July 26, 2022
Brendon Ojala
All Blogs

We can't predict earthquakes, but we can prepare for them

If there is one thing that the pandemic has taught us, it is to expect the unexpected - and the next big earthquake will be no exception.

The Facts

GNS Science estimate a 30% probability of a M7.0+ quake in the central region within the next decade.

Furthermore, they also estimate the probability of a big shake (M5.0-6.9) in the next year at 38% for Canterbury, 34% for Kaikoura and Upper Canterbury and 45% in the East Cape Region.

And if those stats aren't quite enough to get you thinking, new research has found the likelihood of an Alpine Fault quake in the next 50 years is approximately 75%. And that will be the "big one' we have all been dreading.

So there is a lot that we have learned from past quakes and a lot we need to have prepared, both in terms of personal and business lives.

As a business, one of Velocity Financials' biggest business risks is a decent size Earthquake hitting Wellington.

Getting Prepared

At Velocity, most of our income arrives when our clients draw down Home Loans, or put in place new insurances including through our sister brand, Caveo.  If (when!) the "big one" occurs in Wellington we will be very busy, but our income will dry up for months and months, if not years.  This was evidenced in Christchurch, for companies similar to ours.

Most insurance products (i.e. Business Interruption cover) focus on businesses not being able to trade due to building damage, but this isn't our concern. We can operate completely remotely now (one of the silver linings of Covid).  Our building may be fine; but even if it isn't, we can operate pretty much "as normal" - however, that doesn't mean any mortgages are settling if an Earthquake hits.

Parametric insurance is the answer

Knowing the above, as a business we opted to take out parametric insurance cover. This is a specific type of cover that will pay out if there is a certain level Earthquake in Wellington (regardless of the specific damage to our building).

If there is a shaking in Wellington of around the level that occurred here due to the Kaikoura Earthquake in November, 2016, then $300k is going to show up in our bank account.

How it works:

  • Payment is triggered by trusted an independent public data from GeoNet
  • Full payment is made with seismic shaking of 30cm/sec (approx. M6.0)
  • Simple text based confirmation of impact
  • Funds can be used for any purpose to support our business recovery
  • Our claim will be paid within days, no complexity, paperwork, assessors or engineers
  • There is no excess
  • This type of insurance provides a simplified disaster risk finance solution for our business that rapidly supports cash flow in a time of crisis when we will likely be strapped for cash
  • This type of insurance also complements our classic Business Interruption Cover (which covers the building part)

This will give us some options.  It will mean we can keep our staff on and so we can look after our customers, while we have some time to work out what the next step is.

It is honestly a relief that we have this risk covered.

Full Disclosure:  Yes, we do own the insurance brokerage, Caveo, that put this in place for us, but I absolutely believe this is a great product and should be seriously considered for Wellington businesses who offer professional services like ours.


Want to learn more?

Please reach out to us for a chat about how this type of insurance can protect your business.


0800 448 879

About Brendon:

Hi, I'm Brendon, one of the owners and advisers at Velocity Financial. I have been giving advice on mortgages and insurances at Velocity for around 15 years, and it is great to be able to work with people to achieve their financial goals. Prior to giving money advice I worked as a youth worker and managed teams for a not-for-profit organisation. I live with my wife and one of my sons (the other one only stays when he needs food) in Berhampore, and if I'm not talking revolving credit accounts, I can be found running the trails of Wellington.

Brendon Ojala (FSP119244) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Brendon’s disclosure statement on our website.

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