Earthquake Insurance for Body Corporates in New Zealand

Earthquake Insurance Overview

New Zealand sits on the Pacific Ring of Fire, making earthquake coverage not just important but essential for body corporate properties. The Canterbury earthquakes of 2010-2011 and the Kaikōura earthquake of 2016 demonstrated the devastating impact earthquakes can have on multi-unit buildings.

For body corporates, earthquake insurance is automatically included in standard policies — you cannot opt out. However, the level of protection, excess amounts, and premiums vary significantly based on:

• Location — Wellington and Christchurch face higher premiums than Auckland
• Building age and construction — Pre-1970s buildings may face restrictions
• Soil type — TC3 land in Christchurch affects insurability
• Building height — High-rise buildings have different risk profiles
• Strengthening status — Earthquake-prone buildings face challenges

Understanding EQC Cover

The Earthquake Commission (EQC) is a Crown entity that provides natural disaster insurance to residential property owners in New Zealand. For body corporates, understanding how EQC works is crucial.

What EQC Covers

Natural Disasters Covered by EQC

• Earthquake
• Natural landslip
• Volcanic eruption
• Hydrothermal activity
• Tsunami

How EQC Works for Body Corporates

For a body corporate with multiple units, EQC cover is calculated per dwelling:

EQC Levy

EQC cover is funded through a levy collected via your insurance premium. The current residential building levy is 20 cents per $100 of cover, capped at the $300,000 limit. This means:

• Maximum EQC levy per dwelling: $600 per year
• For a 20-unit building: $12,000 per year in EQC levies

Private Insurance Top-Up

For most body corporates, the EQC cap of $300,000 + GST per dwelling covers only a portion of the full replacement cost. Private insurers provide "top-up" cover above the EQC cap.

How Top-Up Cover Works

Your body corporate insurance policy provides cover from dollar one. When an earthquake claim is made:

1. EQC pays first — up to $300,000 + GST per dwelling
2. Private insurer pays the balance — from the EQC cap up to your sum insured
3. You pay the excess — this applies to the private insurer portion

Ensuring Adequate Cover

The most critical factor is ensuring your sum insured reflects current replacement costs. Construction costs have increased dramatically since 2020, and many body corporates are underinsured.

Recommended actions:

• Get a professional valuation every 2-3 years
• Review sum insured annually at minimum
• Account for demolition, professional fees, and consent costs
• Consider inflation protection options

Earthquake Insurance Costs by Region

Earthquake premiums vary dramatically across New Zealand based on seismic risk. Here's what body corporates can expect:

Understanding Earthquake Excess

Earthquake excess is typically much higher than standard excess levels. Understanding this is crucial for financial planning.

How Earthquake Excess Works

Earthquake excess is the amount the body corporate must pay before insurance covers the remaining claim. Common structures include:

• Fixed amount: e.g., $20,000 flat excess
• Percentage of sum insured: e.g., 2.5% of $10 million = $250,000
• Minimum/maximum: e.g., 2% subject to minimum $10,000, maximum $100,000

Excess Buydown Options

Some insurers offer excess buydown options, allowing you to pay additional premium to reduce your earthquake excess. This can be worthwhile for:

• Body corporates with limited reserves
• Buildings where unit owners cannot afford special levies
• Properties with higher likelihood of damage (older buildings)

Building an Excess Fund

Prudent body corporates build a contingency fund specifically for insurance excess. Options include:

• Natural disaster excess fund in long-term maintenance plan
• Dedicated savings account for excess
• Higher general contingency reserve

Wellington: Special Considerations

Wellington presents unique challenges for body corporate insurance due to its location on the Wellington Fault and proximity to other major fault lines.

Wellington-Specific Factors

• Fault line proximity: The Wellington Fault runs directly through the CBD
• Soil conditions: Reclaimed land and soft soils amplify shaking
• Building stock: Many older unreinforced masonry buildings
• Reduced insurer capacity: Some insurers limit Wellington exposure

Earthquake-Prone Building Notices

Wellington has the highest concentration of earthquake-prone buildings in New Zealand. If your building has received an Earthquake-Prone Building (EPB) notice:

• Insurance may still be available but at higher premiums
• Some insurers may decline to quote
• Strengthening work may be required within specified timeframes
• Consider strengthening to improve insurability and reduce premiums

Christchurch: Post-Earthquake Landscape

The Christchurch insurance market has evolved significantly since the 2010-2011 earthquakes. Understanding current conditions helps body corporates navigate this market.

Current Market Conditions

• Premiums stabilized: After years of increases, rates have plateaued
• New building stock: Many rebuilt buildings have modern seismic standards
• TC3 land challenges: Technical Category 3 land still affects some properties
• Insurer confidence returning: More capacity available than 2015-2020

TC3 Land Considerations

If your body corporate is on TC3 (Technical Category 3) land:

• Disclosure is required when obtaining quotes
• Some insurers may apply specific exclusions or loadings
• Foundation type and condition are closely assessed
• Engineering reports may be required

Lessons from Canterbury

Key learnings that apply to all NZ body corporates:

1. Ensure adequate sum insured — underinsurance was a major issue
2. Understand your excess — many owners were shocked by excess amounts
3. Document your building — photos, plans, and specifications speed claims
4. Know your policy — read and understand coverage before an event

Making an Earthquake Claim

If your body corporate property is damaged by an earthquake, follow these steps:

Immediate Steps (First 24-48 Hours)

1. Ensure safety: Evacuate if necessary, check for gas leaks, structural damage
2. Contact your insurer: Report the damage as soon as safely possible
3. Document damage: Take photos and videos before any cleanup
4. Prevent further damage: Make temporary repairs if safe to do so (keep receipts)
5. Notify unit owners: Keep all owners informed of situation and next steps

The Claims Process

1. Claim lodgement: Your insurer handles the claim, including EQC portion
2. Assessment: Loss adjuster inspects damage and estimates repair costs
3. Scope of works: Agreement on what repairs are covered
4. Excess payment: Body corporate pays agreed excess
5. Repairs or settlement: Building repaired or cash settlement provided

Earthquake Preparation Tips

Proactive preparation can reduce damage and speed recovery:

Insurance Preparation

• Review sum insured annually — ensure it reflects current replacement cost
• Understand your excess — plan how it would be funded
• Keep policy documents accessible — digital copies in multiple locations
• Know your insurer's claims process before you need it

Building Preparation

• Secure heavy items — bookcases, water heaters, storage shelves
• Identify shut-off points — gas, water, electricity
• Maintain emergency supplies — water, torch, first aid in common areas
• Review evacuation procedures — ensure all residents know procedures

Documentation

• Keep building plans and specifications accessible
• Photograph all areas of the building periodically
• Maintain records of improvements and maintenance
• Store copies off-site or in cloud storage

Frequently Asked Questions