CLASS ACTIONS MAY MAKE HEADLINES IN 2018
March 2018
INSURERS, BROKERS TOLD: LITTLE CHANGES WON’T CUT IT
Levies weigh heavily on insurance Lessons from Christchurch Risks ahead
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CoverNote is the official publication of IBANZ and is distributed FREE on a quarterly basis (March, June, September, December) to members throughout New Zealand and associated companies. Additional copies are available at a cost of $7.50 per copy, or 12 month (4 issue) subscriptions at $30.00, inclusive of postage and packaging. The articles or opinions featured within this magazine are not necessarily the opinions of the publishers or IBANZ, and they do not accept responsibility for the content of articles featured within the publication. No part of this publication may be reproduced without the written permission of the publisher. The publishers do not accept responsibility for loss or damage to unsolicited photographs or manuscripts. IBANZ enquiries should be made to: Gary Young, Chief Executive, IBANZ. Email: gary@ibanz.co.nz IBANZ National Office located at: Level 5, 280 Queen Street, Auckland (P.O. Box 7053, Wellesley Street) Telephone 09-306-1732. Website: www.ibanz.co.nz
Gary Young CEO, IBANZ
Welcome to
Year of change ahead
C
hange is a key topic in this edition of CoverNote. Technological change with the resulting disruption, climate change and change for CoverNote itself with the launch of a new website. As Dr Michael Naylor of Massey University says, insurance has been slow to adopt IT innovation. Big-data analytics provide the opportunity for insurers to change the way they interact with their clients. Add to this the real-time data feedback from telematics and “the consequences for rate-making are revolutionary”. Insurance becomes dynamic, responding to individual risks as they change. On-demand cover is increasingly a reality for clients seeking to insure as and when they need cover rather than taking out annual policies. Dr Naylor suggests: “Feedback from telemetrics and accurate predictive indicators from big data will allow insurers to move from compensation after an event to advice and warnings on how to prevent an event.” Meanwhile, there is little doubt extreme weather events are occurring more frequently resulting in significant insured losses across New Zealand. Regardless of the cause, the increasing losses clearly highlight the importance of insurance for individuals and businesses. If insurance is to be accessible financially and with suitable advice, then cost is a significant factor. IBANZ is currently in regular discussions with various arms of government seeking to ensure the costs of compliance do not impact on the ability of the insurance industry to provide cost-effective solutions. In both the new FENZ regulations and the proposed changes to the financial adviser regime there are potentially significant compliance costs. Compliance for compliance's sake must not be an option. The focus has to be on the outcomes for the ultimate end user, insured individuals and businesses. New Zealanders will only receive the protection they need if they can access affordable insurance and advice. On a positive note, our CoverNote magazine has moved with the times, recognising that technology is changing the way media is accessed. While print versions of a publication still have a place, online is increasingly the preferred option. Being online also allows a publication to be regularly updated to provide current content. While you will continue to receive the print version we trust you will find the new CoverNote Live website a useful resource. You get the current magazine plus additional articles. IBANZ has moved its website news page here with regular updates from across the insurance world.
Gary Young, CEO, IBANZ
Features 8. Brace for climate change 9. Earthquake Commission gets shake-up 9. CBL in liquidation 10. Court watch Minter Ellison Rudd Watts lawyers examine recent
insurance court cases – and what they might
mean for you
16. Sustainability - the key to success 20. Latest news from Rothbury. 22. Upcoming issues in Canterbury earthquake litigation With thousands of unresolved EQC and private
insurance claims, the new Government is looking to facilitate the settlement of claims in a number of ways, beginning with a review of EQC.
30. COVER STORY: Insurers, brokers told: Little changes won’t cut it The industry of the future may bear very little
similarity to the world you work in today. Here’s why.
Regulars 26. Central Otago winemaker wins Enterprising Rural Women awarde 28. Putting your clients first New rules mean insurance brokers have an extra
1. Welcome to CoverNote 3. News 40. Ask an Expert
46. Professional Development: Professional IQ College 48. IBANZ Contacts
duty of client care.
36. Earthquake loss control technologies for buildings 37. Are your small business customers accessing Government-funded robbery-prevention?
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38. Extreme weather - a threat to business
HOT OFF THE PRESS!
INSURERS , BROKER TOLD: LIT S WON’T CUTLE CHANGES T IT
Levies wei Lessons from gh heavily on insuran ce Christchur Risks ahe ch ad
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NEWS
Bill to hasten insurance claims A member’s bill to introduce a legal timeline for insurance companies to assess and present a settlement offer to claimants has been added to Parliament’s ballot by Kaikoura MP Stuart Smith. “We’ve just received the recommendations from the review into improving the emergency response to large-scale natural disasters, but we also need to look at how we can make life a little easier for people who are dealing with longer term effects like the loss of their home,” Smith said. “I’ve heard from too many people affected by the Kaikoura and Christchurch earthquakes that dealing with insurance was more stressful than the earthquake itself. That’s why I’ve lodged the Insurance (Prompt Settlement of Claims for Uninhabitable Residential Property) Bill to provide a timeline for when insurance companies must act by.” He said the bill would require an insurer to make a decision about a claim and notify the claimants within six months of receiving it. “This will speed up the process and give claimants greater clarity about when they can expect a resolution, which will help ease the stress during difficult times.
“While people are required to have their insurance premiums up-todate, there is currently no time requirement for insurers to assess claims and make an offer. There must be a clearer understanding of obligations both for the insured and the insurer as to the time it will take for an offer to be made. “In extreme circumstances, the minister will have discretion to grant an extension to the six-month deadline.” He said, in a country that was prone to natural disasters, it was important to identify the lessons learnt and make changes to the response in future. “Putting into law a deadline for insurance companies to make an offer to claimants will be a positive step forward. I look forward to this bill being drawn from the ballot.”
Tower job cuts About 20 Tower employees will be affected when the insurance company shuts its Christchurch office. The move will happen once its remaining earthquake claims are settled.
A spokesman told media the company had planned to close the office as part of a nationwide consolidation in 2011, but decided to keep it open after the tremors struck. He said the company planned to be a "leading digital insurer" and would be able to provide full services to customers remotely.
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Insurers not focusing on risk Personal lines insurers could be expected to start offering more granular pricing, depending on property risk, an actuarial firm says. Melville Jessup Weaver released a report that looked at how insurers priced for earthquake, flood and tsunami/coastal risk in Hawke’s Bay. It found while competition was increasing, with new entrants wanting to cherry-pick the best risks, larger insurers were only leaving room for more granular pricing. Author Craig Lough said, while there were higher and lower premiums offered, there seemed to be no difference in premiums directly related to a property being in a flood plain. “Ironically, the average premium for our standard property in the lowrisk areas was slightly higher than the average for that same property in the high-risk areas. That could be the result of other risk factors unrelated to [flood, earthquake and coastal risk], for example fire or theft. Although the inconsistent variation in market pricing suggests it may simply be random anomalies.” There was a social risk and a PR risk to insurers offering very different premiums to different customers, he said. “Insurance is a pooling of risk and in some respects, it’s good for society if there is less differentiation of risk.” But big data and other influences could force insurers to adopt new risk-pricing strategies.
“I think almost certainly that will change,” he said. How granular insurers would become with their pricing would depend largely on competitive pressures. If a new operator came into the market with a very granular model, it would push the others to follow suit. “Perhaps in the same way that the Australian insurers scrambled to establish their flood risk maps a few years ago, no one wanted to be the last man standing with a pool of high risk properties on their books.”
Gates moves Insurance lawyer Crossley Gates has joined Keegan Alexander as a partner. He was formerly with DLA Piper. He has almost 35 years of experience specialising in insurance law and insurance practice. Gates acted for Lloyd’s of London syndicates in relation
to material damage claims for five commercial buildings insured under a single policy. He was ranked as a Leading Individual for Insurance in Legal 500 Asia Pacific 2018, which described him as "standout practitioner" with "a wide breadth of insurance industry knowledge and a pragmatic approach".
Youi drops staff Youi has cut its New Zealand staff numbers by almost a third. The insurance company was fined $320,000 in December 2016 for misleading sales practices, after the Commerce Commission took it to court. But Michelle Le Long, Youi's New Zealand head of operations, told media the company was now leaner and was undergoing a transformation to tailor it to the New Zealand market.
Le Long moved to Youi from Tower insurance in June last year. At its biggest, Youi had around 400 staff but that has dropped to between 256 and 280 people. Le Long said that was due to natural attrition and some redundancies when it took its Australian road-side assistance service back to Australia. Youi has increased its call centre hours but about 65 per cent of the business it handles relates to Australian customers.
Deputy Prime Minister Winston Peters wants a state-owned insurance company. He said the country needed a domestic competitor because the insurance industry was dominated by international planners. "[We have] excessive premiums and a loss of jobs to other countries, and this will go on until we make a stand and say 'well, we should have our own insurance company',” he was reported as saying. His comments were sparked by news IAG is planning to move jobs from Christchurch to the Philippines, a move he said was “chasing third-world wages”. National MP Gerry Brownlee said it was important not to jump on the nationalistic “emotional band wagon” – when AMI went under after the Christchurch earthquakes, it cost taxpayers more than $1.5 billion.
Peters calls for local competitor
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March 2018
NEWS
IFSO gets new chair The Insurance and Financial Services Ombudsman Scheme has farewelled Dame Paula Rebstock after eight years as chair, and welcomed Sue Suckling as her replacement. “Dame Paula made an outstanding contribution and oversaw significant change and expansion throughout her eight-year term,” said ombudsman Karen Stevens. “We are grateful for Dame Paula’s guidance and wish her well with her many endeavours.” She said Suckling brought vast commercial and leadership experience to the role, together with 25 years of public and private
sector governance. “Sue’s leadership experience covers sectors as diverse as science and technology, international marketing, trade, innovation, arts, food processing, broadcasting, agriculture, banking, education and health.” Suckling is chair of ECL Group Ltd, Jacobsen Pacific Ltd, New Zealand Qualifications Authority (NZQA), Callaghan Innovation, Jade Software, and Lincoln Agritech Hub. She is also director of Sky City Entertainment Group.
Submissions sought on code The Insurance Council of NZ is encouraging consumers of insurance and community and consumer groups to have their say on the review of the Fair Insurance Code. The code sets standards for general insurers who are members of ICNZ in all their dealings with consumers and small businesses. ICNZ members provide cover for over 95% of this market. “The Fair Insurance Code applies to individuals or small businesses of fewer than 20 employees and describes what level of service people can expect from their insurer, explains the responsibilities that consumers and insurers have to each other, provides information on claims and complaints procedures and lays out how people can access help if things go wrong,” said Tim Grafton, ICNZ’s chief executive.
“The last review three years ago introduced timeframes for handling claims and complaints and required insurers to respond reasonably to matters not disclosed to them. This review seeks to make further improvement where appropriate, so we are encouraging as many people as possible to make a submission. “We want to ensure the code is not only doing the job we set for it in 2016 but can also respond to developments in a fast-changing insurance business and regulatory landscape,” he said. The review will involve the Code Compliance Committee overseeing the process. Members of the committee include Sir Anand Satyanand, David McGee QC and David Caygill. It is expected the new code will be introduced next year.
IAG cuts jobs
QBE signs on in CBD
New Zealand’s largest insurer says it is considering a number of options in response to changing market conditions, and the rising numbers and costs of claims. IAG New Zealand says working with offshore partners is one way it is looking to reduce costs and keep premiums affordable. IAG is also working on other opportunities, such as digital solutions, to help keep insurance affordable for New Zealanders. In November 2016, IAG announced it had partnered with international firms WNS and EXL and their Philippines and India-based teams. Chief Operating Officer Melissa Cantell says IAG will maintain a strong presence in New Zealand as not every activity or function will make sense to move offshore. “It’s important to us to be connected to our communities across New Zealand,” she says. “We are facing a changing insurance market, with rising costs and numbers of claims each year, including an unprecedented number of natural disasters and weather events,” Cantell says. “To ensure our long-term sustainability as a provider of insurance in New Zealand we need to keep premiums affordable for our customers. To do this we are looking across our business at the way we operate to reduce our costs and improve our service to customers – and having some activities performed offshore is just one way we are doing this.” Cantell says IAG is working closely with its New Zealand team to support them through these changes. “Our people affected are being offered training, career transition support, workshops, coaching and, if applicable, redeployment within IAG New Zealand.” IAG has approximately 3500 people in New Zealand.
QBE Insurance has signed on as the anchor tenant of the renovated office block at 125 Queen St. Through an office leasing process led by CBRE New Zealand, QBE Insurance has confirmed it will be taking 2166 sq m over three levels on a long-term lease along with signage and naming rights that will see the property renamed as the QBE Centre. Built in the mid-1980s, the 30-level building was once the tallest in the CBD. It underwent a major transformation and re-launch this year. The extensive refurbishment undertaken by landlord Special Situations Assets Limited included the addition of a new white façade on the building’s exterior, the restoration of the heritage façade, an internal fit-out to the lobby, offices and common areas, the replacement and upgrade of the services and the installation of giant LED screens elevating the building’s on-street presence and providing a marketing platform. Duncan Elley, who oversaw the project for developer Winton Partners, said the refurbishment had transformed the building into a premium tower. “We are delighted to enter into a partnership with QBE Insurance over the long term in the new QBE Centre. QBE were attracted by the high quality of the refurbishment, the prime location and the fantastic amenity within the building.” QBE is moving in at the end of March, when it will join a number of high quality tenants already present including MMC, Accenture, Grimshaw & Co, Methanex and Hong Kong Airlines. www.covernote.co.nz
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Smoother sailing for IAG IAG’s first-half earnings were buoyed by an absence of natural disasters. Its New Zealand earnings rose to A$119 million in the six months ended December 31, up from A$36m a year earlier. That was mostly due to a 15% drop in claims expense. Only A$17m was used from its natural disasters allowance of A$43m. "Reported margin of 14.2% benefited from the absence of earthquake events, with some offset from prior period reserve strengthening," the insurer said. IAG's New Zealand division increased gross written premiums 9.5% to $1.3 billion. The insurer's New Zealand business includes AMI, State, NZI
and Lumley Insurance and contributed 21% to group GWP of A$5.83 billion. The group posted a 24% gain in net profit to A$551 million. "At a reported level, our comprehensive reinsurance protection in the half saw net peril claim costs below allowance while a higher favourable credit spread impact and larger than anticipated reserve releases also helped our reported margin," managing director Peter Harmer said. IAG is reviewing its Asian operation after deciding growth opportunities in the region were limited and expects to complete the review by the end of the year.
Total Development a first for NZ In the current boom time of a growing Kiwi construction market, brokers can forge an advantage with commercial property developers by offering faster and simpler insurance for their projects. Developers embarking on new projects are on the stressful incline of a potentially risky ride. Throw in unpredictable factors like a labour shortage or weather events and they’ve got more than proverbial spanners in the works. That’s why NZI’s latest innovation adds a new insurance product to the toolbox for brokers and their developer clients – one providing surety and end-to-end cover upfront at the most uncertain time in the development cycle. “We call it NZI Total Development and it offers property development insurance from day one to done,” says Bryan Tedford, NZI’s national portfolio manager – business continuity and asset protection. Designed for and targeted at commercial property developers, the newly launched package provides a seamless Material Damage policy – from consenting through construction to completion – with a Contract Works policy running alongside. “The combined approach we’re taking
to brokers for property developers hasn’t been done before, not by NZI nor in the New Zealand insurance industry.,” says Bryan. “The real beauty of NZI Total Development is that brokers no longer need to negotiate insurance at three separate stages of a development project. Those negotiations are condensed into one upfront contract. “It’s simpler for the broker, the developer knows their project is protected for the entire development cycle, and neither of them has to think about the insurance again. You wouldn’t lay your foundation three times over, would you?” How it works With Total Development, NZI agrees to cover a property: • even before any work begins – during phase one (planning and design) of a development project, and under a Material Damage policy • when the work starts – this is phase two, and the Contract Works policy kicks in alongside the Material Damage policy • when the project is complete – phase three cover, which automatically reverts to
Material Damage on the entire completed structure. “Continuity of cover across the life of the project will make it easier for developers to secure financial backing and attract tenants when the development is finished,” says Bryan. Growing market The timing is good for NZI Total Development to help brokers grow their volume of construction projects and MDBI clients on new or renovated buildings. Residential, commercial and infrastructurerelated building activity is forecast to continue to boom, according to the National Construction Pipeline Report 2017. Non-residential building activity in 2016 grew 12%, with the pipeline report now forecasting another 29% growth to a higher level of $9.6 billion in 2019. The industry’s importance is also reflected at a national level, with construction one of the largest sectors in the New Zealand economy. It employs more than 190,000 people, or just over 8% of the workforce, and contributes almost $13 billion towards New Zealand’s GDP.
Insurers battle weather Insurers settled 70,000 claims arising from extreme events in 2017. These included claims arising from the Kaikoura earthquake, extreme weather events and residual Canterbury claims. “2017 was a year that tested the insurance sector’s ability to meet people’s needs at some of the most stressful times in their lives,” said Insurance Council chief executive Tim Grafton. “Extreme events such as these create large numbers of claims simultaneously, which really puts pressure on insurers. They need to quickly get resources into regions with heavy losses so people get back on their feet again.” In 2017, insurers settled or partially settled 39,000 Kaikoura earthquake claims, 25,500 claims from extreme weather events around 6
March 2018
the country and 2070 severely damaged homes from the Canterbury earthquakes. “The Canterbury stats are especially important, as insurers continued to receive over-cap claims from EQC. Almost 800 claims were transferred in the year to 31 December,” said Grafton. “The private insurance sector has proven its ability to be effective first respondents to these sorts of events, managing and settling claims quickly and effectively. We believe this is the model for the future.” The total settlement cost for these events in 2017 was $2.55 billion, equivalent to paying out almost $7 million every day.
NEWS
Kaikoura on track The Kaikoura earthquake recovery is progressing well, according to data from the Insurance Council of NZ. The insurance sector exceeded its goal of having a majority of claims settled by the end of 2017. At the end of December, 88% of all domestic claims had been partially or fully settled. “These numbers show how effective the approach insurers and EQC took to managing events post-Kaikoura has been,” said ICNZ chief executive Tim Grafton. “By allowing people to make claims with their insurers for non-land damage that EQC may cover, the vast majority of insurers—acting as agents for EQC—have enabled thousands of people to have their claims assessed and settled much faster than we saw post-Canterbury earthquake.” After Kaikoura, insurers managed and settled most domestic claims. Private insurers have also managed all commercial claims. “This is the model for the future, which the new Labour-led
government should require for management of any future natural disasters,” said Grafton. Total insured losses to date for the Kaikoura earthquake are $2.14 billion, of which $631 million is from domestic claims.
Brokers use Vero SME Index insights to attract new clients Vero has confirmed that it will release the second edition of the SME Insurance Index in April 2018, following the successful New Zealand launch of the Index last year. “After we released the research last year, we surveyed 250 brokers and found that 21% said the Index had helped them attract new clients,” said Michael Dunning. “The purpose of the research was to help brokers target SMEs and tailor their offerings to provide solutions for them, but those results exceeded even our expectations for the first year.” Half of the brokers surveyed believed that the SME Index had assisted them to understand their SME clients better, and 68% said they looked forward to learning more from future Indexes. “SMEs represent 97% of businesses in New Zealand, so understanding that market and meeting their needs is a huge opportunity for brokers,” said Dunning. “We know the insurance market is changing, and it’s important to arm brokers with the insights and tools they need to add value for customers.”
One of the surprising insights to come from the 2017 Index was that there was no real difference between the attitudes and behaviours of SME owners in their 30s, 40s or 50s. “We were expecting a more diverse split between age groups, but instead we found just one big generational divide between baby boomers (roughly characterised as those aged between 50 and 71), and everyone else,” said Dunning. “The generation over 50 have dominated the business world for so long, but people under 50 are now creating and establishing the businesses of the future and it’s important for brokers to understand the generational change that’s currently under way.” This year’s research will begin to benchmark aspects of the SME insurance purchasing landscape and the challenges they face, to track changes in things like broker use over time. It will also deep dive into some aspects of the landscape including online purchasing behaviour, to find opportunities for brokers to add value.
Suncorp’s general NZ business shines Suncorp has reported a profit boost of 81% for its New Zealand business unit. The group reported net profit of A$452 million for the six months to the end of December. In New Zealand, it pulled in $67m. Suncorp New Zealand chief executive Paul Smeaton said the improved result was due to a number of factors including strong growth and the absence of any major disasters. The general insurance business, which includes Vero Insurance and AA Insurance, a joint venture with the New Zealand Automobile Association, delivered profit after tax of $50 million, with premium increases, strong unit growth, and strong claims management offsetting the impacts of increased reinsurance premiums and claims cost inflation, particularly in the motor insurance business. The life insurance business, which includes Asteron Life and AA Life, delivered profit after tax of $17 million, down $1 million on the
prior corresponding period, due to short term volatility in experience with prior year favourable experience reversing over the half. In-force premium grew 5%, driven by new business and policy retention. Smeaton said Suncorp New Zealand continued to focus on building a more resilient business to meet the needs of its customers and business partners. “We expect the business to continue to grow, through new business and the pricing responses we have had to implement to manage increased claims costs and reinsurance pricing increases. “At the same time, we are focused on managing our operating expenses and strong claims management, through initiatives such as SMART vehicle repair centres.” Smeaton said Suncorp New Zealand was well positioned to deliver a strong second half, and deliver on its strategy, including initiatives to further digitise the business.
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FEATURE
BRACE FOR CLIMATE CHANGE
N
ew Zealand needs to put processes in place to deal with the impact of climate change, the Insurance Council says. The first storm of 2018, in early January, is likely to cost insurers more than $27 million. It caused flooding and damage, particularly in Coromandel and Bay of Plenty. “In particular, the towns of Kaiaua and Thames suffered extensively. We went into these towns shortly after the storm passed, along with private insurers, to talk to residents about the help they needed and to listen to their experiences. It’s important to us as a sector to get claims resolved quickly so people can get back on their feet and talking to those affected is the first step,” said Insurance Council chief executive Tim Grafton. “The cost of this storm so far demonstrates the importance of adapting to climate change and putting processes and infrastructure improvements
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in place that minimise the costs and impacts of these events. “As time goes on, we expect these sorts of events to become both more frequent and more severe. Every dollar spent on adaptation now will be more than repaid in future savings.” More than 3600 claims have been placed with private insurers for storm damage. At the recent Pacific Climate Change Conference in Wellington, Grafton told attendees that damage caused by gradual sea level rises should not be expected to be covered by insurance, “Sea level rise is not sudden, nor is it unexpected, it is certain and as such insurance does not cover it. If a house is under water due to sea level rises that’s not an insurance claim.” He said that was different from situations where there was a storm surge combined with floods that caused damage. “Insurance responds in those instances.”
FEATURE
I
EARTHQUAKE COMMISSION GETS SHAKE-UP
nsurers have welcomed a government decision to appoint a ministerial adviser to the Earthquake Commission (EQC). EQC Minister Megan Woods said the new position would give her advice on the settlement of the 2600 outstanding Canterbury earthquake claims. EQC chairman Sir Maarten Wevers resigned in response, saying it was clear Woods had no confidence in the board or staff. The new government has made changes to hasten the settlement of remaining claims, such as an inquiry into EQC, an insurance disputes tribunal and a promise to fund some High Court cases to find precedentsetting rulings on issues. EQC handled about 470,000 claims during Wevers' tenure. The 2600 remaining represent 0.6% of those claims. Jimmy Higgins, executive general manager of claims at Suncorp New Zealand, which includes Vero and AA Insurance, said he supported any moves to speed up the process for customers who are still waiting for their claims to be resolved. “We have been working proactively with customers who still have unresolved EQC claims and we welcome any opportunity to see these expedited and resolved quickly,” he said. “We look forward to working constructively with the independent ministerial adviser once an appointment is made.” Tower chief executive Richard Harding said it was pleasing to see the new government was committed to resolving outstanding EQC claims for Cantabrians. "For a number of years now, Tower has said that the EQC model is fundamentally broken. Seven years on from the event, insurers and our customers still do not have complete clarity on outstanding EQC claims. "We support the appointment of an independent ministerial adviser and the development of a plan to speed up the settling of claims for those still waiting on the EQC. "For a country that faces a significant earthquake risk, an organisation
like EQC can play an important part helping communities recover from disaster and it is imperative that they operate efficiently and in the best interests of New Zealand," he said. Tower has fewer than 300 open claims remaining. “We are very supportive of the minister’s approach,” IAG New Zealand chief executive, Craig Olsen, said. “Since the government took office, they have shown a clear commitment to speeding up the settlement of outstanding claims from the Canterbury earthquakes. “We also believe it is time for some bold decisions, and look forward to working with the minister on solutions that help the people of Canterbury and those who may be affected by future disasters."
FEATURE
CBL IN LIQUIDATION L
iquidators have been appointed to CBL insurance. Kare Johnstone and Andrew Grenfell, partners of McGrathNicol, were appointed by order of the High Court at the end of February. NZX suspended the CBL Corporation stock over concerns about whether the company had given complete and true material information to the market. CBL's head office is in Auckland and it has representative offices in London, Mexico and Copenhagen. It provides insurance and reinsurance to policyholders in New Zealand and internationally. Control of the business and assets of CBL is now with the liquidators. Kare Johnstone said that “a thorough assessment of the financial position
of the company will be conducted and we will be working closely with key stakeholders to evaluate all options for CBLI going forward.” CBL's chief operating officer Suzanne Tindal has left the company. The insurer has said it was hiring advisers to sell the French construction insurance division that fell foul of regulators over solvency concerns and pursuing legal action against the vendors of Securities and Financial Solutions Europe SA (SFS). CBL said its European subsidiary's lawyers were opposing an order from the Central Bank of Ireland instructing it to stop writing new business immediately. CBL said its subsidiary CBL Insurance Europe Dac (CBLIE) was continuing to otherwise operate and existing policies remained in force. www.covernote.co.nz
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COURT WATCH Minter Ellison Rudd Watts lawyers examine recent insurance court cases – and what they might mean for you. ASSIGNMENT OF CLAIMS A recent decision by the High Court concerns the assignment of full replacement insurance claims. Unusually, rather than the issue being whether the insured could assign the replacement value of the policy, the court was asked to consider whether, because of an insurer’s representations, the insurer was prevented from relying upon the principle in Bryant v Primary Industries Insurance Co Ltd. The rule in Bryant is that an insured cannot assign an entitlement to reinstate property and be paid the cost of the reinstatement without the consent of the insurer. In contrast, an insured is normally entitled to assign a claim for indemnity value, as that is a straightforward money claim. FACTS In 2012, Mr and Mrs Doig entered into a conditional agreement to purchase a property that had been damaged by the Christchurch earthquakes and was not repaired. The vendors were insured under a full replacement cover policy with Tower Insurance. The Doigs’ solicitor, in anticipation of settlement, made inquiries with Tower as to the assignability of the full replacement cover that the vendors were entitled to claim. Tower sent two emails which were later relied upon by the Doigs.The first email stated that if an assignment 10
March 2018
was received “all settlement [of a claim over the statutory cap] is based on the previous owner’s policy details, as this is the policy which was in place at the time of the earthquakes”. In the second email, Tower said that it would regain responsibility of the repair if the EQC cap was exceeded. Following this, the vendors assigned their insurance claims to the Doigs. The property was subsequently declared over the EQC statutory cap. Tower determined that the property was not capable of economic repair and that it would have to be demolished and rebuilt. However, relying upon the Bryant principle, Tower asserted that it was only liable to pay to the Doigs indemnity value. DECISION The Doigs asserted that, due to the representations made in the two emails by Tower, Tower was prevented or estopped from denying full replacement cover to the Doigs based on the rule in Bryant. In order to succeed, the Doigs needed to prove the following elements: (a) Tower had created or encouraged the expectation that the Doigs were entitled to full replacement value; (b) Tower expressly and unequivocally made the representation that the full replacement value was available to the Doigs;
(c) the Doigs relied on this representation to their detriment; and (d) it would be unconscionable for Tower to renege on the representation that the Doigs were entitled to full replacement value. Other than establishing that Tower had encouraged the expectation (created by the marketing of the property) that the Doigs were entitled to full replacement value, the Doigs failed to prove any of the required elements. The Doigs could not prove that they had relied on Tower’s representation to their detriment. Although the detriment need not be financial, it needs to be detriment that makes it unjust or inequitable to allow the representation by Tower to be disregarded - “mere disappointment from an unfulfilled promise” is insufficient. The Doigs could not prove reliance. It was relevant that the sale and purchase agreement was signed before the communication with Tower. The fact that they entered into a sale and purchase agreement that was less valuable than the Doigs believed was not sufficient detriment. In addition, although not making a formal decision on the point, Justice Mander doubted whether the representations were unequivocally made by Tower to the Doigs. While the statements were “open to misinterpretation” by a lay person, the representations were through
FEATURE
the conduit of the Doig’s solicitors who could have read the representation as consistent with the Bryant principle. Justice Mander’s decision may open doors for other insureds to succeed if representations were made to the insured personally and the insured clearly suffered detriment, such as financial detriment by entering into a building contract for the reinstatement of their property. BUT WHAT ABOUT XU? The above decision is premised on the basis that the Bryant correctly states the law. However, the recent Xu & Diamantina Trust Limited v IAG New Zealand [2017] NZHC 1964 decision was appealed and has now been heard in the Court of Appeal. The appeal is likely to consider whether assignment of an insurance claim can include an assignment of replacement or reinstatement value where the work must be done for the right to arise. The decision may affect a significant number of unresolved claims. THE CASE OF THE DECEITFUL INSURED In an unusual case, the High Court in England has made a finding that a car accident was staged by an insured and another person in order to obtain an insurance pay out. The case is of particular interest because there was no direct evidence of deceit.The finding was based largely upon circumstantial evidence. The court relied primarily upon evidence that the insured and the claimant had failed to disclose to the insurer that they were friends before the accident, in finding that they had concocted the claim. The case demonstrates that the court will stand back and have regard to the all the evidence when deciding such a case. However, the court must nevertheless have a high level of confidence before finding that an insurance claim is based upon deceit. BACKGROUND The case arose out of a collision that occurred when a Mr Miller, who was driving a Peugeot, hit a Range Rover owned by a Mr Gentry. Gentry and a passenger,Voller, were in the Range Rover at the time. Miller was insured by UK Insurance Limited. Miller reported the claim to UK Insurance, claiming that he had swerved to avoid hitting a deer and instead hit the Range Rover. UK Insurance wrote to Gentry accepting that Miller was at fault. However, after conducting Facebook, Twitter, LinkedIn and Experian searches, UK Insurance became suspicious about the circumstances of the collision. The searches revealed that Gentry and Miller knew each other before the accident and had taken part in cross-country running events together. When confronted with this, Gentry’s answer was initially was that he had not known Miller earlier. He said that Miller had told him at the scene
of the collision that his son had died of Sudden Infant Death Syndrome, or SIDS. Gentry claimed that they had subsequently become friends on Facebook and had participated in running events together to raise money for a charity supporting families affected by SIDS. Contrary to this account, however, Facebook records showed that Gentry had been aware of the death of Miller’s son some years earlier and that they had taken part in a cross-country running event together the day before the collision. When this came to light, Gentry belatedly acknowledged that he knew Miller before the collision but said that he had not disclosed this as he did not want to “slow down the very genuine claim”. UK Insurance did not accept this explanation and issued proceedings against Mr Gentry seeking damages in the tort of deceit. UK Insurance’s case was that if the collision did in fact occur (which was not admitted) it was staged and Mr Gentry’s claim was fraudulent. THE JUDGMENT UK Insurance bore the burden of proving that Mr Gentry had dishonestly represented that his car had been struck by Miller in a genuine accidental collision. Because the allegation against Gentry was one of a criminal nature, while the civil standard of proof applied, cogent evidence was required before the Court could be satisfied on the balance of probabilities that the collision was staged. There is rarely direct evidence of fraud. Often, it can only be inferred from circumstantial evidence. As a result, it is necessary for the court to have regard to all the relevant evidence and consider the circumstances as a whole. Teare J found that there was cogent circumstantial evidence that the collision was staged: (a) Gentry and Miller were friends at the time of the collision; (b) neither of them informed UK Insurance of their friendship when the claim was made; and (c) when UK Insurance discovered that they were friends Gentry constructed a “particularly bold lie” in claiming that he became friends with Mr Miller only after the collision. Teare J concluded that the only realistic explanation was that Gentry and Miller were privy to the plan to stage an accident and that admitting their friendship would undermine the claim. The fact that the drivers were friends and were reluctant to disclose that friendship strongly suggested that the collision was staged. There was also evidence that Gentry’s Range Rover had only travelled around 1300km between May 3, 2012, and June 11, 2013. This was consistent with it having been off road or used sparingly for a substantial period of time, as a result of damage. The fact that Miller’s Peugeot was an old car and was worth very little was also
consistent with a staged collision between an already damaged Range Rover and the Peugeot. A plaintiff does not have to establish a motive for an alleged fraud if the facts are sufficiently unambiguous. However, if a motive were required, Teare J found that Gentry wished to recover something in respect of the substantial damage already carried by his car (which had led to it being little used in the previous year) and, for whatever reason, was unable to recover from his own insurers in respect of that damage. Miller was willing to assist his friend because his vehicle was very old and worth very little. It is likely that the passenger,Voller, attended to be an “independent witness” to the collision. The case is also a salutary lesson for users of social media who might be minded to mislead their insurers in circumstances where the true position is evident from their social media pages. Having found for UK Insurance, Teare J awarded damages in the sum that UK Insurance had paid to Gentry as a result of his deceit. NEWER ISN’T ALWAYS BETTER This recent High Court decision discusses the liability of insurers under policies that provide an option to purchase a new house rather than rebuilding the existing one. While the particular wording of each policy will be important, the case demonstrates that the courts will be mindful of established principles of insurance law when interpreting the scope of cover in these cases. BACKGROUND The St Albans property at the centre of this case was insured at the time of the Canterbury earthquakes by AMI Insurance Ltd under an AMI Premier Rental Property Policy. Southern Response is responsible for settling earthquake claims lodged by AMI policyholders for damage which occurred in the Canterbury earthquakes before April 5, 2012. The previous owner of the property made a claim under the policy for damage to the property. In 2011, Southern Response informed the previous owner that it considered it uneconomic to repair the house. In 2013, the previous owner elected under the Policy to rebuild the house on the same site. Following a geotechnical investigation and assessment the land was categorised as “Technical Category 3” land. As a result, an enhanced foundation option would need to be used if the house were rebuilt in order to be code compliant. Shirley Investments bought the property in 2014 and took an assignment of the rights under the policy. In 2015, Shirley Investments advised Southern Response that it wished to change the election under the Policy, instead choosing the “buy another house” option. The policy provided “We will pay the cost of buying another house: including necessary legal www.covernote.co.nz
11
FEATURE
and associated fees. This cost must not be greater than rebuilding your rental house on its present site”. Southern Response disputed the amount it was required to pay to Shirley Investments under the “buy another house” option. Because Southern Response has a number of similar claims pending, it asked the Court to make two declarations: (a) the amount payable under the “buy another house” option of the policy does not include either the notional cost of enhancing foundations for a new house on the same site and/or the cost of demolishing the existing house; and (b) the amount payable under the “buy another house” option does not include the cost of buying the land on which that house is situated. FIRST DECLARATION Under the policy, Southern Response was obliged to pay for the cost of rebuilding the house on its current site to an “as new” condition. The Policy also allowed for the payment of specific additional costs where they were approved by Southern Response and incurred by the insured. By way of example, additional costs include: demolition, contents removal, architects’ and surveyors’ fees and any reasonable and required
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March 2018
additional work which ensures the rebuilt house is code compliant. The issue for determination was whether these additional costs must be taken into account when calculating Southern Response’s liability under the “buy another house” option. Thomas J observed that the Policy distinguishes between “the full replacement cost of rebuilding” and what is additional to that cost. The Policy acknowledges that additional costs are costs that Southern Response might have to have paid. Shirley Investments’ interpretation would require that, in the case of the rebuild option, additional costs would not be included unless actually incurred but, in the case of the “buy another house option”, they would be included regardless.Thomas J held that this could not be correct. Furthermore, Thomas J found that the purpose of the Policy is to put the insured in the position they would have been in had the damage not occurred, with the house being put in an “as new” condition. If Shirley Investments’ interpretation of the Policy was correct, it would be entitled to buy a house on stable ground with standard foundations and use the notional cost of enhanced foundations it would incur if it rebuilt the house at the same site to buy a more expensive house.
This would result in a windfall which would not accord with the purpose of the policy. Accordingly, the court made a declaration that the amount payable under the “buy another house” option of the policy does not include the additional costs of either the notional cost of enhancing foundations for a new house on the same site or the cost of demolishing the existing house. SECOND DECLARATION This became a moot issue between the parties by the time of the hearing due to the value of the replacement house that Shirley Investments acquired. However, the parties agreed that it was a question of some importance which needed to be resolved. Thomas J found that Southern Response’s liability under the “buy another house” option does not include the cost of buying the land on which the new house is situated. The policy makes it clear that land is not covered. Buying another house means exactly what it says: it does not include the land. Thomas J noted, however, that it would be a shame if this declaration would stifle flexibility on the part of Southern Response, for example in distinguishing which legal fees related to the house purchase and which to the land, for the purposes of coverage.
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PREPARATION IS THE STRONGEST DEFENCE.
COVER STORY
RISKS AHEAD
N
ew Zealand’s big risks this year are natural catastrophes, extreme weather events and large cyber attacks, a new report suggests. The World Economic Forum has put out its latest Global Risks Report for 2018. The report – which every January shares the perspectives of global experts and decision-makers on the most significant risks that face the world – suggests we are struggling to keep up with the accelerating pace of change. It highlights numerous areas where we are pushing systems to the brink, from extinction-level rates of biodiversity loss to mounting concerns about the possibility of new wars. The survey asked 1000 respondents for their views about the trajectory of risks in 2018. Of those, 59% said risks were intensifying, compared to 7% pointing to declining risks. A deteriorating geopolitical landscape is partly to blame for the pessimistic outlook in 2018, with 93% of respondents saying they expect political or economic confrontations between major powers to worsen and nearly 80% expecting an increase in risks associated with war involving major powers. As in 2017, the environment was by far the greatest concern raised by risk expert respondents. Among the 30 global risks the experts were asked to prioritise in terms of likelihood and impact, all five environmental risks – extreme weather; biodiversity loss and ecosystem collapse; major natural disasters; man-made environmental disasters; and failure of climate-change mitigation and adaptation – were ranked highly on both dimensions. Extreme weather events were seen as the single most prominent risk.
“A widening economic recovery presents us with an opportunity that we cannot afford to squander, to tackle the fractures that we have allowed to weaken the world’s institutions, societies and environment.We must take seriously the risk of a global systems breakdown. Together we have the resources and the new scientific and technological knowledge to prevent this. Above all, the challenge is to find the will and momentum to work together for a shared future,” said professor Klaus Schwab, founder and executive chairman of the World Economic Forum. The report says cyber threats are growing in prominence, with largescale cyberattacks now ranked third in terms of likelihood worldwide, while rising cyber-dependency is ranked as the second most significant driver shaping the global risks landscape over the next 10 years. John Drzik, president of global risk and digital at Marsh said:“Geopolitical friction is contributing to a surge in the scale and sophistication of cyberattacks. At the same time cyber exposure is growing as firms are becoming more dependent on technology. While cyber risk management is improving, business and government need to invest far more in resilience efforts if we are to prevent the same bulging ‘protection’ gap between economic and insured losses that we see for natural catastrophes.” Economic risks featured less prominently this year, prompting concern the improvement in global GDP growth rates may lead to complacency about persistent structural risks in the global economic and financial systems. But inequality was ranked third among the underlying risk drivers, and the most frequently cited interconnection of risks was that between adverse consequences of technological advances and high structural unemployment or under-employment.
FUTURE SHOCKS The growing complexity and interconnectedness of global systems can lead to feedback loops, threshold effects and cascading disruptions. Sudden and dramatic breakdowns – future shocks – become more likely. This year’s Global Risks Report presented 10 short “what-if” scenarios, not as predictions but as food for thought to encourage world leaders to assess the potential future shocks that might rapidly and radically disrupt their worlds: Grim reaping: Simultaneous breadbasket failures threaten sufficiency of global food supply A tangled web: Artificial intelligence “weeds” proliferate, choking performance of the internet The death of trade: Trade wars cascade and multilateral institutions are too weak to respond Democracy buckles: New waves of populism threaten social order in one or more mature democracies Precision extinction: AI-piloted drone ships take illegal fishing to new – and even more unsustainable – levels Into the abyss: Another financial crisis overwhelms policy responses and triggers period of chaos Inequality ingested: Bioengineering and cognition-enhancing drugs entrench gulf between haves and have-nots War without rules: State-on-state conflict escalates unpredictably in the absence of agreed cyberwarfare rules Identity geopolitics: Amid geopolitical flux, national identity becomes a growing source of tension around contested borders Walled off: Cyberattacks, protectionism and regulatory divergence leads to balkanisation of the internet 14
March 2018
NEW ZEALAND TOP FIVE RISKS
COVER STORY
NATURAL CATASTROPHE
EXTREME WEATHER EVENTS
LARGE CYBER ATTACKS
ASSET BUBBLE
URBAN PLANNING FAILURE www.covernote.co.nz
15
FEATURE
SUSTAINABILITY – THE KEY TO SUCCESS N
ew research shows running a sustainable business is essential for profitability and growth. The research, commissioned by NZI, looked at where businesses are at on their sustainability journey and the benefits of running a sustainable business. Donna Williams, NZI’s general manager of customer experience and marketing and a regular on the judging panel for the annual NZI Sustainable Business Network Awards, says NZI is constantly seeking information to help businesses. “It’s important to continue to investigate best practice for businesses to thrive and this research confirms a sustainable workplace is key for a company’s long-term success.” TRA managing director and sustainable business researcher Andrew Lewis said the survey showed those who fully embraced sustainability saw a broad range of benefits, but there was still more work to be done to help more companies get on board. “Most businesses want to be more sustainable, but lots don’t completely understand what it means and are putting the concept in the ‘too-hard’ basket.” A sustainable business is defined as one that was environmental, economic and social. Despite this, only 45% of business owners surveyed associate all three ideas with being sustainable. Those being proactive in all three areas reported improved productivity, lower costs, a strong image and a platform for competitive advantage. “Cost is the main barrier to starting the sustainable journey, which is ironic considering reduced costs is one of the main benefits,” Lewis said. “For those less involved with being sustainable, it’s about allaying fears regarding costs and for those more proactive, the sense is it’s simply about helping them activate a vision already central to their business.” Williams said some New Zealand businesses were already succeeding in sustainability, including last year’s winner of the NZI Greatest Contribution to a Sustainable New Zealand (Supreme Award), NZ Post. “NZ Post introduced an innovative electric vehicle – the Paxster – to minimise carbon emissions, pollutants and noise while still increasing delivery capacity. “500 of NZ Post’s electric vehicles are now in regular use from Invercargill to Whangarei,”Williams says. There are signals from government for stronger policies and greater investments that will see sustainability in areas like climate change, renewables, public transport and circular economy receive greater attention. Williams said businesses already operating in this space would benefit. “For us to continue to support New Zealand businesses, we need to make sure companies are here for the long-run too. “The sustainability story needs to be told to unlock growth.” The research was commissioned by NZI in collaboration with the Sustainable Business Network https://sustainable.org.nz/
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March 2018
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COVER STORY
CLASS ACTIONS MAY MAKE HEADLINES IN 2018
Minter Ellison Rudd Watts’ insurance team outline their predictions for the next 12 months.
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here is the potential for an increase in class actions against insurers, increased regulatory involvement in the intermediary market and an increase in funded claims involving insurers. CLASS ACTIONS New Zealand’s “class actions” regime has 18
March 2018
been developing for some time now. We see a real likelihood of an increase in this form of litigation in 2018, particularly involving insurers as defendants or as insurers of companies that are sued. The present version of the High Court Rules permits “representative actions”, which are
different in some respects to the traditionally understood US “class action”. In order to proceed by way of representative action in New Zealand, all members of the proposed class of plaintiffs must have the same interest in the subject matter of the proceeding. The court acts as gatekeeper in determining whether this requirement has
COVER STORY
been met by granting or declining leave to the representative to proceed at the outset. In a class action, by comparison, all that is required is a common issue. The requirements for leave have recently been clarified by the courts, culminating in the Court of Appeal’s decisions in Cridge v Studorp Ltd and Southern Response Earthquake Services Ltd v The Southern Response Unresolved Claims Group. The Southern Response case involves allegations that the insurer developed and implemented a strategy to minimise claim payments made to insureds in settlement of their claims. The situation is perhaps factually unique as it arises from the Canterbury earthquakes and involves an insurer with no ongoing reputational concerns. However, the principles that the Court of Appeal addresses are relevant to any representative action brought against an insurer. We see the following principles as relevant in considering the risk of an increase in representative actions involving insurers: (a) In determining the baseline requirement of whether the class of plaintiffs have the same interest in the subject matter of the proceeding, the court will “take a liberal and flexible approach in determining whether there is a common interest”. The commonality of interest requirement is not a high threshold; (b) However, there must be a truly representative plaintiff for each alleged breach of contract by the insurer – if the breach is made out, each individual claimant must still prove that the breach affected them personally and establish individual damages. In Southern Response, the Court was prepared to allow the division of the claimant group into sub-groups that involved the same alleged breach of contract, each with their own representative plaintiff; (c) In cases alleging breach of a more general duty, such as a duty of good faith, the representative action process is more appropriate. This is particularly so where each individual claim is relatively modest, making it uneconomic to pursue in isolation. The court will weigh the benefit to the class if the representative is able to prove the existence of conduct by the insurer and whether that conduct was in breach of the insurer’s obligations, leaving each claimant only to prove that they were the subject of the conduct and an entitlement to damages; (d) When considering the merits of any proposed claim, the court need only consider “whether there are obvious defects in the causes of action as pleaded” – it is not appropriate to undertake a detailed review of the merits of the proposed claims; and (e) Significantly, the court could compel an insurer to notify insureds with unresolved claims
of the existence of representative proceedings. While the Court of Appeal in Southern Response declined to require the insurer to provide the details of all of its insureds with unresolved claims to the representative group by way of discovery, it left open the possibility of future orders requiring the insurer to communicate directly with such insureds to make them aware of the proceedings. INCREASED RISK OF CLAIMS INVOLVING INSURERS Given the obvious efficiencies of properly brought representative actions, together with the fact that they open the door to claims that would be uneconomic in isolation, insurers (or insured defendants) seem a clear target. Class actions may also be brought against insurers where they have treated a number of similar claims in the same way, such as insisting upon certain repair methods or calculating indemnity value in a particular way. More generally, we see a real possibility of an increase in representative actions involving insured defendants with large numbers of customers or investors. Two particular areas of focus are likely to be cyber claims, where a large number of small claims may be made by affected information holders, and securities claims, although there have not been any significant representative action claims that we are aware of since the Feltex litigation. REGULATORY OVERSIGHT We anticipate greater regulatory involvement in the insurance intermediary market in 2018. The FMA addressed its concerns with churn in the life insurance market in its June 2016 report “Replacing Life Insurance – who benefits?”This report followed its 2015 Strategic Risk Outlook, which included a focus on conflicted conduct in a vertically integrated distribution model for financial services. In summary, the FMA identified a small number of financial advisers with a high volume of life insurance policies on their books and a high rate of replacement of that business, which could be an indicator of churn. The FMA reported that it was, among other steps, working with market participants and financial advisers to ensure that they are complying with their obligations, together with providing guidance to advisers and consumers. The FMA has shown a continued intention to focus upon conflicted conduct in its 2017 Strategic Risk Outlook.The FMA has said: “Our review into life insurance sales practices has given us a benchmark to guide similar reviews into sales practices and the impact of incentive structures in the future.” We anticipate that the FMA will use its experiences in the life insurance sales space to
review practices in the insurance intermediary market more widely, including in relation to the impact of remuneration structures on adviser conflicts. As the FMA noted in its 2017 Strategic Risk Outlook: “Remuneration and incentive arrangements can also reinforce conflicts of interest. This occurs when sales staff are incentivised with bonuses solely based on sales volumes without considering the overall customer experience.” LITIGATION FUNDING Finally, we anticipate an increase in funded litigation involving insurers, as funders target well-resourced defendants supported by insurance policies. Litigation funders have been active in both large-scale claims, such as the recently settled claim against PwC by the liquidators of Property Ventures Ltd (in liquidation), and in volumebased cases such as those that remain unresolved following the Canterbury earthquakes. The Canterbury earthquakes saw an influx of offshore claims consultancy firms who funded the investigation, lodgement and litigation of claims against insurers, for a percentage cut of the proceeds. We saw a recent flurry of filings by funded claimants shortly before September 4, 2017, timed to beat a potential limitation argument following the expiry of some insurers’ agreements not to rely upon limitations defences before that date. All forms of litigation funding have now become commonplace in the New Zealand market, including in insurance group litigation. We think that the twin prospect of representative action against insurers, together with funding arrangements for that litigation, give rise to a real risk of a rise in funded claims against insurers. We see the existence of funding as increasing the frequency of claims against insurers that might not have been made in the past. In the Southern Response representative action claim discussed above, the Court of Appeal considered the courts’ role in policing funding arrangements in representative actions: "The court is not required to give prior approval for a funding arrangement. The court will be concerned to see detail of the funding arrangement and the information provided to prospective class members, to reassure itself that there is no obviously unfair, oppressive or misleading aspect to the arrangement. The grant of leave does not amount to an approval of the arrangements, because approving the arrangements carries the risk that a prospective class member will be falsely reassured by the court’s approval and so not undertake the due diligence that they should do, to protect their own interests."
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19
LATEST NEWS FROM
CHRIS HUGHES TO HEAD UP ROTHBURY BROKING SERVICES AND OPERATIONS C
hris Hughes has joined the Rothbury executive leadership team in the newly created role of executive general manager – broking services and business operations. “It’s exciting to build more capability to help the Rothbury business grow,” said Roger Abel, manging director. “We’re fortunate to be able to appoint someone from within the business and bring someone into the executive leadership team who has such strong industry knowledge and understanding of the intricacies of our business”. Hughes is well-known within the industry and has been with Rothbury for 14 years, and in insurance for the last 28. “I’m looking forward to helping deliver more for the Rothbury business as we grow. We now have offices in 20 locations around the country which means we’re in a strong position to really delivery a high level of service to our clients, and one of my key objectives will be delivering an outstanding client experience,” he said.
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March 2018
THE LATEST NEWS
ROTHBURY’S FOOTPRINT SET TO EXPAND R
othbury says it will continue to work on expanding its footprint in 2018 through its merger and acquisition activity and organic growth. The broker firm currently has offices in 20 locations around the country and over 260 employees nationwide. It is the largest majority New Zealand-owned general insurance brokerage in the country and the fourth-largest broking firm. The plan to expand its reach is a key focus and part of its growth strategy. “2018 will be an active year for us,” says Roger Abel, managing director. “Over the last year we’ve achieved significant growth and had our best new business year ever. We’re steadily growing our client
base and that looks set to continue in 2018. “Rothbury prides itself on being authentic in its mission to deliver a high level of service to clients. We want to be close to our clients and expansion is a part of that journey. We’re always looking for new opportunities to expand the Rothbury business with like-minded business owners.” He said becoming part of Rothbury gave businesses the ability to leverage from the group’s scale across the country and its resources and support. The group also owns four underwriting agencies which enables it to develop its own niche products – notably Covi for its motor caravan cover.
Thinking of selling your business? Do you have an exit plan? Talk to us today.
“Rothbury are a progressive company, joining them just seemed so right.” JANE COOK, COMMERCIAL BROKER
rothbury.co.nz
CHRIS HUGHES P 021 241 7231 CHRIS.HUGHES@ROTHBURY.CO.NZ
PAUL MUNTON P 021 243 9207 PAUL.MUNTON@ROTHBURY.CO.NZ
www.covernote.co.nz
21
FEATURE
UPCOMING ISSUES IN CANTERBURY EARTHQUAKE LITIGATION
With thousands of unresolved EQC and private insurance claims, the new Government is looking to facilitate the settlement of claims in a number of ways, beginning with a review of EQC. The Court of Appeal should clarify the assignability of insureds’ rights. By Minter Ellison Rudd Watts
T
he courts have resolved a large number of contentious insurance disputes arising out of Canterbury earthquake claims. These have involved both private insurance policies and the interpretation of EQC’s statutory obligations. However, the Christchurch High Court’s earthquake list remains busy, with a large number of new claims filed towards the end of 2017 to avoid potential statutory time bars seven years after the first earthquake. Latest annual High Court figures show that, as at September 30, there were 518 unresolved claims remaining on the High Court earthquake list, which make up approximately 50% of the total claims listed to date.
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March 2018
GOVERNMENT ACTION The newly appointed Greater Christchurch Regeneration Minister, Megan Woods, has confirmed that as at October 2017 there were approximately 3000 unresolved claims sitting with EQC. Some of these are claims for rerepairs following alleged inadequate remedial works. With an independent inquiry into EQC in the pipeline, it is likely that EQC will be supported in its efforts to resolve claims and take an increasingly active claims-management role. The Government has also signalled its intention to push for resolution of earthquake claims through the establishment of a specialist tribunal, although no formal steps have yet been announced.
ASSIGNMENT OF CLAIMS The assignability of “full replacement” insurance claims has become a significant issue as unrepaired or partially repaired property in Canterbury is sold and transferred to new owners. Last year, the High Court in Xu & Diamantina Trust Limited v IAG New Zealand [2017] NZHC 1964 confirmed the existing position established by the Court of Appeal in Bryant v Primary Industries Insurance Co Ltd, which held that an insured cannot assign rights which are personal to the insured and have not arisen as at the date of assignment. What this means in practice is that an insured cannot assign a right to reinstate a property to an “as new” standard and be paid the actual cost
FEATURE
of the work. An insured may assign a right to indemnity value, which is a right to receive a cash payment without preconditions. However, a right to reinstate and be paid the actual cost is a personal right that belongs only to the insured and cannot be assigned without the insurer’s agreement. The assignee cannot claim the actual costs of a repair or rebuild because that right is triggered only when the original insured reinstates the property. The Xu case was appealed and has now been heard by the Court of Appeal. The Court of Appeal will not be bound to follow its own decision in Bryant. The industry will be monitoring the outcome closely. STATUTORY TIME BARS September 2017 saw a flurry of activity as insureds scrambled to avoid the need to preemptively file proceedings to avoid risking the loss of their rights because of a potential statutory limitations defence. In the previous year, insurer members of ICNZ gave a joint undertaking not to plead such a defence to proceedings filed before September 4, 2017, being the seven-year anniversary of the first Canterbury earthquake. Many insureds sought and obtained a further extension prior to that date. However, unlike the previous, these arrangements were not facilitated
on an industry-wide basis. Insurers have taken divergent approaches. Some are dealing with insureds' requests on a case-by-case basis. One insurer has refused to extend the deadline for assigned claims. Others may look to follow suit in September 2018 when the extension is up for discussion again. One insurer has issued a statement that it considers the limitation period to run from the date that the insurer settles or rejects a claim rather than from the date of the earthquake event. While there is merit in this approach, the start date for the period remains uncertain and will be affected by the policy wording. It is possible that we will see the defence raised for the first time in 2018 by an insurer. KEY THEMES ARISING FROM CASE LAW In 2017, the High Court released two judgments which found substantially against the insureds: Sadat v Tower Insurance Ltd [2017] NZHC 1550 and He v Earthquake Commission [2017] NZHC 2136. In the Sadat case, the Court recognised an established principle that insureds must prove the claimed loss and must also prove that the event in question was covered by the policy. The insureds in both cases failed because they were unable to establish that damage to their house had been caused by earthquake and not by pre-existing issues such as subsidence and
inadequate foundations. These cases serve as a warning to insureds of the risks involved in litigating a claim without careful consideration of the available evidence. In both cases, the claimants failed to overcome the conclusion supported by reasonably clear documentary evidence that their properties had suffered from pre-existing damage. These cases may reflect a growing unease by the Courts towards insurance claimants who, for whatever reason, insist upon litigation in the face of clearly problematic evidence. THE DUTY OF GOOD FAITH The industry awaits further judicial guidance on the mutual implied duty of good faith in contracts of insurance which was recognised by the High Court in Young v Tower Insurance [2016] NZHC 2956. The Young case established that, as a bare minimum, the duty included an obligation on insurers to disclose all material information that it knew or ought to know, act reasonably, fairly and transparently and to process a claim within a reasonable time. The court gave no further detail of what other obligations fell within the duty. It is likely that litigation in 2018 will include allegations of a breach of this duty and we expect to see further case law on its extent and application.
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23
COVER STORY
INSURERS, BROKERS TOLD: LITTLE CHANGES WON’T CUT IT By Michael Naylor, Massey University
The industry of the future may bear very little similarity to the world you work in today. Here’s why.
I
n recent years insurance has lagged behind other sectors in terms of adoption of IT. This technological lagging means that insurance as an industry is currently ripe for technological disruption. This disruption is occurring in three main areas - the understanding and pricing of risk, internal operations, and customer relationships. These changes mean that the industry is currently on the crest of a combination of technological advances which will utterly disrupt the current industry - a perfect storm. The industry is well aware of this, though few understand the scale of the looming disruption. BIG DATA AND TELEMATICS Traditionally insurance actuaries have estimated risk ratings from a limited sample of data, with clients forced into risk pools. Actual information on any particular client has been shallow and restricted. The new sources of data derived from areas like telemetrics, social media, or loyalty schemes will give insurers substantially larger amounts of higher quality data about their clients. Combining this with automated administrative, customer contact, underwriting, and claims systems, will enable insurers to assess each client individually in real-time and thus offer customised and dynamic policies. Insurers will be able to use algorithms to automatically analyse the database for trends which can then be used to predict adverse patterns. For example; patterns of data which predict house fires, or link types of food purchase to types of sickness, can be discovered. The size of these data sets will also provide training sets for software algorithms to learn to handle non24
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routine cognitive tasks, hence starting the process of creating the AI software required for complex tasks. This change to big data analytics will be one of the most important sources of future insurer competitive advantage. It will change the way insurers interact with their clients, the way they underwrite, and the way they structure their administration. Insurers will gain a greater depth of understanding of personality profiles, buying trends and behaviour. This will allow insurers to move away from simply descriptive (what happened) analysis and diagnostic (why it happened) analysis towards predictive (what is likely to happen next) and prescriptive (determining how to ensure the right outcome) analysis. Multiple scenarios can be run and likely outcomes role-played. Insurers will gain an indepth understanding of why customers insure or don’t insure, and be able to individualise customer approaches so as to maximise sales. DYNAMIC INSURANCE Once real-time data feedback from telematics is added, the consequences for rate-making are revolutionary. The feedback from embedded devices will enable premiums to be set on an individual basis by software, and adjusted in realtime – ‘dynamic insurance’. This is insurance underwritten individually, with premiums dynamically set based on feedback from the telematic devices, e.g., car insurance which only activates when your car is on the road and increases or decreases based on driving behaviour. Data analytics will reveal that a particular activity is risky for that kind of customer, and rather than
excluding it, the insurer could offer a higher rate during that time. House telematics can be linked to insurance company computers to report intruders, or fires, etc to accurately track risks in real-time. Houses will have finger print or voice activated security linked to doors or windows. Sensors linked to electrical wiring can shut down electricity flow if overheating and a potential fire is detected. Chips embedded in all house contents will allow their location to be tracked, even if stolen. This will lead to fewer claims and thus lower premiums. Life or health insurance can be sold which is linked to wearable bionics which tracks blood contents and fitness levels, scans for signs of sickness, and alerts clients to potential problems. Discounts can be given for health-related activities, warnings given if clients engage in unhealthy activities. Health specialists can decide which metrics need collecting, and data analysts can then start to analyse the flow of data to both feed alerts to doctors and to ascertain if trends can be found which predict adverse changes before they occur. If a client falls sick the health bracelet will tell the insurer that a medical emergency has occurred, and the insurer’s computer can arrange emergency assistance, analyse scans, and make payment of health bills without any need for patient involvement. It will also allow detailed data analysis so that deep understanding can be gained around the relationship between client activities and well-being and sickness. The analysis of data from patients should discover trends which predetermine sickness and enable doctors to call in and treat patients before they get sick.
COVER STORY For example, UK insurer Aviva has combined data from a range of non-health sources, like shopping or online behaviour and has found that these can predict future health outcomes nearly as accurately as blood or urine tests. Currently insurers use actuarial based statistical algorithms based on compiling past data and event occurrences to forecast annual event probabilities. The new approach will be based on the structural drivers behind events as well as any conceivably related data. By being able to examine real-time structural data on casual factors, insurers will be able to price risk very finely. They will be able to offer clients attractive premiums if they meet certain behavioural conditions. INTERNAL ADMINISTRATIVE SYSTEMS Increasingly all insurance customers will be underwritten, and dynamically, rather than just at policy inception, or renewal. This is only possible cost-wise if customer interaction and internal administration is computerised, so the marginal cost of reacting to data is near to zero. The looming transformation is thus as much about internal software and management systems as data. Current versions of automated analytical underwriting and claims systems have been shown to have the ability to both increase operations speed, often reducing claims processing times from months to minutes, and to cut the cost of underwriting and claims processing by up to 100 times. Big data is also starting to revolutionise risk assessment, because its intensive nature means that patterns can be found which are not visible when assessing a sample data set. For example, in health care, the digitalisation of millions of client medical records has allowed software to compare each client’s individual symptoms with aspects like their genetics, their family background, their gut bacteria, or environmental factors, to create optimal and personalised treatment plans, and individualised medicines, all with minimal human oversight. Similar techniques can be applied to customer relations, or to sales data; pin-pointing which marketing styles are important for each segment of the market. How, for example, do higher risk members of the white, female, suburban, SUVdriving group, differ from higher risk members of the white, female, city-centre, non-carowning group? Client groups will no longer have to be made based on gross characteristics like gender or age, but on actual causal factors. Individuals from groups who currently face underwriting issues, like young drivers, will be able to prove that they do not individually possess the behaviour patterns which make that group high risk. Analytics will also allow customised client contacts. For example, it may reveal if a customer belongs to a group likely to lapse and at what point in time this lapse is most likely to occur, and then allow the insurer to create a
personalised insurance policy contact structured in a way most likely to retain that customer. DATA-FOCUSED The current focus of insurance management is on strict cost control, so that premiums can be kept competitive. These costs, however, are difficult to control and estimate, as underwriting estimates are created prior to policy issue, and are only updated at renewal time. Even then, there can be legal issues around substantial premium increases or policy refusal. The new era of real-time big data via telemetrics means that insurers will have a qualitatively different quality of data on clients. They will be able to offer basic initial premium and then dynamically as client behaviour reveals itself. Insurance needs to move from a simple closed analytical underwriting model, which has a set of equations, towards a more forwardlooking model, which uses scenarios and structured cause-effect chains to give a deeper understanding of loss possibilities. The main aim of data analysis will be the ability to extract useful customer insights. There are two main reasons for negative outcomes, (i) unreliable or unsuitable data, often provided by external sources and not properly incorporated into the organisation’s own environment, and (ii) the analytics team missing an important component of data because they didn’t fully understand the business situation. Managers are needed who both understand data analytical methods and who understand the business. The availability of big data is exploding, yet the possibilities of its use have been little explored in the insurance industry so far. While some insurers have invested in some areas, none have a vision of an integrated system, based on near zero marginal cost admin systems. DATA SOURCES Current insurer client data is historical, shallow, and based on very few interactions, whereas new data will be deep, rich and real-time. Complexity will arise because underwriting data will need to be combined from as wide a range of sources as possible, many of which can be quite different; for example, minute-by-minute purchase data, retail data from loyalty cards, location data, text, online comments, blogs, and call centre communications. Combining these diverse sources can yield unsuspected insights. For example, Woolworths Australia discovered that customers who drank lots of milk and ate lots of red meat had a significantly lower autoinsurance risk than customers who drank spirits, ate lots of pasta, and filled their petrol tanks at night. The size and complexity of this data mean that analysts cannot visually purview data but will build AI systems to mine it for useful insights. Key skills will be big data analytic skills and data presentation skills, as well as deep knowledge of customer behaviour. Existing data
software suppliers may not survive the transition if they do not have skills in AI mining of large and disparate data volumes. Instead social media firms or consumer internet players, who do have experience in AI mining, will probably take over supply of data software to insurers. One issue is that in large insurers, data is normally trapped into silos and locked behind access controls so it is virtually impossible to gain an integrated overview of reality. Data governance and ownership is also normally spread across an organisation so that there is no centralised view of what data they have and how it is used, so that it is impossible for any creative new uses of the data to be envisioned. All these challenges mean that existing insurers will have to create entirely new IT, data flow, data visualisation, and decision systems based on new management processes. BIG DATA AND ARTIFICIAL INTELLIGENCE A vital part of the response by insurance survivors has to be the creation of effective AI systems using adaptable learning algorithms. The use of superior AI systems will allow insurers to mine big data derived from telemetrics and business-ecosystems to discover activity-risk correlations which are not obvious to actuaries, and to cut marginal cost substantially. AI will thus be a key component of internal administrative systems, including their ability to respond to customers via auto-generation of emails or phone calls or social media posts, (using text and vocal recognition skills) as well as responding actively to telemetrics feedback. A key aspect is that insurers will work as part of a wider ‘business ecosystem’ of related firms. Expertise in AI will allow insurers to integrate their products into the telemetricbased products used by other firms in their ecosystem, enhancing these products and extracting vital data. One of the keys for insurers to become a customer-centric company is a focus on the integration of big data into client-facing activities, delivered via a radical reduction in perservice administrative costs. INSURANCE AS A SERVICE Linking insurer systems to telemetrics offers a range of exciting revenue sources for insurers. Feedback from telemetrics and accurate predictive indicators from big data will allow insurers to move from compensation after an event to advice and warnings on how to prevent an event. The aim of these can be marketed initially as being focused on reducing client risk, but the real aim would be to integrate the company into customer lives. An insurer could then brand itself as handling a customer’s lifecycle management. Insurers will change their business model from being one of providing insurance products to being one where they are data companies with real-time links to customers, specialising in databased personal risk products and services.
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FEATURE
CENTRAL OTAGO WINEMAKER WINS ENTERPRISING RURAL WOMEN AWARD
L
ike many other New Zealand rural women, for Debra Cruickshank, growing up in the country was all about putting your boots on and rolling up your sleeves. “Work was a seven-day-a-week job on our Tannacrieff farm in the Catlins. There was nothing better than helping Dad lambing, milking the pet cow before school, making hay huts for the pregnant pigs and staying up all night to watch them deliver their piglets.” It’s this get-up-and-go attitude and solid work ethic that helped Debra create a niche market for port with her own wine label, Tannacrieff Wines, and develop a business providing solutions for boutique vineyards with DC Wines Ltd. “The rural community, I feel, has a huge leg up on the rest of society in terms of getting stuff done! This is absolutely one of the reasons I am here doing what I do today.” She's operated for 10 years as a one-woman band, which she says has been physically demanding, but she’s thankful for the support of family who help at harvest or during bottling. Debra recently won the NZI Supreme Award at the Enterprising Rural Women Awards, acknowledging her work. NZI’s head of rural, Jon Watson, said NZI was proud to support the awards that recognises the innovation and achievements of business people like Cruickshank. “Some of the biggest and best businesses we help protect come out of the regions, and we’re proud to be able to support businesses in rural New Zealand, and help them thrive in the changing world. “We’re constantly reinvigorating our farm and rural offerings by partnering with valued local brokers who understand farming and rural needs. “This enables us to develop solutions to meet the changing, complex needs of New Zealand farming and rural communities.” Watson said Cruickshank displayed a superb work ethic, skill and innovative thinking, that provided a great foundation for the growth of the Tannacrieff Wines brand. “Debra has demonstrated how to develop a concept to instigation, to a successful business model. “We are thrilled to be able to recognise her outstanding achievements.” Cruickshank said she was continuing with business as usual, but continuing to prosper in the process. “I’m currently preparing for a very early and probably my biggest harvest to date, I’ve also just released a new label – it’s all go.”
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March 2018
From inspiration to completion, we’ve got it covered. NZI Total Development is a new property development insurance that covers your clients from the very beginning of the project until it’s completed. So instead of continually renegotiating insurance throughout a development, your clients can keep their focus on what really matters - being inspired to create something of lasting quality. NZI Total Development. Property development insurance from day one to done.
Business Insurance for a growing New Zealand
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FEATURE
PUTTING YOUR CLIENTS FIRST New rules mean insurance brokers have an extra duty of client care.
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ou work hard to do your best for your clients. But are you putting your clients’ interests first? As part of the new rules coming into force for all financial advisers as part of the Financial Services Legislation Amendment Bill, a duty will be introduced that will require everyone giving retail advice to give priority to their clients’ interests. This is a similar provision to that already placed on authorised financial advisers, who have been operating under a code of conduct since the Financial Advisers Act. The IBANZ code of conduct also requires that the association’s members act with integrity and put their client interests first, based on what is reasonable in the circumstances. But for those not operating under that code, the new rules will be the first time many general insurance brokers, operating as registered financial advisers, have such an obligation placed on them. IBANZ chief executive Gary Young said the obligation should be common sense for any broker who was operating professionally. “The traditional debate is that if a broker gets more commission from one insurer than another another, they might be tempted to put the client with the higher commission, rather than be tempted to put the client with the one with higher commission rather than the one that suits clients,” he said. “But our experience is that’s not an issue. Brokers tend to get the same commission rate from all insurers.” Jane Standage, a financial services specialist at law firm Minter Ellison Rudd Watts, said more guidance would be needed on how the duty would be expected to apply to each sector of financial advice. That is likely to come from the regulator over the coming months as the regime moves towards implementation. More detail about the expectations on brokers will also come from the new code of conduct being developed. But she said a key point for brokers to consider, to ensure they had met the duty, would be the opinions of others in the industry. They should be satisfied that a reasonable adviser would agree that it had
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been in a client’s interests to recommend a particular product. “Because the broker receives revenue from a transaction, another way is to check it offers extra benefits for the client.” Brokers would probably need to be able to perform some sort of benchmark process, she said, to show how their products compared to the others that were available. “They might need to be able to say ‘here are the other products in the market but this is better for you for these reasons.” Brokers who were tied to a particular product provider could still satisfy the requirement by informing clients that they could only advise on a limited range of products, and showing that their recommendations were still reasonable. Financial services lawyer David Ireland said a key consideration for many brokers would be how they evidenced that they had met the duty, rather than the mere fact of meeting it. They would have to consider how they explained their scope of advice to clients and within that think about how they gave priority to the client’s interest, making sure they were not influenced by the interests of third parties. Ireland said it did not mean that brokers could not take commission or other incentives but that they needed not to be materially influenced by those factors. They would need clear systems to survey the market and prove to anyone who queried it that the products recommended were a good fit. Good paperwork and record-keeping would be required as proof, he said. For many advisers this could mean a significant increase in administration beyond their current systems. Sometimes brokers would find that acting in clients’ interests did not necessarily mean doing exactly what clients asked for, he said. Young agreed brokers would need to be able to show, if something went wrong, why they put a client with a certain insurer. “I don’t think this is going to cause much angst. It tends to be more of an issue in other parts of insurance – such as life, where they are offering a trip around the world if you put so much business with them. General insurance doesn’t tend to operate in the same way.”
INSURANCE ADVISERNET
welcomes
Insure Hawke’s Bay & Sherpa Insurance Brokers:
Insure Hawke’s Bay INSURANCE BROKERS It’s what we would do. Insurance Advisernet like to welcome Rick Behague and Kerry McIntyre who have joined us in Napier and commenced business
in January 2018. Rick & Kerry have worked for a number of broking firms including Aon, Hawke’s Bay Insurance Brokers and more latterly Broker Web Risk Services. With over 30 years’ combined experience working at each end of the spectrum, from multinationals to independents, they have finally decided to take the plunge, and in their own words - stop working for ‘the man’, back themselves and build their own business: “Insure Hawke’s Bay�. "To us, insurance is all about people. In a time where many companies are focusing on centralisation or internet sales, we believe it is so important that we can visit customers at their place of business. Only then can we fully understand what it is they do, what their goals are and how we can help with an insurance programme that meets their needs."
Insurance Advisernet would also like to welcome Daniel Mathieson who commenced his business Sherpa Insurance Brokers & Advocates in Christchurch on 22 January 2018. After 7 years working as a broker at Runacres Daniel decided it was time for him to step out and start up his own business, where he knew he could prioritise clients’ needs, placing greater importance on providing all clients with tailored risk programmes regardless of premium spend. When asked about his choice of company name, Daniel explains: "Sherpas are renowned for their skill and guidance through what can be quite treacherous terrain, building strong relationships with those they provide support to in their quest to reach great peaks. Likewise, we see ourselves as skilled experts who put service first, building a strong relationship with our clients for the journey ahead, providing guidance and support every step of the way."
If you’ve been thinking about setting up your own business and in Kerry’s words, “want to stop working for the man�, call either Dave or Sue today and come join the growing team of Insurance Brokers who are members of Insurance Advisernet:
insuranceadvisernet.co.nz
SUE CRAWFORD National Manager, Development
DAVID CRAWFORD Director, New Zealand
đ&#x;“žđ&#x;“ž +64 9 524 7600 ďż˝ +64 027 224 5900 ✉ scrawford@ianz.co.nz
đ&#x;“žđ&#x;“ž +64 9 926 2062 ďż˝ +64 21 905 537 ✉ dcrawford@ianz.co.nz
COVER STORY
LESSONS FROM CHRISTCHURCH Eric Crampton and Bryce Wilkinson, with Jason Krupp, NZ Initiative
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COVER STORY
T
he Christchurch earthquakes were a massive wake-up call for insurers, domestic and global. In 2014,Treasury estimated the rebuild cost at $40 billion, 20% of GDP. A more up-to-date estimate is likely to be higher, perhaps $50 billion. The Crown’s contribution is estimated to be $17.5 billion. New Zealanders were heavily insured, largely because of New Zealand’s Earthquake Commission (EQC) scheme. The Christchurch earthquakes are likely to be the world’s sixthlargest insurance event since 1980. Insurance payouts could reach $35 billion. Global reinsurers underwrote most exposures of private insurers and the EQC. Government was deeply involved in insurance issues through its ownership and control of the EQC. As overseer of recovery and regulatory of financial institutions, the government also became involved when one private insurer failed. In a similar capacity, government had to persuade global reinsurers that New Zealand’s legal and regulatory environment would remain conducive to commercial investment. The EQC’s workload has been colossal by New Zealand’s historical standards. In response to the 2010 and 2011 earthquakes the EQC had by 30 June 2016: Received over 460,000 claims involving 166,975 buildings, and resolved all but 554; received over 187,000 claims for content damage and resolved all but 126; received over 150,000 land exposure claims relating to over 80,000 properties, and resolved all but 22,815; and paid out $9.4 billion on claims. Cash settlement of claims might have been simpler for the EQC, but would have put claimants at risk of being subsequently outof-pocket if repair costs escalated because of a shortage of repairers or because the damage was greater than had been assessed. The EQC provided both cash settlement and remedial repair services to claimants. At 31 March 2017, it had managed ‘first-time’ repair work for 67,747 dwellings and provided cash settlement for another 99,218. That left only 90 dwellings to be settled, all of which were in the cash settlement category. A 2009 EQC-commissioned external review of the EQC’s operational capability preparedness identified many problems that emerged following the Canterbury earthquakes. EQC CONCERNS The review warned that the government and the EQC operated under different assumptions about the EQC’s role in a major disaster. The EQC assumed that its role was to settle claims in cash, but the government might wish the EQC to take on a larger role. It also warned that claims processing in a major event would face several bottlenecks.
Over-cap claimants would need to deal with two insurers; private insurers waiting for EQC decisions could cause delays; and settlement would require multiple assessments by two teams of loss adjustors. There was also potential for disputes between claimants and the EQC. The review suggested creating a “Plan B” for the EQC’s Catastrophe Response Programme. It would allow procedures to be changed after a major event to facilitate timely claims processing. Those issues proved substantial in the Christchurch earthquakes. One prolonged difficulty arose from the EQC’s unclear statutory obligation to provide replacement cost cover within its cap.The EQC’s governing Act, the Earthquake Commission Act 1993, defines it in part as “replacing or reinstating the building to a condition substantially the same as but not better or more extensive than its condition when new, modified as necessary to comply with any applicable laws.” Restoring to the pre-earthquake condition an aged and possibly ill-cared-for dwelling on long-standing uneven and unsteady foundations differs from restoring it to “substantially the same as when new”. The EQC’s position is that “substantially the same” does not mean “exactly the same”. Floors uneven before the earthquake may not need to be levelled. So the EQC came to be perceived as restoring to a “pre-quake condition” rather than “substantially the same as its condition when new”. The EQC was further perceived as using an increasingly lax standard to judge floor levels, based on evolving Ministry of Business, Innovation and Employment (MBIE) guidelines. EQC claims assessment teams consisting of ex-police investigators paired with licensed builders also may not have built confidence among claimants. While a 2012 review did not find fault with the practice, stories of highly inadequate assessment were far from uncommon. Some houses assessed initially as under the EQC cap were found to have suffered damages costing multiples of the cap to repair. Claimants had to get their own engineering assessments showing the damage exceeded the cap, then get the EQC to agree the damage exceeded the cap. Only then could they make progress with their private insurer, though the EQC argues that private insurers need not have waited for the EQC assessment. In the event, it took a two-and-a-half-year lawsuit by some hundred insurance claimants to reach an agreement in April 2016 that EQC repairs should reinstate a home substantially to a “when new” condition. The cost implications of that agreement are not clear at the time of writing. The EQC says the costs are not significant, and its position has
always been that repairs would meet the “when new” standard. However, claimants say repairs did not meet the “when new” standard. Resolutions of disputes over statutory entitlements were also necessary. Between September 4, 2010 and June 30, 2016, the EQC was served with 361 litigation proceedings. Sixty-five percent had been closed by 30 June 2016.Two claims were determined by the High Court. The EQC filed and obtained three High Court declaratory judgments independently, reducing legal uncertainties. Quality control of repair work also proved challenging. According to the EQC’s 2014–15 annual report 8% to 10% of repaired homes required remedial work. The EQC had received about 10,500 requests for remedial work by 30 June 2016 and had resolved about a third of them. EQC’s survey of customer satisfaction in 2014/15 immediately after repairs have been completed found that 84% were satisfied or very satisfied. The earthquakes also revealed additional unforeseen difficulties.The geological complexity of revealed risks caused delays. Experts were needed to assess ongoing vulnerabilities from rock fall, liquefaction and flooding. More experts were needed to assess rebuild options. The EQC’s partial cover for land was complex and ill understood by claimants. The sequence of multiple earthquakes revealed uncertainty about the EQC’s statutory obligations: Was the EQC liable for damages up to its cap after each earthquake, or for cumulative damages up to the cap? The High Court determined in 2011 that the EQC cap was to be reinstated with each significant earthquake, greatly increasing the Crown’s exposure and requiring apportionment of damage across several earthquakes. The sequence of earthquakes also delayed private insurers’ settlement. Reinsurers do not pay out until the insured event is over. One industry rule of thumb is to deem an event over once six months have elapsed without a major shock. Christchurch experienced major shocks on September 4, 2010, December 26, 2010, February 22, 2011, June 13, 2011, and December 23, 2011. That rule of thumb would mean private insurers would pay out on assessed cumulative damages only after May 2012; the EQC had settled many claims by then. Finally, the settlement of commercial sector claims, outside of the EQC’s remit, was hindered by legal uncertainty caused by the Christchurch City Council. The council tightened building standards after the September 2010 earthquake, and refused to consent to repairs that did not meet 67% of the earthquake code. The prior rule required older buildings to meet 33% of the code. www.covernote.co.nz
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COVER STORY
Repairing a building to the terms of the insurance contract would then not meet code, but meeting the code would benefit the claimant – and be very expensive for insurers if they had to pay. The Supreme Court decided in 2014 that councils could not require owners to strengthen to over 33% of the code. Over-stretched insurers struggling with the volume of claims and complexity of issues had spill-over effects for claimants. Thousands of homeowners experienced prolonged stress and uncertainty. A survey of a random sample of clients with earthquake insurance claims closed between January and June 2016 in Canterbury found that only 34.5% were satisfied with the overall claims-handling experience, down from 44% in 2014, and well below the EQC’s targets. We believe it was unfair to expect a rising satisfaction rate from the EQC since the claims settled later would involve the more difficult cases. But the satisfaction rate was very poor.The auditor-general took a close interest in the EQC’s management of its Home Care programme. Her 2015 report followed up on a 2013 report that found its performance was mixed. It commended EQC for its speed in getting going and for limited cost escalation for repair work. Against this she considered that its management
document identified included lack of clarity on the extent of EQC coverage; unnecessary confusion and complexity for claimants dealing with both their private insurer and the EQC; and the challenge for the EQC of scaling up for a major disaster. Recommendations have been largely, but not entirely, adopted in the government’s changes. The EQC will no longer offer contents insurance. Policyholders will lodge all claims with their private insurer. The EQC cap on building cover will be lifted to $150,000 +GST. Land cover will be separate from the building cap and only for “natural disaster damage that directly affects the insured residence or access to it.” The EQC’s claims excess for building cover will be $1000 (up from the current $200–$1150 depending on the claim size). These changes might take effect from 2020. We broadly welcome these changes. Dropping contents cover removes an unnecessary distraction for the EQC during a natural disaster. The amounts are relatively small (5% of all claims), but assessing contents is time-consuming given the risk of fraud. Private insurers already have the skills and capacity. Private insurers are now the first port of call for claimants. This will greatly simplify processes and improve consumer experience.
THE EQC HELPS KEEP INSURANCE COVERAGE AFFORDABLE EVEN IN HIGHLY RISKY PLACES, SO FEW FAMILIES ARE LEFT DESTITUTE WHILE REBUILDING AFTER A DISASTER. IN DOING SO, IT HELPS MITIGATE THE NEED FOR GOVERNMENT TO BAIL OUT HOMEOWNERS AFTER A DISASTER. costs were high and its communications with homeowners needed improving. Her 2015 report found that it had improved on all these aspects. She found it difficult to reach a conclusion as to overall efficiency, effectiveness or cost. PRIVATE INSURERS PICK UP MORE OF THE LOAD In late June 2017, the government announced major changes to the EQC cover, building on a July 2015 Treasury discussion document assessing EQC’s governing legislation and submissions on that document. The changes also built on practice trialled in the Kaikoura earthquake in 2016. After the Kaikoura earthquake, the EQC’s board entered into agency agreements with certain private insurers to manage claims on its behalf. Homeowners could lodge all claims directly with private insurers, who would also assess damage. The problems the Treasury’s discussion 32
March 2018
Private insurers can call on loss adjustors affiliated with their parent companies internationally; reputational risk from poor claims experiences may prove a greater constraint for insurance companies competing for customers. Following the Kaikoura earthquake, the Insurance Council reported: ICNZ has held meetings with the external dispute resolution organisations (IFSO and FSCL), the Ombudsman and the Privacy Commissioner to develop a standard process for managing complaints. The result is that complaints will be managed through the insurers and their external dispute schemes, without customers having to worry about intricate jurisdictional boundaries. The Privacy Commissioner and the Ombudsman will train insurers and will remain open to complaints if there are any residual issues that insurers, IFSO and FSCL cannot resolve. The IFSO and FSCL provide free dispute resolution services (so no need to lawyer up at your cost)
and their decisions are binding on the insurer but not on the insured. It makes sense to evaluate the experience of claimants following the Kaikoura earthquake before recommending the EQC to make additional changes. But the EQC and its reinsurers will need to undertake rigorous audit assessment to ensure private insurers are not providing benefits to clients at the EQC’s expense under the revised structure. In normal reinsurance dealings with similar incentive problems, insurers are constrained by the need to secure reinsurance. But insurers might not fear a similar withdrawal of compulsory EQC coverage. The EQC’s experience with the new arrangements after the Kaikoura earthquake in 2016 will help guide managing this risk in practice. The EQC helps keep insurance coverage affordable even in highly risky places, so few families are left destitute while rebuilding after a disaster. In doing so, it helps mitigate the need for government to bail out homeowners after a disaster.The flat rate for EQC coverage regardless of earthquake risk means insured homeowners in safer places effectively pay for insurance coverage in riskier places. But that comes with its own problems, such as encouraging overbuilding in risky places. MORE CHANGES NEEDED The government should consider two additional proposals. Speedy dispute resolution after a major natural disaster can reduce uncertainty about who can do what with their property. The EQC and the Insurance Council sought – and received – declaratory judgments from the courts. But some important test cases took a long time to initiate and to be resolved. Not until December 2014 did insurers know whether they would be liable for increased costs under the revised Christchurch building standards, and that uncertainty delayed commercial reconstruction. Every substantial event will reveal contingencies not anticipated in insurance contracts. After a major disaster, the government should be quicker to fund test cases seeking declaratory judgments. This can help to quickly provide legal certainty and allow speedier reconstruction. Test cases should be chosen for their implications spanning multiple parties. The Canterbury earthquakes also exposed a policy related insurance issue that does not involve the EQC – the claims of homeowners whose insurer failed to meet its obligations. AMI, a mutual owned by its policyholders, did not hold sufficient reinsurance for the February event or the reserves to cover its exposure. Politicians were inevitably pressured to shift the losses from policyholders to taxpayers. AMI was split into two companies. The viable part was transferred to IAG,
COVER STORY
and Southern Response was established to settle insurance claims in Christchurch. The government covered the amount by which claims exceeded the insurer’s assets. But claimants on Southern Response, in a 2012 survey, were the least satisfied with their insurer’s performance. Bailouts like Southern Response should be avoided as they send the wrong signals to private insurers and their customers. Mechanisms are needed to make such situations less likely to happen and easier for politicians to resist when they happen. The Reserve Bank regulates banks and insurance companies and is responsible for prudential supervision. Predictably, in the same year RBNZ tightened insurance companies’ solvency requirements for earthquakes. Government too passed legislation for additional powers. These measures do not exhaust the regulatory options. A liability regime could be imposed on insurers parallel to the Reserve Bank’s Open Bank Resolution for insolvent banks. If the law required policyholders in failed insurance companies to share proportionally in insurance shortfalls, they might put more weight on the insurer’s ratings relative to the premium cost. Accurate claims assessment might be faster since government would not be legally liable for the shortfall between assets and damages. Clients could more quickly move on with their lives. This would not stop policyholders from lobbying politicians after a catastrophic loss. And government might wish to explicitly share in the losses. Crown support to AMI policyholders may reach $1.48 billion of the $3.459 billion in gross costs faced by Southern Response. The Crown’s share of claims settlement for AMI policyholders will then range from 29% to 43%, depending on the proportion of the $1.48 billion that Southern Response requires. Most policyholders may not appreciate the extent of the Crown subsidy. An Open Bank Resolution (OBR) framework would usefully make it clearer.
LESSONS? 1. Government should follow through with proposed changes to insurance that make private insurers the first port of call for claimants in major events, but strengthen audit procedures appropriately 2. Government should quickly seek declaratory judgments in key test cases arising after a major disaster 3. Government should consider mechanisms like the Reserve Bank’s OBR for failed insurers US AND THE EQC: BY ANONYMOUS The worst consumer experience of our lives was trying to deal with the EQC during and after the Christchurch earthquake cycle. I have summed it up like a buyer report as “would not use again” because that’s how we feel having finally escaped the EQC’s clutches. To get over the $100,000 EQC cap required borrowing, hiring a lawyer, a foundation expert, and structural engineers.We have both worked as business journalists, run our own PR firm, and in my case provided political and media advice to a global CEO in a disaster zone. We “get” law, process, bureaucracy, politics and systems. Against that high-end skills background, nothing in our lives has been remotely as bad, absurd and “through the looking glass” as the experience of trying to make sense of the EQC’s process, systems and decisions. Trying to unpack how an EQC estimate of our earthquake damage went from under $30,000 to a complete writeoff is difficult. Outside Canterbury, people are surprised when they hear that almost seven years after the quakes began you are still not fixed or resolved. While private insurers can and do play hard, they do at least have a process that makes sense. Dealing with the EQC on the other hand is a visit to a Kafkaesque world where lies, lunacy and incompetence appear to be entry-level skills. Our 1920s cottage in an uptown area had some damage in the first big Canterbury
earthquake in September 2010. In the February 22 killer quake, where we were 3km from the epicentre, it was clear from the way our hardwood table levitated in front of my partner we had been badly hit. In between the major quakes, we were constantly getting aftershocks while dealing with traumatised teens. And very old parents in my case. Somewhere along the way when the EQC scaled up its staffing it decided it was a real good idea to deploy former cops as an aid to assessing damage. In effect what it did was change the consumer of EQC’s processes from a client to a suspect. The visits to assess damage were an exercise in absurdity from the start. Teams of two would turn up primed with lists on things they did not want to see or acknowledge. One pair had been issued with iPads they manifestly could not work. Most of the damage we tried to report was not programmed into these. Very early we realised we had been mistaken for silly old hippies and scaled down accordingly in response terms. We also smelled very large rats very quickly. Show them a crack in the rubble foundation and they would chant “pre-existing” with all the enthusiasm of Accident Compensation Corporation (ACC) staff trying to evade a claim. They also seemed to have been trained to not see things they did not want to see. Our cottage has rimu floors, panelling, rimu doors with brass fittings, and lots of little leadlight windows dotted around. When you tried to point these often-damaged items out regardless of the EQC staff they would just refuse to see or acknowledge them. Raise a concern about slumping floors as the bearers and piles shifted and the foundations cracked more you would be told “We’ll sort it” but never with any costings or specifics. In our final very polite stand-off with EQC, once we realised the aim was to assess as little as possible I told them: “You are saying effectively granny just needs some lippy and blusher while we are saying we think she has at least a broken leg.” Mutual sulking ensued. We slid out of the next stage of the repairs by Fletchers EQR. We had both developed chronic fatigue so we stalled. Then humoured them by agreeing to be classed as “vulnerable” claimants until we realised they meant it literally. In the end we dive bombed them with our high-end lawyer, got over cap, and within a year are close to sorted with our insurer. It’s been hardball at times but at least logical and commercial. As to EQC? Most of what we think is too litigious to go into. Would not use again. www.covernote.co.nz
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COVER STORY
LEVIES WEIGH HEAVILY ON INSURANCE
THIS IS SIMPLY A MARKET REALITY. WE’RE SEEING SOME INDUSTRY PLAYERS HAVING TO EMPLOY TACTICS TO MITIGATE HIGH COSTS THROUGH PRODUCT RATIONALISATION, RESTRUCTURING, OFFSHORING, AND IMPROVING THEIR TECHNOLOGY
I
ncreasing levies on insurance policies look to have reduced the amount of cover that some policy-holders are taking out. Over the past year, the sector has been hit with two major levy increases. The fire service levy increased by 40% in July, followed by an EQC levy increase of 33% in November. Insurance Council chief executive Tim Grafton said those levies would be passed directly through to insurers’ customers. Anecdotal evidence suggested that less cover was being taken out at as a result, particularly in commercial property insurance. “There are instances where people are paying more in the fire service levy than they are in insurance premiums.” The levy on residential property increased from 7.6c per $100 of cover to 10.6c, capped at $100,000 of cover for homes. The levy on commercial and rural insurance increased by the same amount but is uncapped. Recent research showed that the cost of dwelling insurance increased 259% between 2007 and 2017, compared to 99% for health insurance and 28% for vehicle insurance. Contents insurance increased by 53%. Wages lifted over the same period by 31%.
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Grafton said other factors increasing the cost of insurance were the repricing of risk after the Canterbury earthquakes and the regulatory requirement for insurers to hold more capital. The Reserve Bank increased the solvency margin for insurers after the failure of AMI in 2011, which was bought by IAG. Instead of having enough access to capital to cover a once-in-200-year event, they have to have enough to cover a once-in-1000-year event. Insurance Brokers Association chief executive Gary Young said increases in price were challenging for brokers. “At least a broker has the opportunity to explain why the price has increased and to point out that price is not everything, the extent of cover is crucial.” Paul Munton, executive general manager – broking branches, at Rothbury Insurance Brokers, said advice and service were more important than the lowest price. It was part of the adviser’s job to educate clients on why price increases were needed, he said. “While the rising cost of insurance does make conversations with clients more challenging, it is necessary.The New Zealand insurance industry is no longer making money due to a number of factors including bad weather
COVER STORY
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events and natural disasters, the number and frequency of claims being made, and material and repair costs amongst other things,” he said. “This is simply a market reality. We’re seeing some industry players having to employ tactics to mitigate high costs through product rationalisation, restructuring, offshoring, and improving their technology. However this alone will be insufficient for them to remain sustainable." Brokers needed to help their clients navigate the dynamics of a changing environment and find solutions within their budgets. “Rothbury expects its brokers to facilitate this through robust discussion with clients. We must take into account their appetite to retain or transfer their risk and balance that with managing their risk exposure. “The more we understand our clients’ needs the better we will be able to achieve their objectives. The best insurance solutions may not be the cheapest, but when it comes to claims time, the discussion is never focused around the premium – it’s all about the willingness and ability to pay out. At the end of the day, client education, guidance and advocacy is our raison d’etre.”
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35
FEATURE
EARTHQUAKE LOSS CONTROL TECHNOLOGIES FOR BUILDINGS By John Lucas,
Insurance Council of New Zealand
W
e may all be aware of smart buildings that can automatically control lighting, water, heating and ventilation to reduce operational costs and maintain a comfortable working environment. Increasingly, smart building technology is also used to safeguard building occupants and limit building damage from seismic events. EARLY WARNING The earthquake pre-alert sensor technology that has been available in a number of countries for a few years is now available in New Zealand, with the technology developed both in Japan and Taiwan. The technology works by sensing the higher frequency primary wave triggered by a seismic event that travels through the ground at around twice the speed of the potentially damaging secondary wave. This can provide up to 30 seconds' warning or more depending on variables such as the nature of the seismic event, the terrain geology and distance from the epicentre. The 14 November 2016 Kaikoura earthquake event had a primary wave detection of around 20 seconds before the shaking started in Wellington. With the right technology those vital seconds can be a game changer for automatically preparing a building and the people inside for what is coming. Building systems can be readied by shutting down gas and water supplies, lifts and machinery and warning people to take cover. This can reduce potential for injuries, building damage and business disruption. Fire spread following earthquake has been identified as a potential concern if Wellington suffered a significant earthquake because of the close proximity of buildings to each other and location of gas, so the shutdown of gas supplies triggered by a seismic prewarning system reduces that risk. BUILDING STRUCTURE ACTIVE DAMPERS Active dampers are another system to reduce losses from earthquakes. Active dampers can absorb the high shock loads imposed by a seismic event on the buildings structure as well as allowing the building to move in a controlled manner to reduce damage to structural connections. The Insurance Council is not aware if this technology has been used in New Zealand so far, however it is used extensively in Japan. Passive structural damper systems are more common in newer buildings in New Zealand. Passive structural dampers are used in a building's structure bracing to absorb movement shocks to a predetermined limit to protect structural connections. Passive structure dampers will need to be checked or replaced after a large seismic event. Often, they are sacrificial elements. Active structural dampers have the advantage of allowing variability of damping depending on the type of seismic event, its direction and the movement of the building, particularly the upper levels in relation to the lower levels and foundations. They are not designed to be sacrificial. The active structural dampers found in many new buildings in Japan use large hydraulic rams connected to links and cranks to inverted “K� frames connecting the floor above to the floor below to control movement or the drift between floors. These dampers can be located on each of the sides of the building and sometimes at every level. The hydraulic rams provide variable resistance to movement. This is controlled by valving connected to a central building computer that is
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programmed with seismic event logarithms tuned to the building's structural design. More recent systems use hydraulic rams that use electromagnetic fluid, much like the active shock absorber systems used in luxury motor vehicles. These can be less complex, more responsive and require much less power to operate, which can be important if the electricity supply is lost and the building is relying on backup power. Active structural dampers systems use many sensors located around the building measuring movement and accelerations, all feeding back information to the control computer. The active structural dampers systems, as used in Japan, require vast earthquake modelling knowledge to be able to programme the control computer to effectively react to all likely earthquake events parameters. Installation of this technology in New Zealand buildings would make them more attractive to insurers as well as making them safer and better able to function after a large earthquake.
FEATURE
ARE YOUR SMALL BUSINESS CUSTOMERS ACCESSING GOVERNMENT-FUNDED ROBBERY-PREVENTION? B
urglary, theft and aggravated robbery is becoming a big problem for small retail outlets, and the number of reported incidents of violence against dairy and liquor store owners, staff and customers during robberies is high. Now the Government is offering subsidises for businesses that are considered high-risk for aggravated robbery. Businesses that meet the criteria can apply for cofunding for items like panic alarms, fog-generating devices, time safes, and DNA spray. Vero’s manager of risk management services, Stephen Henkin, says fog-generating devices are an effective security measure, but the cost has been a barrier for many small businesses. “Our risk management team visits businesses where the risk of robbery, burglary and theft is ever present and where the threat of violence is real,” said Henkin. “We help customers evaluate their security and recommendation steps they can take to minimise the risk. This often includes the installation of fog-generating devices as part of an overall strategy to create layers of physical and electronic security, but the cost often prevents business owners from taking these steps.” The Government scheme involves assessing at-risk businesses and subsidising the installation of fog-generating devices and other security equipment. It was implemented in late 2017 in response to the security problem facing businesses like dairies and liquor stores. The subsidy amounted to a 50:50 cost split between the business owner and Government. Due to an initial low take-up of this offer the subsidy for this scheme has been increased so that it now only costs a business $250 for a fog-generating device, with the Government paying the rest. “The police will assess a business and determine whether it’s high risk and qualifies for the subsidy,” says Henkin. “Small retailers can contact their local police station and ask for an officer to evaluate their premises.” Police officers will review risk factors including location, previous targeting by thieves, graffiti and suspicious activity, to assess if a business qualifies for a subsidy. Henkin says information on how to access the subsidy has been hard to find. “These subsidies could keep customers safe and prevent loss, but it isn’t easy to get the information. Insurance brokers can play a role in ensuring small retailers are aware of the subsidy.” He says qualifying business owners should work closely with the device installers to determine if this solution is right for them. Those businesses that have foggenerating devices installed should also liaise with Fire Emergency New Zealand (NZ Fire Service) so that they are aware that this equipment is installed in a premises. “It’s a great opportunity for brokers talk to their customers and advise them that there might be government assistance available to reduce the risks to their family, staff, customers and livelihood.”
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FEATURE
EXTREME WEATHER – A THREAT TO BUSINESS F
rom record heat to vicious storms and flooding - it’s not a hoax, the climate’s changing, and insurers are urging businesses to future proof their companies, and quick. According to Niwa’s chief climate scientist Sam Dean, climate change will see the intensity of major weather events increase significantly. “All storms are happening in a warmer, more energetic environment and as a result will be carrying lots of moisture.This means they drop more rain, cause more flooding and have stronger, more damaging winds. This certainly leads to larger impacts on people and their assets.” NZI’s national business continuity and asset protection (BCAP) portfolio manager Bryan Tedford says they’re already seeing the evidence. “Last year insurers settled or partially settled 25,500 claims from extreme weather events around the country and 2018’s looking to be heading down the same path as well. “This year alone, we’ve seen significant damage from January’s vicious storm in Hauraki and the Coromandel and again in February when parts of the country were hit by ex-tropical cyclone Fehi.” While the costs of both weather events haven’t been finalised, in early February almost 2000 claims worth $12 million were lodged with NZI’s parent company IAG as a result of January’s storm, and more than 800 claims were lodged with IAG of a value of $6.7m following Cyclone Fehi. When Fehi took hold, parts of West Auckland experienced flash flooding. Hundreds of people were evacuated from their homes, cars were underwater and mud and debris coated the walls of properties up to waist height. Dean says flash flooding like this will continue to be a particular problem for businesses now and into the future. “Scientists around the world believe that the most significant increase in extremes will happen in convective downpour. “During these heavy downpours both natural and man-made drainage 38
March 2018
systems cannot process the water volume and flooding quickly occurs. Such flooding will be a particular challenge for urban areas.” Bryan Tedford, national property manager at IAG, believes long-term success is reliant on what companies do now to prepare for the future. He says a solid contingency plan is key. “Business owners need to protect their properties and other assets but also have back-up plans for computer systems and other necessary equipment and ensure they have good communication systems in place so they can get in touch with employees should they be restricted from coming into work.” He says different businesses will have to prepare for such events in different ways – but everyone should have some sort of plan in place. Despite these risks, underinsurance is still an issue with only one in four small to medium-sized enterprises having adequate insurance and 23% of business owners having no insurance at all. “Brokers need to have frank discussions with their customers about adequate cover,” Tedford says. “Business owners need to realise that they won’t just potentially be out of their premises in these sorts of events, but business could actually come to a complete halt which could cost them a lot in the long-run, or even put them completely out of business.” Tedford says a wider discussion around climate change should also be had. “Businesses need to think about their reputation, product relevance and how they’re doing their bit for the environment.” Tedford believes it’s important the insurance industry also adapts and evolves with these changing risks, and that includes pricing adequately. “It’s often under-reported how critical sustainability is within the insurance sector – but a robust insurance model is vital to New Zealand’s economy.”
OPINION
WHO COVERS THE EXCESS? LANDLORD FIGHTS FOR TENANTS TO HAVE TO PICK UP THE BILL By Crossley Gates BACKGROUND ection 269 of the Property Law Act 2007 has been in force now for approximately 10 years. That is the section that exonerates the lessee for accidental damage to the lessor's property if the lessor is insured for that damage or agreed to insure for that damage. This has the practical effect of making the lessor's insurance available for the benefit of the lessee as well, as though the lessee is named as an insured under the lessor's policy. There are only two exceptions to the exoneration provided by section 269: where the lessee deliberately causes the damage, or where the lessee causes the damage while committing an imprisonable offence. Recently, the Court of Appeal in Holler v Osaki [2016] 2 NZLR 811 decided that Section 269 also applies to residential tenancies governed by the Residential Tenancies Act 1986. One issue that has remained unclear up until now is whether a lessor can still recover the lessor's insurance excess from the lessee even when section 269 applies. The issue came before the High Court in Linklater v Dickison and Others [2017] NZHC 2813. LINKLATER V DICKISON AND OTHERS Ms Linklater sued her former tenants in the Tenancy Tribunal for damage they had caused to her tenanted house. Her claim included $1100 for her insurance excess that she had had to pay towards her insurance claim for damage done to carpets in the house. She was unsuccessful. She appealed the tribunal's decision to the District Court. The District Court held the tribunal was correct to rule that Linklater was not entitled to recover the amount of the insurance excess because of section 269 (1) (a) of the Property Law Act 2007. A ruling to the contrary would have required the tenants “... to make good ...” the damage to the carpet that was the subject of the insurance claim. Section 269 (1) (a) prevented this. Not content, Linklater appealed again to the High Court. She argued that section 269 should be interpreted and applied so as to permit the lessor to recover the excess. She argued that the damage to the carpet was not insured to the extent of the excess. However, the High Court noted that section 268(1) says the exoneration provided by section 269 will apply where the tenanted premises are damaged by:
S
... AN OCCURRENCE OF ANY OTHER PERIL AGAINST THE RISK OF WHICH THE LESSOR IS INSURED ... Linklater was insured against damage done to the carpets. The High Court said this meant the protection for the tenant is not limited to the extent of the indemnity which the lessor is entitled to under the policy. It is the fact that there is insurance, not the extent of it, which protects the tenant. The excess payable goes to the extent of the indemnity, not whether the property is insured for the damage that occurred.
OUTCOME This decision finally lays to rest one of the remaining areas of dispute surrounding the application of section 269. Where the lessor is insured for the damage that has occurred, the lessor cannot recover the insurance excess from the lessee. WHAT THIS MEANS IN THE REAL WORLD Lessors/landlords must now accept that where the lessee/tenant is exonerated under section 269, the exoneration extends to the uninsured excess under the lessor's/landlord's insurance policy. It is not possible to contract out of section 269. Liability insurers of lessees/tenants can now finally point to legal authority when resisting lessors/landlords who try to recover their insurance excess from lessees/tenants.
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ASK AN EXPERT
What's average? QUESTION… We have a client who has had criminals break in through a locked gate on their yard, and steal a trailer. The trailer was worth $2000 and covered as part of their stock under an MD policy. The excess is $1000 for burglary and $2500 for theft. The insurers are classifying the claim as a theft claim and declining as it is under the theft excess. We have argued it is burglary as there was a break-in. Insurer's burglary wording and building/site improvement definitions as follows:BURGLARY COVER You are insured for sudden and accidental loss to insured property: 1. at the situation, or ... Unspecified Locations, caused by theft or attempted theft (ii) involving physical evidence of violent and forcible entry to, or exit from, an enclosed building (or part of an enclosed building), or (iv) of a permanently attached part of the building by the forcible removal of it. Definitions: BUILDING Any of the following: (a) any building, (b) underground and above ground services directly associated with the building, (c) permanent fixtures and fittings at the building(s), including but not limited to signs, sprinkler systems, wired alarm systems, and wired security cameras, (d) SITE IMPROVEMENTS, (e) landscaping, provided that the property is: (a) owned by you (including joint ownership with others), and (b) located at the situation at the start of the period of insurance. SITE IMPROVEMENTS Site improvements are: (a) footpaths, driveways, car parks, site roads, and yards, of permanent construction, ... (d) gates, fences. Building is defined as including yards, gates and fences. But the policy wording states that any word in bold is defined in the definitions section. In the burglary wording the word "building" is not in bold. Insurer's argument is, it isn't in bold so it isn't defined and the building definition in the definitions section of the policy wording is not the building definition used in the burglary wording of the same policy. They advise it is instead the common law definition of building, which does not include fences, gates and fenced in yards, and has been tested time and again in NZ Law, therefore this is theft. We think the ambiguity in the policy wording/definitions is enough that the claim should be considered burglary and would appreciate your feedback regarding this.
REPLY… CROSSLEY GATES The law says a contract is only ambiguous if it “speaks with two voices” after all the primary rules of contract interpretation have been exhausted first, with no success. Here the contract is clear that the special definitions in the contract only apply if the word appears in bold font. That is not the case for the word “building” in the burglary cover section. Therefore, the special definition 40
March 2018
doesn't apply. This is clear and not ambiguous. The word “building” will have its ordinary dictionary meaning. That meaning doesn't include yards. Therefore, although there was violent and forcible entry, it was not violent and forcible entry to an enclosed building. The words of the insuring clause for burglary cover don't apply. While I agree that this decision is something of a hard call (because there was violence and force), the technical rules of interpretation must apply in order to create certainty and consistency. If the intention all along was to include this claim scenario, then the drafting of the burglary cover would need to change.
Who owns the concrete? QUESTION… My client is a hard and soft landscape gardener. He completed a concreting job on a clear day. No rain forecast. Downpour of rain two hours later meant the newly laid concrete is pitted. I don't believe that he can be held responsible for the rain however it has raised questions as to who owns the poured concrete. No money has changed hands at this point. My client’s "insurance lawyer" advises that despite no payment having been made, ownership has definitely passed on to the homeowner. The insurer advises that this is not the case, and my client still owns the concrete that he has poured so this cannot be a PL claim. Any thoughts, opinions would be appreciated.
REPLY… CROSSLEY GATES Your client's insurance adviser is probably correct. In the absence of any express agreement between your client and the owner of the land, the concrete became sufficiently affixed to the land for it to form part of the land and to be owned by the land owner. There is a distinction in law between chattels (personal property) and land (real property). A chattel placed on land does not automatically become part of the land, but something affixed to the land (a structure) does. I wonder if this point is academic anyway. If we are talking about a PL claim, won’t the concrete be your client's “product” under the policy and any damage to it be excluded (as only liability for resultant damage is covered)?
Do you have a question for our experts? If so, visit iNavigator, www.inavigator.co.nz, or the IBANZ website, www.ibanz.co.nz - and let us know.
ASK AN EXPERT
Damaged panels QUESTION… Prior to pouring eight tilt panels, three coats of release agent were applied to existing slab on a Friday prior to scheduled pour first thing Monday morning of the tilt panels. During the weekend it rained and washed off a certain amount of release agent and the result was that the water diluted the release agent. When the tilt panels were subsequently lifted four of the tilt panels were contaminated. They were unable to be repaired or reused. The contract works insurer has declined claim as it believes it was faulty workmanship. The public liability insurer has declined the claim under defective workmanship, reasoning: whilst the defective workmanship extension provides cover for insured's products, it does not provide cover for products damaged whilst still in the insured's possession. The material damage and stock insurer is looking to decline on this basis: “That tilt panels would not be considered stock under the policy - for them to constitute stock they would need to have, at some point, been held by the insured and available for distribution. Had they been precast by the insured before being transported to the site, their view may have been altered in terms of whether they would constitute as stock. “For manufacturing to take place, it would be generally accepted that this would be undertaken at a manufacturing facility. There would normally be a dedicated premises with provisions made to ensure that the associated risks with the manufacturing process were adequately covered off from a risk perspective. Underwriters would be able to assess and understand those risks. “If they were to fall under stock then exclusion 4g “property in the course of installation, construction, demolition, erection or testing following any of them” has application. The panels are created on site and form part of the construction of the building and on that bases they would fit within the above exclusion - including any lifting.” Do you agree with the above as we believe that this should be picked up under stock?
Getting out QUESTION… A client who owns a unit within a body corporate wishes to opt out and arrange his own insurance. His unit is stand-alone albeit he has shared driveway access which remains insured by the body corporate. Is this possible and are there any legal or insurance implications that we should consider when arranging the insurance for this client's property?
REPLY… CROSSLEY GATES Yes it is possible but there is no legal way he can opt out of the Unit Titles Act (Body Corporate).This means he will probably pay a premium twice once through his body corporate levy to the extent it includes a share of the body corporate's policy and twice when he arranges his separate insurance. He may wish to do this anyway though if he has concerns about the adequacy of the body corporate's cover (or lack of it).
REPLY… CROSSLEY GATES, I don't fully understand the terminology around the panels but, in essence, it appears your client made an error in not allowing for the consequences of the rain over the weekend on the release agent. It does sound like faulty workmanship and it appears there is no resultant damage. Therefore, the exclusion of the claim under the contract works policy sounds correct. In relation to whether the panels are stock, that word is not usually defined in the policy. Therefore, it will be given its ordinary dictionary meaning. The meanings appropriate for this scenario are: 1. a supply of goods kept on hand for sale to customers by a merchant, distributor, manufacturer, etc.; inventory. 2. a quantity of something accumulated, as for future use: a stock of provisions. These paint a picture of goods currently not required but on hand for the future. Therefore, I suggest the MD underwriter is correct to suggest the active manufacture of the panels on a customer's site (I assume) is outside these definitions. I am afraid I don't like your chances. 41 www.covernote.co.nz
41
IFSO CASE STUDY
DUTY TO INFORM T
he insured held a house insurance policy with P. In August 2009, they arranged for the insurance to be changed into the name of a family trust they had formed. In February 2011, a significant earthquake struck Christchurch, resulting in extensive damage to the house.The insured made a claim to the insurance company for the damage, as trustees of their trust. Subsequently, they discovered the trust was only covered for the market value of the house and not for its full replacement value. They believed the insurer had a duty to inform the trust that the level of cover under the policy was not sufficient for its needs. ASSESSMENT It is accepted law in New Zealand that the duty is on an insured person to read and understand the terms and conditions of the policy.Therefore, while it is good business practice for an insurer to explain the coverage provided by the policy to the insured, it is under no legal obligation to do so. It is the responsibility of the insured to make sure the level of cover provided by the policy meets his/her needs. Ignorance of the law does not affect this duty. This is one of the reasons that insurance is often obtained through insurance brokers, rather than directly from an insurance company. A key role of an insurance broker is to seek and obtain insurance cover that best meets
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the needs of a customer. The insured also believed they had notified the insurer that there had been extensions added to the house, however, the insurer did not have any record of them having done so and the insurer did not increase the floor area listed on the policy, or update the sum insured to reflect this. In situations such as this where there is contradictory evidence, the ISO Scheme’s ability to investigate is limited. Unlike a court of law, the ISO Scheme is unable to resolve conflicts of oral evidence. The ISO Scheme is an informal scheme and, therefore, unable to assess credibility. Because of this limitation, the case manager had to rely on the documentation provided and there was no available documentation which would help to resolve this matter. Unfortunately, on that basis, the case manager could not resolve this issue. While the case manager did have some concerns that there may have been some failings in the insurer’s customer service, the IFSO has no power to require it to make any payments outside the terms of the policy, on a goodwill basis. The case manager discussed the circumstances of the complaint with the insurer and whether it would be willing to offer some sort of goodwill gesture. In this instance, it declined to do so. RESULT: COMPLAINT NOT HELD
IFSO CASE STUDY
GRADUAL DAMAGE I
n 2002, the insured insured his house with an insurance company. In November 2009, he discovered that a water supply pipe in the wall cavity behind the shower had burst. He turned off the mains water valve and contacted the insurer, which advised him to call a plumber.The plumber made a hole in the wall lining and replaced the piece of the pipe which had burst. The piece of damaged wall lining had to be replaced and, because the lining was no longer available, it was also necessary to replace undamaged wall linings around three sides of the bath. The insurance company’s assessor inspected the damage and advised him that the cost of locating and repairing the pipe might not be covered by the policy. However, the insured made a claim to the insurer for the cost of replacing all of the wall linings. The insurer indicated the cost of repairing the pipe was not covered by
internal water pipe. However, in this case there was no resulting water damage. The benefit also provided that, in the event of there being water damage from a source identified in the benefit, cover was available “up to $500 for the reasonable costs of locating the cause of the damage”. However, given that the damage was caused by the plumber gaining access to the pipe, as opposed to water damage, the benefit did not apply. The insured had concerns that the policy did not cover the reinstatement of the wall linings nor the repair of the pipe by the plumber.The part which failed (the pipe) was not covered and the cost of locating the problem only applied if the leaking pipe caused resultant water damage. If the wall linings had been damaged by the leaking water, cover would have applied in terms of the benefit. The insured commented that his insurance broker had advised him that
the policy and, because there was no resultant water damage to the house, it declined the claim. ASSESSMENT The policy provided cover for “Sudden and unforeseen accidental physical loss or damage, unless excluded by [the] policy”. The cover provided by the policy also included a special benefit (“the benefit”) for “loss or damage through gradual deterioration ... caused by water which accidentally leaks or overflows or is discharged from any … internal water supply pipe … ”. While it was not clear why the pipe burst, the case manager believed that, in the absence of a specific sudden event, it was likely that the pipe failed through normal wear and tear. The benefit provided cover up to $6000 for damage resulting from a leaking
“this sort of damage would normally be covered under a house insurance policy”. The case manager believed an insurer would only pay for damage covered by the terms of the policy.While the extent of the cover might differ from insurer to insurer, each insurer will apply the terms of its policy to a claim situation. The case manager believed the insurer had correctly applied the terms of the policy to the claim.Therefore, he could not uphold the insured’s complaint that the insurer should pay to have all the wall linings replaced. However, the insurer agreed to meet the cost of replacing the wall lining damaged by the plumber on an ex-gratia basis and the case manager recommended to the insured that he accept this offer. RESULT: COMPLAINT NOT UPHELD
www.covernote.co.nz
43
FSCL CASE STUDY
AGREED VALUE I
n December 2015, the insured approached an insurance broking firm to arrange a number of insurance policies. She already had car insurance for a car purchased in November 2015 with a different insurer. Her insurance was for an agreed pay out value of $12,000. While she was arranging other insurance through an insurance broker at the insurer, she also decided to move her car insurance to another provider with an agreed pay out value of $9999. This was arranged by the same broker. She was happy with the reduced sum insured because it meant she paid less in premiums. Following a crash in October 2017, she claimed insurance for her car which was written off in the accident.When she did so, she discovered that she did not have agreed value insurance in place, but market value. This meant that she would only receive $7700 after paying $300 excess, rather than the $9999 she thought she was entitled to. Based on the communications she had with the broker in December 2015, she was under the impression she had agreed value in place. She believed the broker had misrepresented that he would place agreed value insurance. She said that she wouldn’t have made the change to a new insurer if she knew she would only have market value. When the broker would not pay her the difference between the market value and the agreed value that she thought she had, she complained to FSCL.
44
March 2018
The broker was working as a contractor to the insurance company. At first, the broker and the insurance company disagreed about who was responsible for addressing the complaint. The insurer reasoned that, because the broker was registered in his own capacity as a financial service provider, it was his responsibility to respond. However, we reasoned that the complaint was the insurer’s responsibility because the customer did not deal exclusively with the broker. All of the emails which she received were signed off by the insurance company as well as the individual broker and the initial introductory email welcomed her to the company. Moreover, the insured had other insurance policies with the insurer and believed, at the time of signing, that she was contracting with the insurer. REVIEW After notifying the insurer that we believed it was responsible for the complaint, it said that it was willing to pay the difference between the $9999 agreed value insurance that the insured thought had been put in place, and the $7700 market value insurance that was in place. It offered to pay the difference in full and final settlement of the complaint and to recognise the longstanding relationship which she had with the insurer. The customer agreed to this payment and withdrew her complaint.
FSCL CASE STUDY
LACK OF SERVICING T
he insured owned a fish and chip shop and arranged insurance cover for material damage through her broker. The fat in the shop’s deep fat fryer overheated and caught fire, destroying the shop. The insured made an insurance claim. The insurance assessor determined the fire was caused because an integral part of the deep fat fryer cut-out switch had been removed, meaning that the heating element in the deep fat fryer overheated the fat to the point where it ignited. The insurer declined her claim because she was unable to show that she had complied with her obligations under the commercial cooking warranty in the policy to have the deep fat fryer serviced annually. If the deep fat fryer had been properly maintained the cut-out switch would have stopped the fat from overheating, avoiding the fire. The insured said she was unaware the policy contained a commercial cooking warranty, which was her undertaking to the insurer that she will maintain and service the deep fat fryer annually, to minimise the fire risk posed by deep fat frying. She complained that the broker did not tell her she needed to have the deep fat fryer serviced annually to maintain insurance cover. After the fire, she read the annual renewal letter, the policy schedule, and the policy document. Although the annual renewal letter advised her warranties applied, and that she should read the policy as the warranties would affect her cover, the policy schedule stated that no warranties applied. The policy itself stated that warranties only become part of the policy if they were listed on the policy schedule. In the insured’s view, the commercial cooking warranty was not listed in the schedule, therefore it was not part of the policy, she was not obliged to have the deep fat fryer serviced annually and the insurer should not have declined her claim. She wanted the insurance broker to cover her loss. The insurance broker agreed it had made a mistake by not listing the commercial cooking warranty on the policy schedule. The commercial cooking warranty had been listed on the schedule when the policy was first placed a few years earlier, and at every annual renewal except the most recent one. The insurance broker also said it would have told the client about the commercial cooking warranty when the policy was placed four years earlier. The broker advised, and the insurer confirmed, that the insurer would have been highly unlikely to insure a fish and chip shop without a commercial cooking warranty. Because deep fat fryers pose a high fire risk if they are not properly cleaned and maintained, it is standard practice to include commercial cooking warranties when insuring fish and chip shops. In the broker’s view, even if it had included the commercial cooking warranty on the schedule, the insured would not have acted any differently. She would not have had the deep fat fryer serviced, the deep fat fryer would have caught fire and the insurer declined the claim. The broker declined to pay compensation and the client complained to FSCL. We considered her submission that the commercial cooking warranty did not form part of the policy and therefore she did not have to comply with the warranty’s terms. However, this approach seemed inherently unfair. In our view, the broker’s error did not cause the insured’s loss. By her own admission she said that she had not read the policy schedule or the policy itself. The loss was not caused by the broker’s error, but by her failure to: • read the policy as directed by the broker every year at renewal time
• service the deep fat fryer at least once a year • notice the safety mechanism had been tampered with. We also considered her submission that the broker had failed to tell her to have the deep fat fryer serviced every year to comply with the policy warranty. We checked with another broker and were advised that this level of advice is unwise. The independent broker advised that best practice would be to: • alert the client to the warranty • direct the client to the policy wording and • leave it to the client to decide what steps to take to satisfy their obligations under the policy. OUTCOME We recommended the complaint should not be upheld. We considered the client knew, or should have known, that the warranty was intended to apply.The loss was not caused by the broker’s error, but by her failure to read the policy to understand her warranty obligations and take steps to satisfy those obligations. 45 www.covernote.co.nz
45
Professional
Professional Development: Professional IQ College
College
Next best thing to fees-free studies
Y
ou may have heard that the Government announced fees-free tertiary education and training for all New Zealand students who finish school in 2017, or will finish school during 2018. They qualify for a year of free provider-based tertiary education or industry training to encourage school-leavers into adult education. If you don’t meet the eligibility criteria for fees-free but are working in the financial services sector, you might be aware of the new financial advice reforms coming later this year. Professional IQ College wants to help.We have reviewed our contracting price for NZQA accredited qualifications. Employers can get started with the New Zealand Certificate in Financial Services Level 5, from as little as $615 plus GST for staff on specialist modules including General Insurance, Residential Property Lending and Life and Health Insurance. Enrolment is also possible on a package basis for the full Level 5 qualification that includes the Core Module plus specialist module; discounted pricing now starts at $1,395 plus GST.
This formal, NZQA qualification, allows professionals from all parts of the financial services sector to gain skills and knowledge relevant to them. Content, learning material, study options and assessment are aligned with local regulatory requirements. Please visit our website www.professionaliq.co.nz to check our revised pricing.
Annual survey of student satisfaction Measuring student satisfaction is very important to staff at the Professional IQ College.This is one way that we know we are meeting student expectations. During 2017 we asked graduates of the NZQA programmes to give us feedback on their experiences. Below are the graduates’ responses:
Were the learning outcomes achieved? Yes
99%
Did you find the college study guides useful? No
Additional responses: • Over and above
• Very good course, thank you
Do you think the assessment instructions were clear? Yes
Yes
97%
Additional responses:
• This was an important tool for me • Extremely helpful
Did you receive adequate support from college staff?
No
Yes
Whilst the majority of students were happy with the assessment tasks, the college decided to undertake a review of the material and some minor amendments have been made to make sure questions are not ambiguous.
81%
Additional responses:
• Questions were clear
• Helped my understanding
• Some tasks needed more clarity 46
March 2018
No
Additional responses:
97%
No
• Had a wonderful experience with all staff • Help was excellent and responsive
DATE
TITLE
PRESENTER
WHERE
TIME
COURSE DESCRIPTION
12
Recent Travel Insurance cases
Susan Taylor
Auckland & webinar
11.3012.30
Complaints to FSCL about declined travel insurance claims are on the rise. In this webinar, using recent case studies, you will learn about issues raised, common reasons insurers decline travel claims & common consumer misconceptions.
16
Smarter. Faster. Cheaper. Better. How to Use Today's Technology Better
Debbie Mayo-Smith
Auckland & webinar
10.3011.30
Learn how to use the free and easy (freasy) secret diamonds available on the Internet today to improve every aspect of business performance. Lower costs; remove lags and delays. Significantly free up time, improve income and communication. This presentation is customised to your industry and business. It covers the clever use of little known features in your software, cloud, Google, smartphones, apps. Social media.
17
Business Interruption – Importance of cover for Additional Increase in Cost of Working
Mark Anderson
Auckland & webinar
10.3011.30
BI is more than just the insurance of Gross Profit. Cover is automatically provided for Increased Costs as part of the Gross Profit item. But there are limitations to what can be claimed under this item – often referred to as Item 1(b).
19
Detecting Deception
Trevor Slater
Auckland & webinar
10.3011.30
Have you ever felt that during a conversation or interview the person speaking to you is not telling you everything but you can’t pinpoint the problem? In this fascinating session participants will be introduced to the practice of Scientific Content Analyses (SCAN).
24
Findings of Delta's new cyber white-paper
John Moore
Auckland & webinar
10.3011.30
More details to come.
30
When the insurer suspects fraud
Karen Stevens
Auckland & webinar
10.3011.30
Most insurance policies allow the insurer to decline a fraudulent claim. This webinar will look at when insurers decline claims for fraud and other ways insurers may decline questionable claims
7
How to get a top search engine ranking and advertise for free on Google
Debbie Mayo-Smith
Auckland & webinar
10.3011.30
More details to come.
8
PL Manufacturing Product
Dinesh Murali
Auckland & webinar
10.3011.30
More details to come.
9
Depreciation at claim time – help clients avoid surprises
Virginia Douglas
Auckland & webinar
10.3011.30
Clients can often get a nasty surprise when depreciation is applied to their claim
15
What Pushes Your Buttons?
Trevor Slater
Auckland & webinar
10.3011.30
More details to come.
6
Declined motor vehicle claims - breach of drivers licence and alcohol and drugs
Virginia Douglas
Auckland & webinar
10.3011.30
Exclusions for breach of driver's licence and/or being under the influence of (or excess) blood alcohol or drugs are standard provisions in motor vehicle policies. Clients can be confused how these might apply to their claim.
11
Profits. Promotion. Productivity
Debbie Mayo-Smith
Auckland & webinar
10.3011.30
An entertaining, motivating yet practical set of 10-15 quick ideas and tweaks to create significant improvement: Money Income. More Free Time. Better Online Presence - from minimal effort
21
Another exciting session with Trevor.
Trevor Slater
Auckland & webinar
10.3011.30
More details to come.
April
May
June
www.covernote.co.nz
47
CONTACTS: IBANZ CORPORATE COMPANY LIST IBANZ BOARD Roger Abel Rothbury Group Limited PO Box 1596 Shortland St, Auckland 1140 Mob: 021 952 230 roger.abel@rothbury.co.nz Tony Bridgman (Vice President) Executive Director Marsh Ltd PO Box 2221 Auckland 1140 Tel: 09 928 3015 Mob: 021 873 399 tony.j.bridgman@marsh.com Craig Buckle National Manager, Corporate Risk Solutions Willis New Zealand Ltd PO Box 369 Auckland 1140 Tel: 09 356 9347 Fax: 03 358 3343 craig.buckle@ willistowerswatson.com David Crawford Director, New Zealand PO Box is 37670, Parnell, Auckland 1151 Tel: 09 926 2062 Mob: 021 905 537 dcrawford@ianz.co.nz
PIQ BOARD Allan Daly Managing Director Avon Insurance Brokers PO Box 3923 Christchurch Mail Centre Christchurch 8140 Tel: 03 3710301 Mob: 0275 358128 allan@avoninsurance.co.nz
Jason Smith Managing Director Property & Commercial Insurance Brokers PO Box 4 Feilding 4740 Tel: 06 323 8820 Mob: 027 293 8724 jase@pcinsurance.co.nz
Duane Duggan (President) Head of Insurance Legal Crombie Lockwood (NZ) Ltd PO Box 91747 Victoria Street West Auckland Tel: 09 3574805 Mob: 021 833 286 duane.duggan@crombielock wood.co.nz
Ruth Steele (Vice President) Trevor Strong Ins (2013) Ltd PO Box 302635 North Harbour Auckland 0751 Tel: 09 4142563 Mob: ruth@tsibrokers.co.nz
Stuart Speirs Director Abbott Group PO Box 3086 Christchurch 8011 Tel: 03 366 7536 Mob: 021 358341 stuart@abbott.co.nz
Jo Mason Chief Executive Officer NZ Brokers Management Ltd PO Box 334 012 Sunnynook North Shore City Auckland 0743 Tel: 09 869 2785 Mob: 021 893 668 jom@nzbrokers.co.nz
Gary Young Chief Executive, IBANZ
Auckland DDI: 09 306 1734 gary@ibanz.co.nz
Andrew Gunn Consultant, CIFA Training Manager
Wellington Ph: 04 815 8007 andrew@ifa.org.nz
Rod Severn
STAFF
CEO, PAA
Auckland Ph: 09 600 5171 rod.severn@paa.co.nz
Jason Smith Managing Director, Property & Commercial Insurance Brokers
PO Box 4, Feilding 4740 Tel: 06 323 8820 Mob: 027 293 8724 jase@pcinsurance.co.nz
WANT YOUR VERY OWN COPY OF
Gary Young Chief Executive DDI: 09 306 1734 Mob: 027 543 0650 gary@ibanz.co.nz Robyn Gosden Finance & Office Manager DDI: 09 306 1733 Mob: 027 275 2477 robyn@ibanz.co.nz Karen Scard Administration Manager DDI: 09 306 1738 karen@ibanz.co.nz Sylvia Heywood Academic Manager Professional IQ College DDI: 09 306 1737 sylvia@professionaliq.co.nz 48
David Crawford Director, New Zealand PO Box is 37670, Parnell, Auckland 1151 Tel: 09 926 2062 Mob: 021 905 537 dcrawford@ianz.co.nz
March 2018
Zeeshan Ahmad Student Support Professional IQ College DDI: 09 306 1739 zeeshan@professionaliq.co.nz
IBANZ Physical address: Level Five, 280 Queen Street, Auckland 1010 Mailing address: PO Box 7053, Wellesley Street, Auckland 1141 Toll free: 0800 306 173 Website: www.ibanz.co.nz
COVERNOTE? Each issue of CoverNote is packed with vital information, news, commentry and advise for the insurance industry from experts within the industry. To keep abreast with all the issues affecting New Zealand’s insurance broking industry just email robyn@ibanz.co.nz CLASS ACTION
S MAY MAKE
TO ADVERTISE... Contact Robert Johnson on: e-Mail: robert@benefitz.co.nz Phone: 09-477 4702 Mobile: 0274-970-712 CoverNote is published quarterly by IBANZ, the Insurance Brokers Association of New Zealand. All correspondence should be addressed to: CoverNote, PO Box 33-1630 Takapuna, North Shore City, Auckland.
Next issue is due out: JUNE 2018
HEADLINES IN
2018
March 2018
INSURERS, BR TOLD: LITTLE OKERS WON’T CUT IT CHANGES
Levies weigh hea vily on insuran ce Lessons from Chr istchurch Risks ahead
www.ibanz.co.nz
CONTACTS: IBANZ CORPORATE COMPANY LIST IBANZ CORPORATE COMPANY LIST Abbott Group
Christchurch
Insurance Brokers Alliance Ltd
Invercargill
Adams Trimmer Insurance 1992 Ltd
Whangarei
Insurance People (Fire & General) Limited
Auckland
Addex Ltd
North Shore City
JLT Holdings (NZ) Limited
Auckland
Advice First Limited
Wellington
JRI Limited
New Plymouth
Affiliated Insurance Brokers Ltd
Wellington
Luxor Insurance Brokers Ltd
Auckland
AIB Group Insurance Ltd
Lower Hutt
MA Risk Solutions NZ Limited
Auckland
AIM Associates Ltd
Auckland
Malcolm Flowers Insurances Ltd
Taupo
Albany Insurance Services Ltd
Albany Village
Marsh Ltd
Auckland
Andrew Scragg & Associates
Manukau
Matt Jensen Insurance Brokers Ltd
Taupo
AMP Services (NZ) Ltd
Auckland
McDonald Everest Insurance Brokers Ltd
New Plymouth
Apex General Ltd
Auckland
MIG Fire and General Ltd
Hamilton
API Insurance
Manukau
Mike Henry Insurance Brokers
Auckland
Ascot Insurance Brokers Ltd
Whangarei
Montage General Insurance Ltd
Auckland
Atlas Insurance Brokers Ltd
Christchurch
Multisure Ltd
Auckland
Austinsure Ltd
North Shore City
Nauman Insurance Brokers Ltd
Dargaville
Avon Insurance Brokers
Christchurch
Nelson Marlborough Insurance Brokers Ltd (NIB)
Nelson
Baileys Insurance Brokers Ltd
Auckland
Neville Newcomb Insurance Brokers Ltd
Auckland
Bay Insurance Brokers Ltd
Tauranga
Orewa
Benson Insurance Brokers Ltd
Christchurch
North Harbour Ins Services (1985) Ltd incl Northsure Group Limited
Boston Marks Group Ltd
Auckland
Northco Insurance Brokers Ltd
Masterton
Auckland
Northcrest Insurance Brokers Ltd
Auckland
Hamilton
O'Connor Warren Insurance Brokers
Tauranga
Christchurch
OFS Insurance Brokers Ltd
Dunedin
BrokerWeb Risk Services Limited
Auckland
Omni Fire & General Ltd
Auckland
Cambridge Insurance Brokers Ltd
Cambridge
Paramount Insurance Agencies Ltd
Auckland
Capital Risk Solutions Limited
Wellington
Paterson & Co NZ Ltd
Auckland
Card Marketing International Ltd
Wellington
Penberthy Insurance Ltd
Auckland
Cartwright General Insurance Limited
Ashburton
Peter C Cranshaw Insurance Broker Ltd
Levin
Tauranga
PIC Insurance Brokers Ltd
Manukau
Auckland
Primesure Brokers Ltd
Auckland
Whangaparaoa
Property and Commercial Insurance Brokers
Feilding
Papamoa
Protekt Insurance Brokers 2008 Ltd
Auckland
Commercial & Rural Insurance Brokers Ltd
Alexandra
Provincial Insurance Brokers Limited
Masterton
Crombie Lockwood (NZ) Ltd
Auckland
PSC Connect NZ Limited
Auckland
Dawson Ins. Brokers (Whakatane) Ltd
Whakatane
River City Insurance Brokers 2000 Ltd
Wanganui
Dawson Insurance Brokers (Rotorua) Ltd
Rotorua
RMA General Ltd
Warkworth
Hamilton
Rothbury Group Ltd
Auckland
Gisborne
Runacres & Asssociates Limited
Christchurch
Cambridge
Seneca Insurance Brokers Ltd
Auckland
Auckland
Sit & Blake Limited
Auckland
Future Insurance Mortgage
Auckland
South Pacific Insurance Brokers Ltd
Auckland
Glenn Stone Insurance Limited
Waitakere
Sweeney Townsend & Associates Ltd
Rotorua
Grayson & Associates Ltd
Auckland
Thames Valley Insurance Ltd
Thames
Gregan & Company Ltd
Papakura
The Advisers 1 Limited
New Plymouth
GYB Insurance Brokers Ltd
Lower Hutt
Thorner General Insurances Ltd
Upper Hutt
Auckland
Towes Insurance Brokers Ltd
Te Aroha
Christchurch
Trevor Strong Ins Ltd
Auckland
Auckland
Vercoe Insurance Brokers Ltd
Morrinsville
Hastings
Vision Insurance (S.I.) Ltd
Ashburton
Hutchison Rodway Ltd
Auckland
Waikato Insurance Brokers Limited
Hamilton
Ian K Everett Ltd
Auckland
Wallace McLean Ltd
Auckland
ICIB Limited
Auckland
Wanganui Insurance Brokers Ltd
Wanganui
ILG Insurance Brokers
North Shore City
Willis Towers Watson
Auckland
Inbroke Ltd
Auckland
Yesberg Insurance Services Ltd
Christchurch
Ingerson Insurances Ltd
Wellington
Insurance Advisernet NZ Ltd
Auckland
Brave Day General Ltd Bridges Insurance Services Limited Broker Direct Services Ltd
CBA Insurances Limited Certus Insurance Brokers NZ Ltd Coast Insurance Coastal Insurance Brokers Ltd
Edward Ruys & Co Ltd Emerre & Hathaway Insurances Limited Frank Risk Management FundAGroup Insurance Brokers Limited
Harden & Hart Insurances Ltd Hazlett Insurance Brokers Ltd Hood Insurance Brokers NZ Ltd Hurford Parker Insurance Brokers Ltd
www.covernote.co.nz
49
New Zealand’s leading liability insurer Level 32, ANZ Centre Albert Street, Auckland veroliability.co.nz