It looks increasingly likely that the Kiwi taxpayer is going to have to bail out AMI Insurance in some way or another following the Christchurch earthquake. I think it’s important that those who have insurance with AMI are given certainty, so I support the government’s decision.
But it highlights the risks involved in another National government policy – the privatisation of ACC. Under National’s privatised model of accident cover (they try to dress it up by calling it ‘competition’ but it’s privatisation by any other name) a private accident insurance company, faced with an unforeseen influx of claims due to a disaster such as an earthquake, could find themselves in the same boat as AMI does now.
I asked Nick Smith in Parliament a few weeks ago whether or not the government would guarantee Kiwis that if their private ACC insurance provider collapsed they would still be covered. Naturally he evaded the issue. He had no choice really. If he’d said no, he’d basically be saying that privatisation would mean thousands of New Zealanders could find themselves without cover. If he’s said yes, he’d basically be writing a blank cheque to the insurance industry.
I think there are a lot of Kiwis who are getting pretty fed up with the government having to constantly bail out private companies who rack up massive profits when the going is good and then turn to the taxpayer for assistance when things get a bit tough. Why would we want to replicate the problem in ACC?
Well, we don’t but National does – it’s in their genes to give taxpayer money to themselves and their rich mates.
This is the thorny side of privatising public services. If / when the private operator falls over….the state is left with the moral dilemma of either letting the people who paid for cover in good faith swing in the wind….or bail out the failed private provider. If they – more often than not – default to bailout, this becomes a defacto profit / loss consideration for unscrupulous operators. Better to leave ACC is as it everyone has 100% certainty and there is no moral hazard. But such simple clarity isn’t profitable for National’s mates….so they have to break a perfectly good system to allow their mates to such cash out of it.
It is clear from comments by more robust and trustworthy players in the insurance industry today that shonky low-ball outfits tend to drag everyone’s reputation down with them, and play fast and loose with their clients. Chris, you are correct to link such questionable commercial behaviour to the ACC privatisation policy, IMO, and in fact to the entire privatisation programme. Where social good is involved, rather than simple consumer transactions, they are all ultimately underwritten by the taxpayer.
The comparison between AMI and private accident insurance companies is completely invalid. The government is ALREADY the re-insurer for accident cover via the public hospital system. What do you think happens to all those people who get their claims denied by ACC?
MacDoc – when I read this before the posts your toughts were exactly mine. This is a desperate Labour Party looking for relevance. So Chris – answer this question – can you please tell us the type of event that would be so broad an accident as to threaten the insurance of individuals on such a large level?
And with privatisation MacD we the taxpayers will still underwrite the expensive and risky stuff the private insurers wont take into their portfolios but we wont be able to balance it off against the so-called lower risk premium payments because they will be over in private isnurerdom.
And those who are low-risk will insure privately and pay less and those who are high-risk will insure with ACC and get their premiums subsidized by the taxpayer. How is that different from now?
Because now the risk is spread across all, low risk and high risk within ACC. private insurers will cherry pick the categories they wont to cover and so on, meaning they will take low risk claims ONLY and leave the taxpayer with HIGH risk claims only.
Woe is ACC
