Here Comes Another Bailout

It’s difficult to know what to make of the government bailout of AMI Insurance. If this company really is going down the gurgler then the government probably has no choice but to step in and ensure policyholders affected by the February earthquake get paid out.

The alternative would be to let AMI fall over and tell thousands of people in Christchurch with damaged homes that it’s just their bad luck.

So once again the public may have to stump up to help out a failed company.

It is almost beyond belief that a major New Zealand insurance company could go bust in these circumstances. Sure, February’s quake was a big one, but scientists have been predicting for decades that our country was due for a big earthquake. Everyone just thought it was going to be Wellington rather than Christchurch.

So why didn’t AMI have sufficient resources and reinsurance to cover what surely can’t have been that extraordinary an event?

We are told again and again that the business sector does it better and smarter than government can. But when the business sector fails it’s all too often the government, and the taxpayer, left to clean up the mess.

It will take a lot to convince me there hasn’t been an utter failure of management at AMI. A failure that may cost the taxpayer hundreds of millions of dollars. And yet you’d probably get good money if you were to bet that the current board and CEO will keep their jobs.

I don’t know much about the insurance industry or about the regulatory regime insurance companies operate under. But if these companies are too big to fail then we need to ensure they are being properly run. That may require tighter regulation of the insurance industry, so that this can’t happen again.