What would happen to “KiwiAssure” if there was another earthquake?

Gerry Brownlee has pointed out:

Canterbury Earthquake Recovery Minister and Minister Responsible for the Earthquake Commission Gerry Brownlee says Labour’s policy of establishing a state-owned insurer is no different than its other half-formed ideas – it’s emotive, shows a hopeless grasp of economic realities, and raises questions Labour won’t be able to credibly answer.

“Labour might hate private insurance companies, but the reality is they’re paying for $20 billion of the Canterbury rebuild – twice New Zealand’s annual corporate tax take,” Mr Brownlee says.

“The fact of the matter is you can only undercut insurance competitors if you’re prepared to take greater risk.

“Two insurance companies were doing that when the Christchurch earthquakes struck – both of them New Zealand owned – and they both collapsed.

“The reason insurance businesses tend to be internationally owned and operated, by big companies, is because they’re able to hedge their risk across a range of markets.

“Labour’s insurer would be completely exposed to the New Zealand market, which every citizen knows is at major risk of incurring heavy losses from natural disasters.

And guess who would be bailing them out – the taxpayer.

Insurers who are primarily covering just one country do run a very significant risk of collapse should disaster strike. And reinsurance can only go so far.