New fund for biosecurity?

May 21, 2018

Finance Minister Grant Robertson is considering a fund like EQC to cover biosecurity breaches.

He told Mr Dann he has asked Treasury and the Ministry of Primary Industries to investigate the possibility of creating a fund that could be funded partly by the government and partly by industry.

“We can’t just sit there and wait for these things to happen. We know they’re happening more regularly and I want us to get ahead of that,” he said.

“We are in a very reactive stance when they come in. We have this with Mycoplasma bovis, and we scramble around both as a government and the industry, trying to find the money to respond to them.”

“What I’d like to see is for us to get ahead of those. . .

A Border Clearance Levy was introduced in 2016:

The introduction of the levy allows the Ministry for Primary Industries (MPI) and the New Zealand Customs Service to manage resourcing of border clearance activities as passenger numbers go up or down.  This will mean the right resources are in place to keep New Zealand safe from harmful pests, people and dangerous substances and maintain current levels of service.

That’s supposed to stop biosecurity risks at the border, it doesn’t cover dealing with, and compensating for, anything which gets past the border.

The EQC levy and a Fire Service levy,  are imposed on all insurance policies. That does let people without insurance away without paying but the rest of us pay.

While the Canterbury earthquakes have raised issues with EQC, most of us pay the levies without complaint in the knowledge that any of us could be victims of natural disasters or fires.

Farmers, horticulturalists and orchardists, and native species are those most at risk from a direct biosecurity incursions which are very different from earthquakes and fires.

There’s no way to levy our flora and fauna. It would be easier to levy farmers and growers of fruit and vegetables.

The problems and costs of dealing with and compensating for M. bovis show the need for change.

Keith Woodford identifies some of the problems in the way it’s been and is being handled:

As I write this on 20 May 2018, New Zealand is at a crucial point in deciding how to manage Mycoplasma bovis. There are no good options. The worst option is for the Government to try and be the boss.

So, who should try to manage Mycoplasma bovis?

At the national level, the answer is ‘no-one’.  Farmers must make their own business decisions and take responsibility for those decisions.

Elsewhere in the world, governments do not try to manage Mycoplasma bovis. It is up to farmers to do this.

The role of our Government should be to continue monitoring at the national level using sampling techniques. But trying to identify all infected animals so as to eradicate the disease, and even trying to limit stock movements, this will be counter-productive.  Government has neither the resources nor the expertise. And the mess will just get bigger and bigger. . . 

Gypsy Day is in a couple fo weeks, thousands of cows need to be moved for winter feed or to new farms.

Some commentators have been suggesting that we should manage the disease in the short term but still work towards long term eradication. However, the epidemiology of this particular disease is such that this is unlikely to happen. No other country of the world – and Mycoplasma bovis is present in all the main dairy producing countries – is attempting to do this.  Unless some new technologies come forward, this disease is always going to be with us.

In the long term, it may be possible to produce a vaccine for Mycoplasma bovis. However, I do not know of anyone currently working on this.

The hard reality is that all farmers now need to manage their own situation, supported by advice by their veterinarians and other rural professionals with whom they work.  We know the risk factors. It is simply a case of making sure that these risks continue to be communicated, and then decisions must be made for each farm in the context of its specific situation. . .

The M. Bovis outbreak has been mishandled from the start when MPI worked on forward tracing – of cattle going from the farms where it was first identified, rather than backward tracing to find out where it had originated.

MPI now accepts that Mycoplasma bacteria were present in New Zealand at the start of 2016. But among my informal networks, there is no-one who is confident that this is time zero. The debates that we have, based on various pieces of evidence, include whether time zero was around 2014, or whether time zero was even earlier than that.

With hindsight, it seems that the battle between Mycoplasma bovis and MPI was always going to be a victory for Mycoplasma bovis. For it to be otherwise, MPI Biosecurity would have either had to stop its first entry to New Zealand, or else have identified the first incursions before they had spread.

Clearly there have been major deficiencies in NAIT (the national animal tracing system) but this is not the reason that Mycoplasma is currently out of control. Much more fundamental to the issue is that Mycoplasma had a head start, probably of several years.

There will also need to be hard questions asked about MPI itself – not the individuals but the system. Within my networks, which include people working directly on the Mycoplasma project, there is frustration that field-level understandings get lost as messages flow up the chain.

I would like to see MPI staffed at the highest levels by specialists rather than by managers drawn from totally different fields of expertise. From the website, I can see a ten-member senior leadership team with military experience, social development experience, communications experience and even a love of ballet. But apart from one forester and one agricultural economist, I cannot see any signs of people with experience of how things actually happen out in the field, nor an understanding of relevant sciences which determines how different diseases must be attacked differently. If the expertise is there, it is not evident.

I have significant doubts as to whether lack of funding is a key cause of the current situation. More likely, it is about organisational culture. It also needs to be recognised that generic management taught in MBA type programs may not be the ideal training for a Biosecurity Unit.

Anyone who has been affected by the disease and the way it’s been handled would second this.

Questions now have to be asked as to whether or not we have appropriate systems in place in case of a foot and mouth disease outbreak. I cannot answer that.

Foot and mouth disease would play out very differently than Mycoplasma bovis. If Mycoplasma bovis is a stealth bomber, then foot and mouth disease would be a nuclear event.

With foot and mouth disease, there would need to be immediate 100 percent accurate tracing of animal movements of the preceding days and possibly weeks, but not long term historical movements. There would need to be immediate and total lockdown on all animal movements across the country. Emergency vaccinations may need to be part of the toolbox.  All scenarios would need to have been thought through in advance.

With Mycoplasma bovis, it is evident those scenario analyses were not in place, so perhaps they are also not in place for foot and mouth disease.

Coming back to the immediate issues of Mycoplasma bovis, the key constraint going forward may well be for Government itself to recognise that it does not have the capacity to either eradicate or manage Mycoplasma bovis. The idea that ‘we are the Government and we are here to help you’ may well be an oxymoron.   Can Government understand this?

There might be a case for a fund partly paid for by farmers and growers.

But not as a knee jerk reaction to problems caused by the mishandling of M. bovis.

Unless those are addressed the fund would look more like another way to sneak in a new tax.


Cavalier attitude to taxpayers’ money

November 6, 2013

The Press, which is very familiar with insurance issues in Christchurch was less than impressed with Labour’s plan to establish a state-owned insurance company.

. . . The proposal for a new state-owned insurance company – KiwiAssure – would, Cunliffe says, be an effort to address problems over the responsiveness of private companies in settling claims and of the price of insurance. But in a market as competitive as the New Zealand one is, the price of insurance is determined by risk and the cost of covering it on the overseas reinsurance market. That applies whether the entity is private or state-owned. A state-owned enterprise required to lower its prices or be more generous towards customers than competitors could only do so at the expense of taxpayers.

As for the implication that a state-owned enterprise might provide a better customer experience in general than a private company, that only shows how far Auckland is from Christchurch. There are many in Christchurch who have dealt with EQC who could put Cunliffe right on that point. . .

The Herald is equally unenthusiastic about the idea:

. . . Ironically, the frustrations experienced by home-owners in Christchurch have much to do with government insurance in the form of the Earthquake Commission. . .

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.

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.

Insurance is almost the last business that should be nationalised. Its purpose is to share risk internationally. Labour’s company, like KiwiBank, might appeal to those who dislike profit-seeking private enterprise and prefer to deal with a state agency, but they will be under-written by a global insurance network of private enterprise. The profits of insurance provide security for all its subscribers.

The illusion of a “home-grown alternative”, as Mr Cunliffe calls it, has a powerful commercial appeal.

Members of the Insurance Council do not relish competing with a new state company for that reason. Taxpayers should be wary too. When a political party goes into business for no reason better than ideological satisfaction, it is likely to create a commercial lemon requiring ever more capital to survive. Let us hope this is one we will never see.

The ODT raises concerns:

. . . The suggestion KiwiAssure will be run by Kiwibank is not sensible.

The success of Kiwibank will be put at risk by tacking on an insurance company with a domestic focus.

Voters only have to look at the downfall of AMI, a Christchurch-based insurance company which substantially undervalued its reinsurance obligations and ended up with the Government – and taxpayers – having to step in to bail it out.

Of course, a government bail-out is exactly what will happen to KiwiAssure if it does not spread its reassurance risks widely.

Reinsurance for a totally-owned government-controlled insurance company will be expensive.

There can be no discounted policies on offer; it does not make sense.

Residents of Christchurch, and other cities and towns, should be asked how they feel about the state-run EQC, or the many people waiting for some help from ACC, to get some indication of whether they feel comfortable with a state-owned insurance company looking after their interests.

Overseas-owned insurance companies, although receiving much criticism for the slowness of their reviews and delays in payments, at least have a global reach of funds on which to draw. . .

Labour’s insurer will be completely exposed to events in New Zealand, a country at major risk of incurring heavy losses from natural disasters. . .

The Auditor General’s report on EQC said its response in Christchurch had been mixed.

There is nothing in the report to give any confidence in a new sate owned insurance company.

Labour leader David Cunliffe  tried to get some traction for the idea in Question time yesterday but gave Prime Minister John Key an opportunity to remind everyone of the risks instead:

. . . According to the public register, believe it or not, a total of 96 insurance firms have a full licence from the Reserve Bank’s carry-on insurance business in New Zealand. I have heard of a group proposing to set up a 97th insurer. The only point of difference is that that insurance business would put hundreds of millions of dollars of taxpayers’ money at risk by entering a market in which that group has no expertise and for which it cannot offer any competitive advantage. That cavalier attitude to taxpayers’ money comes from who else but the Labour Party. . . 

Hon David Cunliffe: Is it not true that the Prime Minister called Kiwibank a “failing institution” after almost a million Kiwis signed up as customers; therefore, why could not KiwiAssure also provide a locally owned, competitive, and high-quality option in the insurance market?

Rt Hon JOHN KEY: It is great that it has taken to supplementary question No. 4, but we will get to the heart of it. These are the reasons. For a start off, let us just take Kiwibank. Yes, it is a good little business. I might point out, though, that it has taken $860 million of taxpayers’ money and it has never paid a dividend in over 10 years. Secondly, the insurance market is hardly a free ride, because insurance companies happen to be in the process of paying $20 billion out in Christchurch. So if we had KiwiAssure, which the member wants to talk about, then New Zealand taxpayers would be paying a fortune into Christchurch. Thirdly, it is a competitive market at the moment. So if one assumes that they are just going to lay off their risk, they will be laying it off with the same reinsurers. Fourthly—     

. . .  Rt Hon JOHN KEY: To my fourth point as to why an insurance company would be a bad idea—name another major bank that operates in New Zealand that has an insurance company. It would not make sense to lend money [Interruption]—no, lend money—and actually have the insurance on the same property they are renting. They do not do that. . .

Finance Minister Bill English got a further opportunity to reinforce the risks in the proposal:

David Parker—Labour) to the Minister of Finance: Does he agree with IAG’s submission to the Commerce Commission that “there is real potential for major banks to begin underwriting their own general insurance products, and to compete directly with the incumbent insurance companies at the underwriting level as they already do at a retail level of the insurance market”?

Hon BILL ENGLISH (Minister of Finance): I have no responsibility for the opinion of IAG New Zealand but I can give the member the benefit of the experience of watching and working closely with the Reserve Bank to reduce the risks of our banking system to the New Zealand taxpayer. There have been 3 or 4 years where capital requirements have been increased, the core funding ratio has been increased, and we have put in place an open bank resolution system. The idea of a bank taking on more insurance risk is about the dumbest proposal that could possibly be made in the light on the events following the global financial crisis. The member should think very carefully before putting forward a policy that heads in exactly the opposite direction to where every other country in the world is heading.

Hon David Parker: Am I correct, then, to infer that he does not support the creation of a Kiwibank-style insurer to serve New Zealand consumers, which would reduce the dominance of overseas-owned insurers, keep profits in New Zealand, and bring added competition, added flexibility, and choice to New Zealanders?

Hon BILL ENGLISH: That is exactly the misleading pitch around this proposition. If there is one thing every taxpayer in the developed world now understands but the Labour Party does not, it is that the risk would be on taxpayers—taxpayers in Ireland, Spain, the US, and the UK. A billiondollar impost on New Zealand taxpayers arises exactly from financial institutions taking too much risk and loading it on to the Government. That is why his proposition is stupid. . .

Hon BILL ENGLISH:  . . . Secondly, what is surprising here is that when we have had the biggest manifestation of risk, it going wrong, and its impact on taxpayers in 100 years, the Labour Party still does not get it.

Hon David Parker: Why should anyone accept what the Minister of Finance says about KiwiAssure when 10 years ago he was pouring scorn on Kiwibank, saying it was “a small bank that has got no long-term viability.”?

Hon BILL ENGLISH: It is a small bank and it has never paid a dividend. It is great that it meets the needs of New Zealanders but it is certainly not an argument for creating a parallel insurance company. It is absolutely clear from our experience with the Earthquake Commission, AMI Insurance, and South Canterbury Finance that when the taxpayer has to underwrite this kind of risk, it can go wrong and taxpayers can be up for billions of dollars. Having low-income people working in the rain, paying their PAYE, and underwriting financial risk is as dumb an idea as you can have in the 2020s.

Rt Hon Winston Peters: Why would any sane New Zealander believe that last diatribe given that just 10 years ago, when the Cullen fund was announced, he said the very same thing about that, then went down just last week to its 10-year celebration and humbly had to admit what a fool he was?

Hon BILL ENGLISH: Well, as the member will know, because he was there, I did not say that. I did praise Dr Cullen for finding a way of stopping the Labour caucus spending billions of dollars in surpluses. If Dr Cullen had been there, he would have said that that was why he set up the Superannuation Fund—to protect New Zealand from the Labour caucus.

The one thing that is saving us from Labour’s cavalier attitude to taxpayers’ money is the proviso on the policy that a business case stacks up.

It is very unlikely a business case will so this isn’t so much policy or a promise as an attempt to get votes in the Christchurch by-election the outcome of which will be settled well before the business case is found to be faulty.

The business case for #gigatownoamaru stacks up well.


$4b EQC liability increase doesn’t change surplus target

August 30, 2011

It’s easy for anyone outside Christchurch to forget just how difficult life is there.

Even those whose homes and workplaces haven’t been badly affected find day to day life more demanding because of damage to roads, infrastructure and properties; business disruption and the ongoing strain of continued aftershocks.

Today’s announcement by Finance Minister Bill English that EQC’s earthquake liability has been revised upwards by about $4 billion is financial reminder of just how bad it is.

However, the government isn’t using that as an excuse for moving its target to return to surplus:

“Despite the increased liability, which will have a one-off impact on the Government’s operating balance for the 2010/11 year, the Government remains on track to meet Budget forecasts of a return to surplus in 2014/15 and to keep net debt below 30 per cent of GDP,” Mr English says.

There is no hope that this target would remain realistic if there’s a change of government.

We need continued commitment to policies which reduce the burden of state and increase savings, investment and export-led growth.

Labour and Green policies to tax and spend will do the reverse.


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