you will be only covered if you already have a fire insurance policy with an ordinary commercial insurer. If you have a policy and a natural disaster occurs, EQC will pay out the first $100,000 on your house claim, and your ordinary insurer will cover the rest. You will still have to pay any excesses. EQC will also pay the first $20,000 of your claim for damage to your personal property and the cost of repairing the land [or its value, whichever is lower]."
"I didn't think EQC covered damage to land," said Freddy.
"It covers damage only to residential land, Dad. That's limited to the land the building is on and the land immediately around it, although it also covers driveways up to 60 metres from the house. Unfortunately, it wouldn't meet the cost of damage to farm land, and it won't cover damage to farm buildings."
"Does that mean that the farmhouse and the worker's house aren't covered?" asked Freddy, getting into a bit of a lather.
"Don't worry Dad," replies Pebbles. "If your fire insurance policy is current, they'll both be covered, as will the land they are on. It's more complicated if a single building contains both a dwelling and a work area.
"But what about the rest of the business?" asks Freddy.
"Unfortunately, businesses aren't covered by the EQC. There is a wide range of insurance products available that you might like to think about. For a start, there's farm building and equipment insurance, livestock cover, fencing insurance, business interruption insurance and so on.
"The question is always how much you're prepared to pay for peace of mind, rather than not buying cover and instead self-insuring against certain risks. You should talk to your insurance broker about the options available."
"Crikey," says Freddy. "There's more to insurance than meets the eye. I reckon self-insurance sounds good to me. I pay far too much in premiums and never get anything back."
"I suggest you ask your mates down south before you make that call, Dad. Insurance always seems expensive until you make a claim. And self-insurance always looks good until disaster strikes."