Miles Stratford has a stark warning for insurers, landlords and property managers – get ready, because a methamphetamine-fuelled storm of litigation is heading your way.
It is advice worth heeding. For the past five years the Auckland-based risk manager has been at the forefront of efforts to come to grips with New Zealand’s unfolding crisis with methamphetamine, or ‘ice’ as it is colloquially known. He fears the insurance and property management industries in Australia and internationally are in for a rude and costly awakening.
At the moment, no-one is really worried about it because they don't see it as a problem – it is a hidden issue,” Miles says. “But wind forward 12 months and if real estate agents, property managers, conveyancing solicitors and other intermediaries haven't changed their habits and behaviours, you are most likely going to have a whole bunch of risk and liability that sticks.”
For most landlords and property managers, the closest they have probably come to the world of illicit drug deals and organised crime until now is watching the latest cop show on television. However, a huge escalation in the supply and use of ice in recent years – including a proliferation of meth labs in rented apartments, houses, sheds and other buildings – has drawn many unsuspecting property owners into the web of criminal activity that surrounds the drug. It is becoming increasingly common for landlords to find that their rental house or unit has been turned into a veritable factory. Kilograms of dangerous synthetic drugs could be churned out, impregnating walls, floors, carpets, curtains in the procees. Even plumbing systems with highly toxic and volatile chemicals pose a severe and lingering health threat and could even trigger an explosion.
The damage caused can run into the tens of thousands of dollars. Specialist cleaners using highly specific chemicals and techniques are required, and the process can take weeks. In the American state of Virginia, for instance, Department of Health guidelines on the steps that need to be taken to clean residential properties run to 19 pages and stipulate 13 key actions1. Miles says in New Zealand the cost of such clean-ups typically comes to between NZ$15,000 and NZ$30,000.
Owners keen to offload their property are often also required to disclose if it has been used as a meth lab, potentially hurting its capital value2.
In New Zealand, homebuyers are increasingly insisting on meth tests before completing their purchase, and of almost 13,000 properties tested by Miles’s company MethSolutions since 2012, about 40 per cent have had traces of the drug.
Tip of an iceberg
The illicit nature of the ice trade means that its scale can only be estimated, but official figures on drug seizures and meth lab busts, combined with wastewater monitoring and surveys of drug use, give some clue as to its scope.
From 2009 to 2013, the amount of ice seized globally more than doubled from 32 to 88 tonnes3, while seizures at the Australian border jumped 60-fold from 2010 to 2014.
The rise of ice has been so rapid that it is now widely considered to be the second-most commonly used illicit substance in the world, after cannabis, with some estimates putting the number of users as high as 54 million worldwide5.
Australia has become an especially attractive market for criminal networks because a combination of rapidly rising demand and high relative wealth has meant users are paying high prices. It has been reported that in 2013–14, the street price of ice in Australia was AU$675 a gram, compared with AU$268 in the United States, AU$122 in the United Kingdom, AU$111 in China and just AU$14 in Mexico6.
In the US, almost a third of state and local police agencies reported last year that methamphetamine was the greatest drug threat in their area7, and surveys indicate that the number of new users jumped 71 per cent between 2010 and 2014.
While the international trade in ice is large, the nature of the drug means that criminals are also producing it locally to meet domestic demand.
Because it is a purely synthetic drug that does not involve growing plants (unlike cannabis, cocaine and heroin), it lends itself to being made in basic labs on a small scale, making production highly mobile9. So, as quickly as authorities shut down one meth lab, others spring up.
In Australia in 2013 police detected 608 clandestine meth labs, with a notable trend towards larger operations, with an attendant increase in the contamination they produce and the risk they pose10.
The problem is being amplified by an emerging trend for drug makers to spread their operation across multiple homes, says Aon Risk Solutions Sales Manager – Real Estate, Joanna Boyd.
“Different phases of the production process are occurring in different homes,” she says. “Therefore, more homes are being impacted.”
Claims on the rise
The incidence of chemical contamination caused by meth labs is causing concern for insurers, as well as landlords and property managers.
In New Zealand, insurers are clarifying their liability. IAG, the nation’s largest insurer, says it is receiving up to 80 claims a month, and pays out NZ$14 million a year to cover meth-related damage.
Faced with mounting claims, the insurer (which covers about half of the country’s 450,000 rental properties)11 has sought to ‘manage’ its costs. In March, it announced a NZ$30,000 cap on claims, an increase in standard excess from NZ$400 to NZ$2,500, a lift in landlord insurance premiums of up to NZ$130 a year and clarification that cover does not extend to damage caused to house contents12.
“Insurers have a role in signalling risk and trying to prompt better behaviours through how we construct our policies,” the insurer states. “We need to be very clear about levels of cover, and that includes establishing a higher excess so that landlords are encouraged to vet prospective tenants and monitor their homes rigorously, and that homeowners themselves remain vigilant.”