28 May 2004
By SUE HAWKINS

Many Taupo people could be putting their insurance cover at risk if they don't disclose that their properties overlie the Wairakei-Tauhara geothermal field.

The information emerged at the Contact Energy hearing this week when a risk management consultant was giving evidence about insurance practices and how most policies specifically exclude land subsidence and any subsequent damage.

John Sloan, whose expertise includes consultancy for government departments, local authorities and private corporations, has been called by Taupo District Council to give evidence.

He told the hearing that, while there may be cover for sudden or unexpected events from geothermal activity or hydrothermal eruptions, there is virtually none for the long-term subsidence effects from geothermal extraction.

Last week a world expert in geothermal resource management warned that subsidence could be a possible consequence anywhere in the 80 square kilometres of land over the Wairakei-Tauhara field.

Now Mr Sloan says all insured parties have a duty to disclose the risk of known or likely subsidence in Taupo to their insurers.

"Failure to do so could result in loss of all insurance cover in event of a claim."

His evidence raised concern among the commissioners hearing the evidence who asked whether the people of Taupo were aware of that likelihood, and Mr Sloan doubted whether many did.

Nor are property owners likely to obtain such specific insurance cover.

"I think no insurer would underwrite such a policy extension in Taupo where the subsidence risk is now so well identified."

Mr Sloan says in the case of domestic policies, land is not insured, only the buildings on it, but the Earthquake Commission provides limited coverage for land.

"Consequently, any assumption that all domestic properties are currently insured against subsidence is incorrect."

He also says that equally an assumption that subsidence would be insured in the future is very debatable.

There are precedents where insurers cancel or deny coverage for predictable loss or damage.

"A current example is where most, if not all, insurers of commercial properties have denied coverage for loss or damage by any lahar created by the certain eruption and lava overflow by Mt Ruapehu when it erupts and overflows."

Mr Sloan says the only answer he sees to the question "who pays for damage created by subsidence?", is to set up a bond.

The question has already been canvassed in a staff report prepared by Environment Waikato, where it suggests such a bond could be administered by the regional authority.

News Source->
http://www.stuff.co.nz/bayofplenty/0...2a6014,00.html