Tuesday, 28 June 2011

More broken windows [updated]

Before the Christchurch earthquakes even began, Canterbury’s network of stopbanks, river control assets, and many of its bridges were wholly uninsured. From Thursday however, every part of the rest of Canterbury’s council-controlled infrastructure (and much of it around the rest of the country) will also be wholly uninsuredabout $4.7 billion worth of above-ground and underground infrastructure in Canterbury alone that isn’t already damaged.

Turns out councils’ own insurance organisation, Civic Assurance (who have already paid out several hundred-million), can’t get reinsurance for the now-risky services.

So it turns out taxpayers and ratepayers will be directly on the hook for the multi-billion dollar risk.

So it looks like those who thought insurance payouts might be like a free lunch—like the stimulus a Krugman or Keynes might dream about—were wrong.

Turns out there really is no such thing as a free lunch, and the Broken Window Fallacy really is true: there really are no blessings from destruction. None. At. All.

UPDATE: Just to update the insurance situation then post-earthquake:

  • reinsurers across the world are staying away from NZ
  • council infrastructure around the country is likely to be uninsured—with the risk picked up by taxpayers
  • one of the largest insurance companies in the country fails—and is bailed out half-a-billion dollars by taxpayers
  • the government has begun a process whereby it will be nationalising virtually every damaged home in Christchurch—with taxpayers picking up the tab that should have been picked up by insurance companies
  • it is revealed that the government’s antediluvian Earthquake Commission (who have been slowing down the Canterbury re-building) has more than two-thirds of its “investments” in government bonds—meaning little more than a “promise to pay” by taxpayers.
  • Bill English continues to borrow $380 million more each week.

Lucky taxpayers have deep pockets, eh.


  1. Broken Windows Insurance stands ready to insure. You might not like the premiums, but a good salesman doesn't tell a customer "No", they just tell them how much it will cost.

    It turns out that not only was there a free insurance lunch in the Christchurch earthquake, the insurance premiums were a bargain.

    If the correct premiums to insure New Zealand were much higher than were being paid [as is now claimed], not only do the insured get their payout, they didn't pay high enough premiums for years, thereby enjoying a bargain priced insurance policy. Yum yum... free lunch.

    Having enjoyed one free lunch, of course the free lunch providers are having another think about providing more. The bludging entitlement mentality now pandemic in New Zealand no doubt feels hard done by.

    There was a free lunch. As is normal in New Zealand, people want perpetual free lunches. Bad luck. Time to get a real job and carry their own risk of their dodgy leaky building/rotting wood/fall down construction techniques

    Contrary to the simplistic idea that destruction can't be profitable, it can be, locally, if the people paying are located elsewhere. The total outcome, worldwide, is destruction, but there are winners and losers. Christchurch will get a big influx of money to cover the insurance claims [is getting it]. Taxpayers elsewhere will be robbed to pay for Christchurch building houses on quicksand = more free lunch.

    Free lunch all around in Christchurch! Warren Buffett pays. Taxpayers pay. Russian oligarch insurance pays. Lloyds "names" pay.

    Maurice Winn
    Broken Windows Insurance Company aka Free Lunch Insurance.

  2. Best insurance? Don't buy a house in an earthquake prone area. I remember reading publicly about the impact of a large quake in Chch about 15 years ago (whilst living there). Predicted massive damage due to local geology, casualties, liquefaction, etc... Decided then that buy property in Chch was a bad bet. Then, exactly as was predicted, bam, over rolls the city 15 years later.

    But not to worry, a Public Address blogger is in the red zone with an ancient house and being "screwed" by Tower... and the government. The mighty power of the local whiny bloggsters will rise to the challenge of getting everyone some free insurance at everyone's expense.

    Word to the wise... don't buy in Chch or anywhere else since there will be no earthquake insruance next time round and the government, having nationalized it into taxation, will be unable to pay out.

  3. Broken Windows Insurance remains ready to insure property in Christchurch against earthquake damage contrary to the claim that insurance will not be available. Meanwhile, here's evidence of the local economic gain from the damage as $billions flood in from around the world: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10735097

    Broken Windows Insurance will also provide earthquake damage insurance in Wellington and volcanic eruption damage insurance in Taupo. That includes life insurance which would be a good idea to buy because Taupo goes with a bang and few will escape, unlike with the benign Auckland scoria eruptions.

    Insurance price in Taupo will be 2% of the rateable property value per year. So a $1 million house will cost $20,000 per year. That might seem a lot, but people don't realize just how certain Taupo is to be destroyed in the next eruption and how soon that will be.

    Earthquake insurance prices in Wellington and Christchurch depend on the individual building design and construction. Old brick buildings will be expensive.


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