Living with Earthquake Risk in New Zealand
New Zealand sits on the Pacific Ring of Fire, making earthquakes an inevitable part of life for Kiwis. Our location on the boundary between the Pacific and Australian tectonic plates means we experience regular seismic activity. Understanding earthquake insurance is therefore essential for every NZ homeowner.
The 2011 Christchurch earthquakes and the 2016 Kaikōura earthquake reminded us of the devastating financial impact earthquakes can have. Rebuilding costs run into hundreds of millions of dollars, and without proper insurance, homeowners face ruinous financial consequences.
The Earthquake Commission (EQC/Toka Tu Ake)
The Earthquake Commission (now operating as Toka Tu Ake) is New Zealand's unique government-backed earthquake insurance provider. Unlike traditional insurance companies, EQC is a Crown entity that provides earthquake cover automatically to most residential properties.
What Does EQC Cover?
EQC cover applies automatically to residential properties in New Zealand and covers:
- Damage to the building structure from earthquakes
- Land damage (settlement, subsidence)
- Damage to swimming pools and decks
- Loss of contents due to earthquake (limited cover)
The current EQC cover limit is $300,000 plus GST for most homes. This cap has increased from previous levels, but for larger or higher-value properties, this may not be sufficient.
Is EQC Cover Automatic?
Yes, if you have a buildings insurance policy with a licensed insurer in New Zealand, EQC cover is automatic. You don't need to arrange it separately or pay for it directly. Your buildings insurance premium includes the cost of EQC cover. However, you must maintain an active buildings insurance policy to benefit from EQC cover.
How EQC and Buildings Insurance Work Together
The relationship between EQC and buildings insurance is crucial to understand. They work as a two-layer protection system:
Layer 1: EQC Cover
EQC pays first for earthquake damage, up to their limit of $300,000 plus GST. This is the primary layer of protection.
Layer 2: Buildings Insurance
Your buildings insurance covers any damage costs above the EQC limit. If your rebuild cost is $600,000, for example, EQC covers $300,000 plus GST, and your buildings insurer covers the remaining amount (less your excess).
Coordination Between EQC and Your Insurer
Your buildings insurance company coordinates with EQC during claims. You typically lodge a claim with your insurer, who then manages the EQC interaction. The two organisations work together to avoid duplication and ensure you receive fair compensation.
Additional Earthquake Cover Options
Some buildings insurance providers offer optional cover above the EQC limit:
Earthquake Extension
Some insurers provide "earthquake extension" cover that extends your protection above the EQC cap. This is valuable for homeowners with high-value properties.
Natural Disaster Cover
Some policies include "natural disaster" cover that encompasses earthquakes, volcanic eruptions, and other natural events. This broader cover is often optional.
Important Considerations About Earthquake Risk
Not All Properties Are Equal Risk
Earthquake risk varies significantly across New Zealand. Wellington, Canterbury, and the West Coast face higher seismic risk. Your location affects your buildings insurance premium and the availability of additional earthquake cover.
Aftershocks and Cumulative Damage
Major earthquakes are often followed by significant aftershocks. Some policies require that claims be lodged within a specific timeframe after the initial earthquake. Damage from aftershocks may be assessed as cumulative damage from the initial event.
Building Age and Construction
Older buildings and those with poor structural integrity are at higher risk in earthquakes. Building Performance NZ has introduced new building standards designed to improve earthquake resilience.
What Earthquake Insurance Does NOT Cover
It's important to understand the limitations:
- Damage caused by poor maintenance or neglect
- Gradual damage that occurred before the earthquake
- Contents (unless specifically included)
- Loss of rent or business interruption (unless optional cover is added)
- Damage from tsunami (though sometimes covered under natural disaster provisions)
Steps to Protect Your Property
1. Maintain Adequate Insurance
Keep your buildings insurance policy active and ensure your sum insured reflects current rebuild costs. Review your policy annually.
2. Improve Structural Resilience
Consider earthquake-strengthening measures such as foundation bolting or bracing for older homes. Some of these improvements may reduce your insurance premium.
3. Create an Emergency Plan
Prepare your household with emergency supplies, a communication plan, and knowledge of what to do during and after an earthquake.
4. Keep Documentation
Maintain photos of your property and records of renovations and improvements. This helps expedite claims if needed.
Common Myths About Earthquake Insurance
Myth: EQC Is Expensive
EQC cover is included in your buildings insurance premium. You don't pay separately, and the cost is generally reasonable given the protection provided.
Myth: Small Earthquakes Aren't Worth Claiming
If you have damage from even a small earthquake, it's worth reporting to your insurer. Minor repairs can sometimes be covered.
Myth: EQC Covers Everything
EQC has limits and may not cover all earthquake-related damage, especially for high-value properties. This is why buildings insurance is essential.
Conclusion
Earthquake cover is a critical component of buildings insurance for every NZ homeowner. The combination of EQC and buildings insurance provides comprehensive protection, but you must understand how they work together and maintain both policies. Living in an earthquake-prone country requires proactive risk management – don't leave your home unprotected.
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James Thornton
Insurance expert with extensive knowledge of New Zealand property protection and buildings insurance coverage.
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