The Local Authority Protection Programme Disaster Fund (LAPP) is a mutual pool created by local authorities to cater for the replacement of infrastructure following catastrophic damage by natural disaster.
The LAPP Fund Story is now available.
Civic Financial Services Ltd is the administration manager of the Fund.
Up until the early 1990's central government had taken responsibility for all costs associated with the restoration of water and sewage services along with all other services considered essential to the community that were otherwise difficult to insure.
In July 1991 however central government introduced a Disaster Recovery Plan which now places specific responsibilities on local authorities in order for them to be eligible to share the restoration costs of infrastructure.
The Plan states that beyond a threshold, central government will only pay 60% of restoration costs. Local government is responsible for the remaining 40% thus effectively moving part of the onus from the tax payer to the ratepayer. Central government will only provide their 60% following a major catastrophe provided that the local authority can demonstrate it can meet the remaining 40% through:
- • proper maintenance;
- • the provision of reserve funds;
- • effective insurance, and/or
- • participation in a mutual assistance scheme with other local authorities.
A working party formed from local government interest groups considered the means by which local authorities could meet their 40% obligation. This resulted in the formation of the Local Authority Protection Programme Disaster Fund (LAPP) which commenced operations on 1 July 1993. The concept of a mutual fund was considered to be the best alternative of many which were studied by the working party and was seen to have the following advantages:
- • Greater certainty compared to the uncertainties of insurance cycles;
- • Retention of equity. This is an important advantage compared with a twelve month premium charge which is lost in the case of traditional insurance;
- • The involvement of local government trustees means ownership and control is retained by local government;
- • It is more cost effective. There are no profit motives or commissions, there are lower overheads, investment income is retained, the Fund has tax exempt status and improved risk management practices can be implemented;
- • The costs and the risk are spread throughout New Zealand. No one can be certain when or where a disaster will occur; Funds are locked in under the trustees' control preventing access for unrelated purposes;and
- • It is generation fair. All generations progressively contribute to a disaster which could occur during the time of any generation.
The Fund covers local authority owned infrastructural assets.
These may include:
- • water reticulation, treatment and storage;
- • sewage reticulation and treatment;
- • storm water drainage; dams and canals;
- • flood protection schemes including stopbanks,and
- • floodgates, seawalls and harbour risks such as buoys, beacons and otherwise uninsurable foreshore lighthouses.
- • Roads and bridges are not covered by the Fund as local authorities have access to subsidies from the NZ Transport Agency.
The Fund is designed as catastrophe protection only, covering serious disruptive loss or damage caused by sudden events or situations which may or may not involve the declaration of a Civil Defence Emergency.
Perils include but are not necessarily limited to earthquake, storms, floods, cyclones, tornados, volcanic eruption, tsunami and other disasters of a catastrophic nature such as a major gas explosion.
Membership of LAPP is restricted to local authorities although in some circumstances CCOs (Council Controlled Organisations) may also qualify for admission.
The Fund is registered as a charitable trust under the Charitable Trust Act 1957 and the functions of the Fund are overseen by six trustees appointed by local government agencies.
Current membership stands at 22 local authorities.
The trustees require as a condition of Fund membership that all member authorities undergo a full risk management assessment programme. As a result, high risk exposures are identified and remedial action taken to help reduce the potential drain on the Fund and to minimise the impact on communities. Membership of the Fund is open.
Members' contributions to the Fund are set annually and are assessed on a risk based acturial formula which takes into account the replacement value of each member's infrastructural assets adjusted to recognize geographical exposures to risk such as floods, storms, volcanic eruptions and earthquakes.
Working with bodies such as the Institute of Geological and Nuclear Sciences, the National Institute of Water and Atmospheric Research and Lifeline groups, the Fund Risk Managers have established sophisticated asset and risk profiles for each Fund member.
Excess of Loss reinsurance protection is purchased to enhance the Fund balance. The level of this protection will depend on the capacity available from world wide reinsurance markets from time to time and the price required to purchase that capacity.