The massive San Francisco earthquake of 1906 resulted in huge payouts by insurance companies and sent some of them into bankruptcy. Afterwards insurance companies worldwide ruled out shock and fire damage due to earthquakes from their fire insurance policies. As a result, most of the damage caused by the devastating Napier earthquake of 1931 was not covered by insurance. In 1937, with the threat of the Second World War looming, the international insurance industry again took a united stand and refused to accept any risk from war damage.
Too many cooks
Sixteen-year-old George Fraser began working as an office boy for a Wellington insurance company in 1931, and was unimpressed by more than 30 general insurance companies operating in the city. ‘[T]he real objective of the “inspectors” was to take business away from each other on the basis of personal connections and name-dropping … Each company had hundreds of sub- or local agents who used their influence and connections to earn those few precious pounds in commission. I felt the whole system was a waste of time and money and that a better and cheaper service could be given by a cooperative or the government.’1
Earthquake and war damage
From 1906 general insurance companies in New Zealand had paid levies to maintain fire brigades. Following the Napier earthquake, New Zealand was the first country in the world to propose extending this model to fund disaster restoration. In October 1941 the government instead followed a recent British precedent by establishing a War Damage Commission. By 1944 the enemy threat to New Zealand was receding so the original concept was revived and the Earthquake and War Damage Commission was created.
‘All risks’ property insurance
The scope of the Earthquake and War Damage Commission’s coverage extended to widespread flood and storm damage, volcanic activity, landslips and tsunamis, but only for those with property insurance (who had paid the Commission’s levy on top of their insurance premium). In the 1960s the general insurance industry introduced ‘all risks’ property insurance to fill any gaps in the Commission’s cover.
‘War damage’ was dropped from the commission’s role and title in 1993. By then its potential liabilities for the risks of catastrophe were causing serious concern, and it stopped covering commercial property. For those who could afford the premiums (which reflected the unpredictability of the risks), the general insurance industry took over disaster insurance of commercial property.