Herald on KiwiAssure

The Herald editorial:

Nothing in the policy announced by Mr Cunliffe at the weekend dealt with any of the real insurance policy issues arising from Christchurch. The announcement was little more than a replay of a commercial for KiwiBank which, like it or not, could be saddled with the insurance company. “KiwiAssure will work for all New Zealanders,” Mr Cunliffe declared. It would be “a service-focused, state-owned company that has their best interests at heart”. It would “keep profits from this crucial industry in New Zealand”.

Wisely, he did not quite claim it would offer cheaper premiums than existing companies. Christchurch had an insurance company that did that. AMI had come to dominate the local market by undercutting competitors and the earthquake exposed its inability to meet all of its liabilities.

KiwiAssure could well fail in the case of another large earthquake, and it would do huge reputation damage to NZ Post and Kiwibank if it did.

The AMI experience is salutary for national taxpayers, too, when they hear Labour’s assurance that its company would not carry a government guarantee. The present Government quickly came to the relief of AMI’s policy holders, taking over the worst liabilities and selling AMI as a going concern to the multinational IAG. It is hard to imagine a Labour Government acting any differently if a state-owned insurer fell into the same trouble.

Of course it would have to be bailed out, if it is touted as a state owned insurance company.

Insurance is almost the last business that should be nationalised. Its purpose is to share risk internationally.

That is the key point. It’s incredibly dumb to set up an insurance company that will have all its exposure in one market.