alan bollard : economic impacts of seismic risk – lessons for wellington speech by dr alan bollard, governor of the reserve bank of new zealand, and mr satish ranchhod, to the rotary club of wellington and victoria university of wellington one day conference “ organisational effectiveness in times of seismic risk ”, wellington, 18 october 2011. * * * with thanks to don abel, stephanie begley, alan boaden, denys bruce and robert cole for their contributions to this work. introduction the earthquakes in canterbury have had a profound human and economic impact that will continue to be felt for many years. the devastating nature of these events has highlighted the importance of risk management and the consequent organisational preparedness. this is particularly true for wellington, a city that is built on hills, flood plains and reclaimed land, overlooking a harbour connected to cook strait, and dissected by a major active fault line at the intersection of the indo - australian and pacific tectonic plates. it has been a little over a year since the first of the major earthquakes in canterbury and we have seen these events produce highly complex and unforeseen outcomes. one of the least expected outcomes has been the long lasting nature of the earthquakes through their associated aftershocks. planning in the face of such uncertainty is a great challenge, but it is vital to ensure that our society is able to continue to function effectively in times of considerable disruption. from the perspective of the reserve bank, organisational preparedness means both business continuity considerations for the bank itself, as well as working to maintain economic stability. this paper focuses, firstly, on the impact of the canterbury earthquakes on the economy and how the bank has responded ; secondly, the business continuity planning of the bank itself ; and thirdly, the lessons we can learn from canterbury that we, as institutions, can apply in wellington. it does not cover the important topics of seismology, engineering, and human issues. economic effects of the canterbury earthquakes the earthquakes in september 2010 and february 2011, as well as the associated aftershocks, significantly affected the economic environment. in addition to the considerable impact these events had on people ’ s lives, there was substantial damage to assets, as well as disruptions to economic activity. the affected areas are home to around 12 percent of the country ’ s population and damage to housing was extensive. out of a total housing stock of approximately 220, 000 homes, around 165, 000 were impacted, including many

up to date information on atm availability. banking an additional concern following the earthquakes was the stability of key financial institutions including banks and insurers. these institutions play an important role in shaping the ongoing conditions in canterbury. further, we were conscious that significant disruptions in one region could affect the functioning of these organisations at a national level. most commercial banks do not have their core banking systems located in christchurch, and those that do had effective back - up systems located outside the christchurch region. additionally, banks ’ disaster recovery procedures proved to be quite effective, and certainly had become much better honed by the time of the february earthquake. banks took a longterm view of their customer relationships through the provision of generous customer assistance packages, and generally adopted a helpful, constructive attitude to their customers ’ difficulties. banks came together as an industry throughout the disaster, sharing a lot of information and advice amongst each other, and have opened small business support centres. some households and businesses came under financial stress as a result of the earthquakes and this had an impact on banks and other financial institutions. however, the banking industry has not been subject to significant financial risks from the earthquakes. losses on residential mortgages are expected to be relatively light due to insurance coverage and the government ’ s earthquake recovery packages. in addition, many smaller commercial businesses were not located in areas where major damage occurred. bank provisioning for credit losses totalled nearly $ 100 million. nevertheless, there remains a great deal of uncertainty in quantifying the effects of the earthquakes. insurance the insurance sector has had a number of significant and complex concerns. a well funded and functioning insurance sector assists with the recovery from a significant destructive event. new zealand is fortunate that insurance will fund the majority of the costs of the canterbury earthquakes, and most of this funding comes from large offshore reinsurers. in other parts of the world, such as japan, government, businesses and households bear a much greater share of disaster costs. since the september earthquake, almost $ 4 billion of insurance claims have been paid out by the earthquake commission ( eqc ) and private insurers. there is still much more to be paid out by insurers, and this will occur over several years while christchurch is rebuilt. the importance placed on the role that public and private insurers have in reducing the financial burdens of disasters can be seen from the eqc ’ s $ 11 billion of funds and reinsurance, which were built up over decades and are available to