CoverNote June 2018 issue by Benefitz

STEVENS MARKS 20 YEARS AS OMBUDSMAN

June 2018

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ADAPTIVE LEADERSHIP NEEDED IN NEW TECH ENVIRONMENT

Blockchain could make insurance payments more efficient Degree rule would shake up industry, IBANZ warns Brokers should encourage businesses to do their bit to prevent fire damage

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Gary Young CEO, IBANZ

Welcome to

A code for professionals

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

hose who have made a career of advising consumers and business on insurance as a risk management solution see themselves as providing an essential service demanding a high level of knowledge and skill. Indeed a service worthy of a “professional”. This view is backed up by the latest government moves to have a Code of Professional Conduct developed for “financial advisers”; a designation which includes our members’ role in insurance broking and risk management. So what constitutes a “profession”? The word means different things to different people. But essentially it’s meant to be an indicator of trust and expertise. A common explanation is that “a profession is a disciplined group of individuals who adhere to ethical standards. This group positions itself as possessing special knowledge and skills in a widely recognised body of learning derived from research, education and training at a high level, and is recognised by the public as such.” As a professional association IBANZ promotes this approach among its members. We have our own Code of Professional Conduct embracing ethical behaviour, client care and competence. This code has been adapted over time to reflect the changing environment in which we operate. Because change continues unabated we recognise that our standards must reflect the expectations of clients and regulators for the future. IBANZ is engaged in the government’s development of new standards for all financial services. As professionals we fully support the Code Working Group in creating a new code, but with the caveat that it has principle-based standards which reflect who we are and what we do. Therein lies the challenge for the Code Working Group. They must produce a code that is relevant and meaningful to those who aspire to achieve the standards it sets. A recent consultation paper contained the group’s initial thoughts. IBANZ responded following consultation with our members. We agree with many of the ideas being promoted, however there are real concerns with some key areas. If this code is to be successful for consumers and adviser,s there is still much work to be done. The overall aim of the new legislation is to ensure consumers have access to quality advice without undue compliance costs or complexity. We look forward to playing a positive role in achieving these aims.

Gary Young, CEO, IBANZ

Features 10. Insurers look at nitty gritty Move to granular pricing part of bigger shift

for industry.

14. SPOTLIGHT ON: Armstrong farewells IAG after five decades 16. Kiwi businesses don’t understand cyber-risk

22. COVER STORY: Capacity to thrive: Adaptive leadership needed in new tech environment 20. NZI launches new cyber-attack prevention tool for businesses 24. Latest news from Rothbury. 30. Star Insurance Specialists becomes the official partner of the Project Cars 2 NZ Championship

Regulars 1. Welcome to CoverNote 3. News 44. Ask an Expert

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Blockchain DERSHIP CHALL ENGES FOR could make Degree rul NZ’S TEC insuran e Brokers sho would shake up ind ce payments more effi H SECTOR ustry, IBA uld encour cient bit to pre NZ age vent fire damage businesses to do the warns ir www.iban z.co.nz

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Conduct in question Commerce Minister Kris Faafoi is asking whether there is a need for more regulation of insurer conduct, as part of the insurance contract law review. Public consultation has begun as part of the review process. “Insurance plays an important role in the lives of New Zealanders, helping us cope with unforeseen life events and providing businesses with greater certainty," Faafoi said. "A well-functioning insurance system, where all parties can transact fairly and with confidence, is vital to ensure insurance continues to serve all New Zealanders. “But there are significant problems with New Zealand’s insurance contract law which are undermining the effectiveness of our insurance markets and impacting those who do not receive the support they anticipated from their insurance policies. “I have heard, for example, that consumers are sometimes not covered for losses or unable to claim for important needs like health treatment because they innocently did not disclose seemingly unrelated matters to the insurer. “This is really tough for people who genuinely believe they have met their requirements and are later unable to rely on benefits of insurance. So onerous disclosure requirements are one of the issues we need to consider and, I hope, an issue that will be addressed in feedback from submitters.” New Zealand’s insurance law was outdated with legislation spanning six different Acts, some more than 100 years old, he said. “The world has moved on and some parts of the law – like the disclosure obligations consumers face – no longer strike the right balance.

“Experiences following the Christchurch earthquakes – and more recently issues highlighted by the Royal Commission over in Australia – have also highlighted the need to look at whether greater regulation of insurer conduct is required. I will be considering the regulation of insurer conduct as part of the review. “Insurance affects nearly everyone so I encourage everyone with an insurance story to let us have their views.” A discussion paper has been issued and submissions are sought. Submitters are asked whether sales incentives in all insurance sectors are causing poor outcomes for insurance clients - and whether clients are being sold unsuitable products.

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Insurers chip in more than $100m Insurers have provided $101m in support and assistance to communities so far this year. Three major storms struck New Zealand in the first quarter of 2018: the January storms, Cyclone Fehi and ex-Tropical Cyclone Gita. Together, they totalled $101m in insured losses – money insurers have injected back into those communities to help with repairs and resettlement. “Insurance is the support structure that helps people back on their feet after sudden and unexpected disasters like these storms,” said Insurance Council chief executive Tim Grafton. “After each of these severe storms, we’ve seen insurers getting out into communities, paying out on policies and giving people the assistance they need to repair and rebuild what they’ve lost. “The insurance returns insurers make to communities, and the support those returns provide, is invaluable. Without them, severe weather events and other natural disasters would cripple our communities,” Grafton said.

Provisional data shows ex-Tropical Cyclone Gita has cost insurers just over $28.3m, across almost 4000 claims. Two-thirds of those claims were for homes and contents. The January storms and Cyclone Fehi cost $34.2m and $38.5m respectively. “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,” Grafton said. “The cost of this storm demonstrates the importance of adapting to climate change and putting processes and infrastructure improvements 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.

AFAs deal in category two products Forty-one per cent of authorised financial advisers offer insurance advice, new Financial Markets Authority data shows. It has released its latest snapshot of the country’s AFAs, compiled from the annual returns that they submit each year. It shows that in the year to June 30, 2017, 110 AFAs left the industry and 80 joined.

Most AFAs dealt in category one products but a significant number also offered category two options. Just over 40% offered insurance advice and more than 60% said they advised on “other category two products”. More than three-quarters of advisers were male and most were aged 36 to 55.

One in four Kiwi SMEs don’t have insurance Vero Insurance research shows one in four small to medium enterprise owners and decision-makers (SMEs) have no business insurance. It comes as part of the second edition of the Vero SME Insurance Index, which delves into the insurance market for New Zealand SMEs and identifies opportunities for insurance brokers to partner with businesses to add value. Those SMEs without business insurance said the cost of insurance (47%) and the perceived lack of benefits (33%) were the two main reasons for not having any cover. Campbell Mitchell, Suncorp New Zealand’s executive general manager of customer marketplace, which includes the Vero brand, said while insurance was commonly seen as a grudge purchase, the risks of not being insured could be crippling for a business. “A lot of SMEs might be missing out on the benefits of both insurance and the business partnership that having a good relationship with an insurance broker can offer. “And when you look at the main concerns of those SMEs that do have insurance, you can really start to see the value insurance provides.” The survey revealed that: • 38% of SMEs with insurance are concerned about being unable to trade for a long period of time • 26% are concerned about a business owner or key employee taking time off work • 24% are worried about cyber attacks • 23% are worried about natural disasters. “Those are all insurable risks, and if they are a concern, it’s a good idea to talk to a broker about how you can protect your business or your income if something goes wrong,” Mitchell said. 4

June 2018

“Developing a partnership with a broker means you have someone in your corner who knows your business inside and out, and can ensure that you’re making the best decisions to protect what you’ve built. “One of the concerning findings from this part of the research is that many SMEs with no insurance simply aren’t sure what they would do if something went wrong.” Some SMEs indicated they would self-insure (15%) or get a bank loan (3%) but 23% did not have a plan at all. “31% of the SMEs we spoke to thought their business might shut down if a major negative incident occurred,” Mitchell said. “Previous disasters have shown larger events can have a disproportionately severe impact on small businesses, which in turn can affect local economies.” Findings from a 2015 report by Deloitte Access Economics into the Canterbury Earthquakes showed that 75% of the money Vero paid out in the years following that disaster was to commercial clients, and that claims payments facilitated continued trade for many businesses that were forced to reduce capacity or shift premises. Another challenge facing the SMEs who had insurance was time pressure and isolation. • 35% stated they are trying to do everything on their own • 34% said they have no time for themselves or their family • 25% identified managing their time as a major challenge. “If business owners are facing time pressure, partnering with an insurance adviser or broker can really take a load off,” said Mitchell. “A good broker can do a lot of the legwork for you when it comes to insurance, from working with you to identify key risks, to researching or recommending products that might cover you, to actually putting your insurance arrangements in place or handling your claims.”

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Broker group grows NZbrokers has added four broker partners over the past year and is eyeing further growth. Chief executive Jo Mason said: “Our broker network now represents more than 164,000 clients in more than 85 locations across the country, which is a 35% increase on 12 months ago. “It’s fantastic that our network is growing across all metrics.We believe this reflects the value of the collective and our members seem to agree, having rated us a Net Promoter Score of 34+, which is phenomenal considering the industry average is four.” NZbrokers’ gross written premium (GWP) increased by 20% over the past 12 months, solidifying its position as the largest broking management group in New Zealand. NZbrokers is focused on driving benefits that add value and enhance its partner businesses. This includes significant investment and resource allocations in developing technology that supports the insurance broking needs for clients now and into the future. Mason said: “NZbrokers is also investing in, and implementing, education initiatives and philosophies that will appeal to and support insurance professionals as their needs change. When it comes to education, we believe that financial investment is not the only way.

Creating meaningful content that has cut-through and uses new methods and technologies, taking into account how time-poor we all are, are important considerations for the industry in better serving clients.”

Start-up manages broker payments A New Zealand start-up is promising to make it easier for insurers to reconcile broker premium payments. Grappler co-founder Colleen MacCarthy said many insurers were still working with manual systems but there was scope to automate the process. “It’s a problem for indirect insurers, all of those working with brokers on distributed systems send payment data in varying form and insurers have to reconcile each one against all the policies in their systems.” Artificial intelligence and machine learning had helped Grappler improve match rates significantly from the 50% that could be achieved with traditional rule-based matching. “That’s been fantastic for us,” MacCarthy said. “We now manage to use AI technology to get match rates up to 100%.” She said insurers had traditionally dealt with the problem by “throwing more and more people at it” but Grappler allowed them to bring back to New Zealand a process that had been outsourced to workers overseas. It had been promoted via word-of-mouth so far, she said. Grappler is hoping to pick up more insurer clients in the near future. Tapping

into the Australian market was a challenge, she said. It currently has three insurers on its books, two in New Zealand and one in Australia. MacCarthy said the only other innovation that had tried to tackle it was ANZ’s exploration of blockchain. But that would require all brokers to be operating on the same system. “It’s still an untouched niche.”

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London calling Lloyd’s Insurance broker Alan Rixon has been employed by Harman Kemp North America as head of its international department, to help develop its thrust into other territories outside of North America. Rixon had previously held roles, including managing director of the non-marine department, with another Lloyd’s broker for 22 years before deciding to seek new challenges. He is an associate of the Chartered Insurance Institute as well as a member of the Institute of Risk Management in London. He will be well known to many of the members of IBANZ, having first visited New Zealand in August 2012 as the result of local capacity issues following the two Christchurch earthquakes. At the outset he was eager to understand the issues facing brokers in New Zealand by visiting the offices of IBANZ in Auckland and he addressed groups of brokers in Auckland and Christchurch, explaining how the London markets worked. He is now recognised by many Lloyd’s underwriters as an entrepreneurial individual with an excellent knowledge of the territory and its problems and is considered a leading authority on both Facultative and Binding Authority placements, which emanate from New Zealand. Harman Kemp has put in place in-house facilities with Lloyd’s Underwriters for property risks where a substantial risk limit is required, so inquiries can normally be turned around in 24 hours. Under this facility, deductible buy-downs and “as is where is” damaged buildings including contract works/course of construction can also be facilitated. Even ingress/egress loss resulting from an insured peril insured under the policy can be added. Any IBANZ member interested in dealing with Harman Kemp should make contact with chief executive Peter Slade in the first instance.

Comparison site crunches insurance numbers Auckland residents are paying higher car insurance premiums than people in the rest of the country, research shows. Financial product comparison website Moneyhub released a report that found a wide range in prices for car insurance. It said Trade Me Insurance offered the best value for comprehensive

vehicle insurance on standard vehicles. AA charged 40% more, on average. “While most policies had the same $400 excess, the annual saving in the upfront policy could be significant by getting a few quotes,” said researcher Christopher Walsh. “Vehicle owners in the regions generally pay a lot less than those in cities, with Invercargill and New Plymouth being two examples of cities where car insurance can be 35% to 50% cheaper than what it would cost for an Auckland driver of the same age to insure the same vehicle. Insurers tended to penalise those living in areas with tricky and bendy roads such as Piha by charging more for a policy. “And within Auckland it also ranges – every insurer charged different amounts for the same vehicle when we compared Takapuna to South Auckland.”

Open claims found

Marshmallow victory

The Earthquake Commission (EQC) has found an extra 949 open insurance claims from the Christchurch earthquakes, bringing the total number up to 3617, it has been reported. Five of the claims have not been worked on, Stuff reported. The customers have been contacted. The discovery was made when the Government disaster agency upgraded its claims management system.

Fintech start-up Marshmallow has won a trademark battle with Marsh. Marsh had tried to block its use of the name. But the British Intellectual Property Office rules that the two words would be well-known to the average consumer and would convey different messages. Marshmallow said it had tried to settle with Marsh earlier but had not been able to reach an agreement.

June 2018

NEWS

Roboadvice begins New Zealandâ&#x20AC;&#x2122;s first roboadvice offering has been given the green light. The Financial Markets Authority began accepting applications at the end of February from providers who wanted to offer digital personalised financial advice. In mid-May, Kiwi Wealth was the first provider to receive approval. That will allow it to expand its Future You tool to offer personalised online advice. The Financial Services Legislation Amendment Bill is set to clear the way for personalised advice to be offered by an entity that is not a human person. But the FMA offered the exemption option to allow providers to get started offering roboadvice earlier than the law would otherwise allow.

When the law changes, the exemption will be revoked. A digital advice service may be fully automated, such as a websiteonly platform. Or it may be a hybrid model that has some human involvement in the advice process, for example, processes where clients interact with a human if they have questions or need assistance. The exemption does not cover situations where human advisers use digital tools to assist them to formulate their own financial advice. Human advisers are permitted to do this under the existing Financial Advisers Act. The provider must retain written records about the personalised digital advice services provided to each retail client for at least seven years, and make these available to clients and to the FMA on request.

Liquidation recommended for CBL Administrator KordaMentha has recommended CBL Corporation be put into liquidation. They stated in a creditor report that the company, parent of CBL Insurance Europe and CBL in New Zealand, had not put forward any restructuring proposals. But at a watershed meeting on May 18, it became clear that they faced a voting stalemate. The meeting was adjourned. In a statement to the NZX, they said while the required 75% of shareholders by value would have supported liquidation, a majority by number would not have been reached. That means the business will remain in voluntary administration. Another meeting will be held no later than July 2. CBL Insurance Europe and CBL Insurance NZ are both in administration separately.

The affair has prompted the Financial Markets Authority to seek help from the courts to help it understand how continuous disclosure rules apply to listed companies in voluntary administration. It will file a case stated procedure on the issue, which allows it to seek clarification without taking action. "The circumstances surrounding the voluntary administration of CBL Corporation Limited have illustrated the legal complexity of ensuring compliance by a listed issuer in voluntary administration," the regulator said. "The FMA acknowledges that the case stated procedure will not result in timely information being provided to shareholders of CBL in this instance, and the FMA will continue to consider other avenues for securing the release of some information for their benefit."

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March 2018

FEATURE

INSURERS LOOK AT NITTY GRITTY Move to granular pricing part of bigger shift for industry. By Angela Cuming

ower Insurance will soon start pricing premiums based on how at-risk residential properties are to all ''natural perils'' in a move experts predict will shake up the local insurance industry and encourage other companies to follow suit. Tower has already begun pricing premiums according to how at-risk each property is to earthquakes.That new pricing scheme came into effect on April 1. Many commercial policies already operate with granular pricing but this is the first move towards it for residential cover. And now the company, the country's thirdlargest insurer, has signalled that earthquake-risk is just the beginning of a broader shift. Tower chief executive Richard Harding

June 2018

said the recent change to granular-pricing for properties at risk from earthquakes was about challenging the ''traditional'' approach to insurance and the new pricing model would be a fairer and more equitable way of pricing risk. ''Previously, while regions at risk did pay for more house insurance, insurance premiums still did not reflect the full cost of providing cover for these properties and this meant other customers were paying too much,'' Harding said. ''Our new approach to pricing will see locations facing higher risk from natural disasters meeting the actual cost and paying more than locations where the risk is lower.'' The vast majority of Tower customers will

not see any significant change to their insurance premiums from the April 1 change. Less than 2.5% of customers will receive an increase of more than $250 and 1% of customers face an increase of more than $2000. Customers facing premium hikes will typically have high-spec homes in high-risk locations such as Wellington, Napier and Gisborne. The change to risk-based pricing was ''the right thing to do'' for the long-term benefit of New Zealand and ''fronting up publicly was the right thing to do for customers,â&#x20AC;? Harding said. ''This is because the New Zealand economy faces a range of climatic and geological risks, which in the long-term could see insurers charging more, or restricting cover in

FEATURE

certain areas. ''One of our roles as an insurer is to put risk signals in the market to help change and influence community and government behaviour. The pricing of insurance for risk is one of these signals. ''We believe risk-based pricing is the fairest way to distribute the costs we face as an insurer and is an important step in better educating the community about the risks facing New Zealand.'' Granular pricing is not unusual in high-risk locations around the world, including Australia and North America, but Tower says their new pricing approach was not about ''playing catchup'', but rather anticipating where demand would be in the years to come. ''The change we have made is about preparing for any future potential events and ensuring New Zealand can continue having a highquality insurance product well into the future,'' Harding said. Tower uses various sources of data to assess the level of risk each address faces, looking at factors such as soil type and how close it is to an earthquake fault. It combines this data with information about the building itself - such as its age, number of storeys and its construction material. Those data sets allow it to build a comprehensive profile of every individual property. Tower also uses RMS, a California-based global catastrophe modelling firm, to further

understand earthquake risk in New Zealand. RMS earthquake models are built using technologies, science and data that includes looking at historical events, geological data, ongoing global research and damage statistics. Will other insurers now follow Tower's lead and start implementing risk-based pricing? Insurance Council CEO Tim Grafton says it is too early to say. ''Insurance is a competitive market,'' he said. ''Some insurers may see this as an opportunity and others may see it as an indication of the right direction to head in. It's too soon yet to say how each insurer might respond.'' There were benefits to risk-based pricing, he said. ''Consumers with low-risk properties may benefit by paying less to subsidise those with high-risk properties, while those with higher-risk properties will pay more for their insurance. For businesses implementing this type of pricing model, it allows them to price risk more accurately.'' Risk-based pricing would have an effect on where future residential developments would be built, and that would be a good thing, Grafton said. ''Ideally, it would encourage people away from building in high-risk locations – such as those prone to storm damage, flood and liquefaction,'' he said. ''It’s too early to say, however, what impact this will have on the building and property markets in New Zealand.'' Grafton said there was also a bigger picture

to consider, with climate change looming as a potential threat to New Zealand communities. This was an issue for the country as a whole, and not just the insurance industry, he said. ''Climate change is a certainly a pernicious issue in New Zealand and the risks it poses to communities, particularly from flooding, need to be looked at more closely and better addressed,'' Harding said. ''We strongly advocate that action is taken to reduce the risk of flooding in areas that will be vulnerable to frequent flood events in the years to come. This is a responsibility for all communities in order to avoid social, economic and environmental disruption and not simply something that should be thought of as a response to how insurers might price risks in future.'' Jeremy Holmes, a principal of actuarial firm Melville Jessup Weaver, said most insurers at this stage were already considering their strategy in regard to risk-based pricing for natural disasters. ''I would expect that in a few years we will be looking at a market which is more risk-based than it is today,'' he said. ''All insurance companies use risk-based pricing to some extent. Tower has simply signalled a move towards stronger risk-based pricing in regard to natural disaster.” Holmes indicated that the market would be keeping a close eye on Tower's move, particularly if there was pushback from consumers. “Other insurers may well follow suit with stronger risk-based pricing than they already www.covernote.co.nz

FEATURE

do, to reduce the risk of adverse selection. But that will depend on how Tower's customer base responds to the changes and whether Tower continue with their proposed pricing changes should there be pressure from policyholders,'' he said. Tower's approach also raises another issue. If customers are being asked to pay extra to insure their property, can they be confident of the accuracy of the models companies use to assess risk? ''The data available varies but some of it is very granular, for example right down to the individual property level,'' Holmes said. ''There are numerous sources of available data so I can’t comment on the accuracy of all sources. ''However, I would expect that any insurer intending to use natural disaster data for pricing will undertake their own assessment as to the accuracy of the data before using it.'' Holmes also said flood risk would be next on the list of things insurers would start looking at more closely. ''Earthquake risk is generally the largest factor in estimating an insurer’s Probable Maximum Loss (PML) and is usually the largest component of an insurer’s reinsurance costs,'' he said. ''But I would expect that flood and other natural disaster risks will be treated in a similar manner.'' Holmes said some Tower policyholders would feel the benefits of the granular approach. ''Insurance companies have always taken risk into account when calculating pricing. The difference in this instance is that Tower has taken it to a granular level and decided not to crosssubsidise earthquake risks,'' he said. “They have said this will increase costs for some of their customers, but may decrease costs for others. ''Were other insurers to implement a similar pricing model, it is likely similar changes would be seen: increases for some consumers in high risk areas and decreases for some of the consumers who’ve been cross-subsidising those riskier policies.'' However, some insurers are sticking with their existing model, at least for now. AA Insurance does not plan to change its approach on the way it prices home insurance premiums, which means it will not price based on how at-risk an individual property is to natural hazards. ''Our premiums are based on the claims data we collect over a period of time, rather than the probability of events occuring,'' AA Insurance customer relations manager Amelia Macandrew said. ''All regions of New Zealand are prone to the effects of a range of natural hazards at one time or another, and are often unpredictable. ''We are confident that the way we calculate premiums offers a balanced way of assessing 12

June 2018

actual risk and not just potential or future risk. We have no intention of making a homeowner wear the full cost of a likelihood of a natural hazard.'' FMG Insurance has no plans to change its approach to pricing or underwriting. ''FMG currently prices for natural disaster risk at a regional level and underwrites for specific natural disaster (and other) hazards at a granular level,'' the company said in a statement to Covernote. ''As a mutual we are always seeking to balance clients paying appropriate premium for risk, while continuing to support all of rural New Zealand.'' For other insurers, the effects of climate change were already being felt and the industry was changing to reflect this new normal. Garry Taylor, IAG executive general manager-business (NZI), says insurers have faced ''unprecedented challenges'' in recent years with an increase in seismic activity and climate change-related events. ''Severe weather events are becoming more normal, and this year has already been the most expensive year on record for insurance claims related to storms that have caused devastation and floods,'' Taylor said. ''Some locations are more prone to these increased risks than others.'' Granular pricing is not new to NZ or NZI but as parts of the country become more prone to different types of risks, the price for insurance in those areas will reflect those risks. ''At NZI we have been doing this gradually, and will be increasingly putting in place pricing that aligns with risk, with a focus on educating brokers and their clients so they can be prepared for increases to their premiums. ''We encourage brokers to consider the future insurability of the communities where they operate – for example areas that are flood-prone, coastal and at risk of rising sea levels, or on a fault line – and talk to their clients about how they can prepare for the future and ensure they have adequate cover.'' NZI, as part of IAG, has the experience, expertise in risk and access to data to allow the company to price ''more accurately for risk into the future'', he said. ''We have developed sophisticated pricing technology to respond to changing risks, as we focus on ensuring we remain sustainable and here for our customers for the long-term. '' Massey University's Dr Michael Naylor says granular insurance is here to stay. He believes Tower's rivals will ultimately have ''no choice'' but to follow its lead and start pricing premiums on how at-risk a property is from earthquake and other natural disasters such as floods. ''Insurance companies have been fairly cautious,” Naylor said.

''What will happen is Tower will be getting all the lower-risk clients and the rest (of the insurance companies) will have to react to that.'' ''They are going to have to chase the lowerrisk customers too. ''But I don't think it will happen immediately. I think other insurers will sit back and see how it all plays out with Tower and watch what the reaction from Tower's customers will be and let the public react and then go from there. ''I think any change will be more gradual but it will definitely happen.'' Dr Naylor says this change will be so profound it may lead to future housing developments moving away from earthquake-prone areas. ''That's one of the hopeful developments,'' he said. ''For too long there's been houses built on poor land, for example in parts of Christchurch, places and areas that are not suitable for housing.'' Naylor said these changes were being driven by technology, and specifically by how data was collected and used. Advances in technology for insurance models were growing at a rapid pace, Naylor said, and would have far-reaching implications for both the building and insurance industries in New Zealand. “There is a company in the United Kingdom that looks at the underground soil of every single house on every single street as part of its modelling. ''I just can't see how insurers here won't eventually be doing premiums on a house-byhouse basis.'' The change to granular-pricing for premiums was ''absolutely'' about playing catch-up to the rest of the world. ''Countries like Australia have been doing it for years, especially with floods and bushfires,'' he said. ''How soon it starts to really happen in New Zealand, that is how much it begins to mirror how it's done in places like the UK, depends a lot on how easy and quickly the technology advances. ''The knowledge to, for instance, to look at the soil under each house in a street, is only just becoming available. It is such a new field but absolutely what will happen is Tower will get all the low-risk customers and the other companies will have to react to that.'' Up until now most actuaries who worked with local insurance companies has been based in Australia and had ''no idea'' about earthquakes, Naylor said. ''New Zealand has some of the most advanced knowledge of earthquakes and earthquake-risk in the world and now insurance companies here are having a massive catch-up to what they know about quakes. A lot of this (granual pricing) is being pushed by reinsurers here. No one wants to be caught out again.'

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ARMSTRONG FAREWELLS IAG AFTER FIVE DECADES

By Michael Botur

GET OUTSIDE YOUR COMFORT ZONE. ACT AS A SPONGE. ABSORB AS MUCH AS YOU CAN. DOWN THE TRACK IT’LL STAND YOU IN GOOD STEAD.

June 2018

e started in insurance in the time of telexes and telegrams but even in today’s digital world, IAG’s outgoing executive general manager of risk and underwriting says you can’t beat the human touch. Armstrong retired May 31 after 47 years with the company. He was appointed EGM risk and underwriting in December 2016 and undertook responsibility for pricing, product and underwriting across all brands of IAG New Zealand. Armstrong was responsible for the closure of Canterbury earthquakes claims and the direction of Kaikoura claims. He was also part of the due diligence team when IAG acquired Lumley Insurance in 2014. His accolades include a fellowship with the Australian and New Zealand Institute of Insurance and Finance (ANZIIF), having served as president until recently. He was given ANZIIF’s Lifetime Achievement Award in 2017. During his nearly five decades with IAG he won Insurance Leader of the Year and led NZI to multiple wins as Intermediated Insurer of the Year. FROM BLENHEIM TO BRITAIN AND BACK Armstrong joined what was then NZI straight out of Marlborough Boys' College in 1971 during a period in which brokers didn’t exist in the provinces and insurers dealt directly with customers. He first worked in Nelson then went across to Blenheim, where managers soon wanted to send him to a larger centre. Instead, in 1977, Armstrong agreed to “broaden his horizons” at the London Business School, with further training at the Wharton School at the University of Pennsylvania. Armstrong says there was a personal benefit to the British adventure – it was there he met his wife, Jane, got married and the two began a family, having two boys together. However, after 18 years, Armstrong found himself looking at being deployed to Scotland and chose a different

SPOTLIGHT ON

direction instead. “I said what about Australia or New Zealand? So I brought the family back. From my time in the UK, that was my major reward.” Armstrong’s potential was noted by NZI. After returning to Wellington in 1994, Armstrong was in 1996 transferred to Auckland to set up Marsh Bonus and the CPF Aon facility.There followed the 1998 brief privatisation of ACC, resulting in Armstrong setting up the Accident Insurance division of ACC, the 2001 ACC overhaul, and NZI was acquired by IAG in 2003. Armstrong was appointed CEO of NZI 2008-2014. TECHNOLOGY: NOT A TOTAL GAME-CHANGER While the 1980s was an age of telexes, telegrams and “a whole floor of computer hardware which might only power your PC,” Armstrong believes the Jetsons-like technology available today hasn’t changed the game entirely, and not every customer wants humans factored out of insurance service. “Sure you can do simple stuff, look up stuff on the internet, and even though a new generation coming through relies on their own investigation [of insurance policies] through the internet, we’re funny creatures, we like to talk to people at the end of the day.” Roles were different not only 47 years ago, but as recently as the 1990s. “Even just 20 years ago, general life insurance companies didn’t have actuaries. We had business analysts.” Today Armstrong works with 100 business analysts and statisticians, not to mention underwriters, claims settlers and relationship managers. While gadgetry may not be a game-changer, data is. 2018 is seeing more data available than ever, and the cost of risk treated more realistically. With 2017 labelled the most expensive year on record for weather-related losses, according to the Insurance Council, insurers are today working with external third party organisations, especially local and central government, and recommending improvements in legislation, funding resilience and use of data to balance NZ’s estimated $1.6 billion annual cost of natural disasters. “The major change is our ability to play and work with big data,” Armstrong says. “For example, erosion mapping with NIWA. That sort of relationship allows us to advise government where they should and shouldn’t build.” The better the data, the better the evidence backing up an insurer’s justification around coverage. “As we have seen in the press, people who live in risky zones will pay a price,” Armstrong says. “As insurers, we’ve become more vocal about risk. People understand now that not everything is covered, no matter how good your policy is.” While cycles can dictate the rise and fall of premiums, it was the period 2012-2013 which saw reinsurance costings in some cases triple. “The reinsurance market has borne a $30-$40 billion event. It will take NZ a lot of years to recover anything. It’s about realistically starting to reprice the risk.” THE CHRISTCHURCH QUAKES: A ‘ONCE IN A LIFETIME EVENT.” The earthquakes which ravaged Canterbury on February 22, 2011 were so significant that 167,000 dwelling claims arose as a result. Seven years down the track, Armstrong’s team of more than100 IAG staff is hoping to resolve the final 1.5% of land and dwelling claims outstanding, numbering around 1100 claims. “Christchurch, to my mind, was a once-in-a-lifetime event,” Armstrong says. “I know we’ve seen subsequent events – Kaikoura – but prior to that earthquakes were isolated and minimal, for example in Gisborne and Edgecumbe.” The Christchurch quakes “dwarfed anything we’d come across,” Armstrong recalls. “On day one we didn’t comprehend the scale. There was the impact on business, and NZI and IAG’s workflow was challenging. Number one, there was no access to the city centre and there was very limited access to parts of the wider city. Number two, people

were still traumatised. We had challenges all around. That put pressure on everyone. As it unfolded, we started to see the size of the event.” As EGM of NZI, Armstrong was in Christchurch every week for 12 weeks. “I spent my time seeing brokers and customers and got first-hand great hearings because people aren’t as fixed in their views as they are seven years later.” “I had the opportunity to walk through the city centre. It was cordoned off by martial law. Six of us were allowed through on special permit and had to walk on a white line. I think what you got was an unbelievable perspective of the damage done. There was damage to inferior buildings, yes, but even quality buildings were damaged. There was clothing, there were sheepskin rugs blowing in the wind, no protection. It was something I’d never seen or experienced. It must have been like Beirut. It felt like a bomb. Jaw-dropping. A reality shock.” Armstrong again spent time at Ground Zero when a 7.8 magnitude earthquake struck Kaikoura on November 14, 2016, creating 38,000 residential claims. IAG and fellow insurers, thanks to a Memorandum of Understanding with the Earthquake Commission, were able to settle the vast majority of claims directly, and the workflow was more efficient than the Christchurch caseload, Armstrong says, leading to the resolution of 98% of Kaikoura quake claims after 16 months. The move away from openended no sum insured policies helped make it easier to agree values and close claims. “Kaikoura was quite different – the customer had one point of contact, compared to Christchurch where there might have been multiple points of contact [to have claims resolved] so there was less claims fatigue and customers didn’t have to ask for three engineering reports.” FAREWELL AND HANDOVER The ANZIIF judging panel which presented Armstrong with the Lifetime Achievement Award acknowledged the years of mentoring and development of young professionals he has given to the industry, as well his constant advocacy for the industry. Armstrong is pleased to note he managed to get the constitution of the ANZIIF changed. “I was the first NZ president, but the constitution said you had to be permanently resident in Australia.That was just an oversight! But on the board I play the New Zealand card regularly.” Looking back, Armstrong credits immediate managers from Blenheim and Nelson for giving him the opportunity to develop professionally. Armstrong’s advice to live a more rewarding career is to “grab whatever you’re offered with both hands.” “Get outside your comfort zone. Act as a sponge. Absorb as much as you can. Down the track it’ll stand you in good stead.” Armstrong will be spending retirement with four grandchildren, two of whom are in Sydney. Armstrong says he defines retirement not so much as being about not working, but about being in charge of his own time. He’ll remain on the board of ANZIIF as Immediate Past President, will offer consultancy services and will fit in as much travel as he and Jane can manage. GARRY TAYLOR TAKES THE REINS AT IAG Garry Taylor, who was most recently General Manager claims operations at IAG, took over the role from Armstrong on May 1. Armstrong describes the decision to appoint from within as “fantastic.” “It will send a superb signal. I always say every leader bring something different. Garry has got a lot of understanding. He’s bright, considered, and understands the market and relationships.” IAG New Zealand’s chief executive Craig Olsen described Armstrong’s contribution to IAG and the insurance industry as “remarkable” and praised Armstrong’s “willingness as a leader to always encourage and mentor others within our company and the wider industry.” www.covernote.co.nz

FEATURE

KIWI BUSINESSES DON’T UNDERSTAND CYBER-RISK C

yber-risk is high on the agenda for many New Zealand businesses however few are very confident about understanding, or responding to a cyber incident, a new global survey shows. Many also do not comprehend the risks their suppliers pose. The survey was conducted by Marsh and Microsoft. While 60% of the survey’s New Zealand respondents said cyber incidents were in their top five risks, only 22% said they were highly confident in managing, responding and recovering from a cyber incident and 35% in understanding and assessing their cyber risks. Forty-three per cent of respondents did not assess the cyber risks of their vendors or suppliers and 20% did not know if they were even exposed to any risks from their supply chain. Marsh head of specialities Fred Boles said, “Cyber risk is a topic that has been talked about for some time given our increasing dependence on technology. It is therefore surprising that many organisations are still unaware what their cyber risks are including the risks that suppliers pose.” Four out of five of the businesses surveyed said business 16

June 2018

interruption was the biggest risk, followed by reputational damage. In relation to cyber attacks that delivered destructive malware, people were most concerned about financially motivated threats, such as organised crime, and human error, such as the loss of an employee mobile device. The World Economic Forum estimates the economic loss of cyber incidents is between US$1.5 trillion ($2.17 trillion) and $4 trillion a year. Only 33% of respondents in New Zealand had developed a cyber incident response plan in the last 12 to 24 months. Of those who didn’t have a plan in place, 32% were unsure why not. “As with any major business risks, preparedness is the key to managing them,” Boles said. “Organisations can more effectively manage cyber risk by applying a holistic, comprehensive approach that emphasises proven security practices, such as updating systems regularly, along with other preventative measures including planning that engages key stakeholders.” The Global Cyber Risk Perception Survey had more than 1300 executive responses coming from 26 industries.

COVER STORY

BROKERS SHOULD ENCOURAGE BUSINESSES TO DO THEIR BIT TO PREVENT FIRE DAMAGE By Stephen Henkin,

Vero manager risk management services

very year, Vero’s risk management specialists visit about 3000 commercial premises to help them find ways to protect themselves against loss. One of the big opportunities we often identify is that many businesses could do more to better protect themselves against fire. Research from the NZ Fire Service shows that 80% of commercial fires are extinguished in the early stages before firefighters arrive. Using fire extinguishers to put out fires is saving New Zealand $48.2 million in reduced damage each year. WHY DO SO MANY BUSINESSES LACK FIRE EXTINGUISHERS? The lack of appropriate or well-maintained fire extinguishers is a common problem that our risk management specialists identify in commercial premises. When it’s raised with customers, quite often they may not have even thought of having a fire extinguisher or alternatively believe that because they are not required by New Zealand Building Code and they have a Building Warrant of Fitness, they’ve done enough to safeguard their property. Many business owners or their tenants think that compliance with their regulatory obligation is sufficient, but they could do more to protect their premises, stock, ability to trade and livelihood by having the right fire equipment. INSURANCE CAN ONLY DO SO MUCH When a fire occurs, insurance can help our customers to recover much of what they’ve lost financially. But fires still cost time and productivity, and insurance can’t replace everything that is lost. It’s a great idea for customers to do what they can to prevent fire damage, or minimise fires if they start. Fire extinguishers can serve a valuable purpose to help prevent damage and protect property and people. FIRES CAN OFTEN BE SAFELY TACKLED WITH THE RIGHT EQUIPMENT The safety of building occupants and business owners is always the most important thing, and customers should never try to put out a fire that’s out of control, or where doing so could prevent them from exiting the building safely. But fires often start small and can be safely tackled with the correct type of fire equipment. It is a good idea for building occupants to be trained in the use fire extinguishers as this ensures the greatest chance of success and helps keep them safe. Fire extinguisher type and size matters, and that’s where our risk management specialists can help customers to identify the types of extinguishers they might need, where to place them and where to access training on safe use of extinguishers. Brokers play a key role in helping customers prevent fire damage. We encourage all insurance brokers to talk to your customers about the benefits of installing and maintaining fire extinguishers, to keep their business and their people safe.

www.covernote.co.nz

FEATURE

NZI LAUNCHES NEW CYBER-ATTACK PREVENTION TOOL FOR BUSINESSES

ZI has put together a cyber security tips and best practice self-assessment for New Zealand businesses, in conjunction with Deloitte. NZI’s national manager, liability, Ryan Clark said there was a real need for business owners to be aware of the serious implications of a cyber-attack, and to take the time to educate their staff of best practices to prevent an attack from occurring. “This is a useful tips and self-assessment tool for brokers to share with clients, outlining key cyber risk management steps,” Clark said. He says people were often the weakest link in IT systems. “By raising staff awareness, common attacks can be avoided, as staff are able to better identify threats.” Though it was important to try and avoid an attack from happening in the first place, Clark said businesses also needed to make sure they had adequate insurance cover to help them get back up and running and avoid any reputational damage if an attack was to occur. A recent Norton NZ small business security survey found that one in five small businesses had been targeted by a cyber-attack. Despite this, only 6% of SMEs in New Zealand had cyber insurance, thus putting their livelihoods and business reputation at risk. “Cyber-attacks, in many forms, are happening to ordinary Kiwi businesses every day, and those who have experienced a cyber-attack are

recognising the benefit of being with a reputable and experienced cyber insurer like NZI.” One panel beater saved over $130,000 in losses from a cyber-attack because they had invested in cyber insurance with NZI. The panel beater was hit by a ransomware attack which was preventing access to their remote access server. However, after the insured’s broker phoned the NZI cyber hotline (available to all of NZI’s cyber policy holders), their server was disconnected, reformatted and restored within a day. The insured lost some of their data, including a significant number of quotes, due to not regularly backing up their data before the attack occurred. NZI has now handled 50 cyber claims, 50% of which were due to ransomware attacks. Clark said many of those businesses had managed to avoid further damage because they had prompt access to the right people to resolve the issue. “When they call the NZI cyber hotline, businesses are connected with a cyber breach co-ordinator, who deploys industry-leading experts in IT, legal, forensics and public relations (as needed), to get them back on their feet as soon as possible.” But, he said, despite its potential to help them avoid major losses should something go wrong, New Zealand businesses were still lagging behind in their uptake of cyber insurance. “It’s important that brokers advise businesses to think beyond just 'bricks and mortar' – Kiwis need to understand that we are just as vulnerable to a cyber attack as the rest of the world.”

Please visit www.nzicyber.co.nz to access the cyber security – tips and best practice self-assessment and other useful information including proposal forms, wording and claims examples. 20

June 2018

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COVER STORY

CAPACITY TO THRIVE:

ADAPTIVE LEADERSHIP NEEDED IN NEW TECH ENVIRONMENT by Andrew Gair, Delta Insurance

“T

o lead is to live dangerously”, says Ronald Heifetz, professor at Harvard University's John F. Kennedy School of Government. An advocate for “adaptive leadership”, Heifetz argues that bold decision-making is the single most important factor determining an organisation’s capacity to thrive in today’s ever-changing risk environment. “Adapters” are different. According to the Boston Consulting Group, highly adaptive leaders constantly think outside the box, experiment with new market offerings and business strategies, and side-step bureaucratic solutions. PWC findings also suggest that leaders with adaptive risk management attitudes are three times more likely to see revenue growth — at more innovative companies — than their lessnimble peers. Always adjusting, they are also twice as confident in their ability to thwart AI, big data, IoT, and automation threats. When black swan events hit, “adapters” survive.

June 2018

In New Zealand’s tech sector, this brand of leadership needs to be more widely adopted, according to a recent tech liability white paper from Delta Insurance.To turn growing cyber and legal threats to their own competitive advantage, Kiwi innovators must change their ideas about risk management. STATE OF THE NATION New Zealand’s tech pioneers are as agile as they are ambitious. In 2017, the tech sector was the fastest growing segment of our economy, generating 8% of GDP, employing 5% of the country’s workers, and contributing to 9% of all exports. Local innovators like Xero and Orion lead the pack driving huge revenue growth — last year, the combined revenues of our top 200 tech industry companies (TIN200) hit $10 billion for the first time. Meanwhile, low-cost barriers at home make New Zealand a prime start-up environment, ranked first in the world by the World Bank Group for ease of doing business.

Growing success is triggering heavier investment in the market, with foreign investment in early stage Kiwi tech companies increasing 239% in 2016. According to NZ’s Private Equity and VC Monitor, over $1b of new capital was raised by NZ private equity and venture capital investment funds in 2016. NEW ENVIRONMENTS DEMAND NEW STRATEGIES But “an army of threat actors” marches in lockstep with the industry’s growth, says John Moore, senior underwriter and financial lines manager at Delta Insurance. For example, distributed denial of service (DDoS) attacks — which flood websites with simulated requests until the site crashes — disproportionately hit IT, SaaS and cloud service providers, with 33% of global DDoS incidents affecting tech companies, at an average cost of $40,000 per hour of outage. With hackers increasingly harnessing domestic IoT devices (like IP cameras and baby monitors)

COVER STORY

into DDoS botnets, there is no limit to the scope of potential damages — as demonstrated by the 2016 Dyn attack that downed most of the world’s high-traffic websites, including Netflix, Twitter and Amazon. Other cyber threats, such as data breaches, ransomware, and phishing incidents, also continue to proliferate. Yet attitudes remain shockingly complacent — most organisations surveyed in a recent IBM/Ponemon Institute study were confident they could resist a cyberattack, though only 23% had a response plan in place. With CEOs and risk analysts now ranking cyberthreats a top risk to global growth in 2018, these challenges should provoke an adaptive response from New Zealand’s tech leaders. As Deloittes notes, high-tech organisations are highly exposed by their famously open workplaces, and reliance upon cutting-edge technologies. But most aren’t prepared to tackle rising cyber threats.

BROADER HORIZONS, BIGGER LAWSUITS New threats also lurk offshore. In 2016, IT services exports from New Zealand saw doubledigit percentage growth in most major markets, and our digital economy contributed more than $6.9 billion in export earnings last year. But intellectual property (IP) infringement on patents and copyrights are increasingly landing Kiwi software developers and designers in hot water in foreign markets, especially Europe, Asia, and the USA — where tech giants typically amass software patents like tactical nukes. Case in point: US audio company Bose’s claim of patent infringement against NZ noisecancelling technology maker Phitek Systems. Though the Kiwi company admitted no liability, it was nevertheless strong-armed into settling for NZ$4.5m plus legal costs. “If you’re the new kid on the block, established players will want to shut you out,” explains Moore. “In the end, Phitek exited the market

because it just wasn’t viable to fight against the incumbent. The disparity in bargaining power was too big.” Worse are the trolls, says Miles Valentine, founder of Kiwi tech company Zeacom. Stung twice by patent trolls in North America, Zeacom was litigated for technology it didn't even possess: "[But] It was going to cost me USD$1 million to get to court to tell them that,” says Valentine, “so I gave them $350,000 to go away." ADAPTIVE OPPORTUNITIES FOR KIWI TECH LEADERS With experts declaring that attacks are now a question of “if ”, not “when”, Kiwi tech leaders must adjust to these new uncertainties to thrive. Consider a heart attack, advises Heifetz: once the patient has stabilised and the emergency has passed, adaptive challenges remain. “Staying aware and informed about coming threats, and planning to mitigate or take advantage of them” is key to forging new competitive advantages, says Delta Insurance managing director Ian Pollard. For TaaS or SaaSbased companies, this might mean deploying anti-DDoS attack shields, or running disaster scenarios and penetration tests. Having a business continuity plan (BCP) or disaster recovery plan (DRP) in place will also make it easier to take advantage of risk situations when they strike. As Matt Taylor of Kiwi IT company Red Shield puts it: “If the bad guys come, you want a private army on your side.” According to Moore, technology liability policies must also be constantly updated to respond to new exposures: “If you’re accessing the systems of big companies in Asia through APIs and other connections, they’ll want some comfort that you’ve got insurance to cover their costs if you mess up and release all their data,” he explains. Pollard goes even further, saying that adaptive tech leaders also have a responsibility to “build risk management mindsets and cultures within their companies.” With the majority of security incidents caused by employees, strong cyber education can stave off an infiltration. Though the storm clouds look dark, Delta Insurance challenges the idea that external stresses are bad for business. Periods of disequilibrium, argues Pollard, are energising. Faced with cyber threats or legal risks, adaptive leaders must mobilise — by altering the DNA of their organisations, and redefining the rules of the game. Delta Insurance recently presented a series of nationwide seminars for Techweek in tandem with Deloitte and Augen Software Group. The theme of the seminars was “With new innovation comes new risks” and outlined the risk management necessary for the technology sector. www.covernote.co.nz

TOP 10 CONTENTS INSURANCE ISSUES

Insurance Advisernet celebrates Success is something to be celebrated, and the Insurance Advisernet Conference, recently held in Taupo, did just that. More than 140 Insurance Advisernet brokers, insurers and business partners gathered at the Hilton Hotel for three days to network, share ideas and celebrate the winners of the coveted IANZ awards The conference commenced with a day’s golfing at Wairakei, which has been designated a wildlife sanctuary. More than 35 people attended the golf day, sharing the course with deer, pheasants and many other protected birdlife, for a day of fierce competition. Day two started with an update from Fee Langstone on the upcoming legislation, followed by the trade exhibition show which was well supported by insurer and partner exhibits. In a change to traditional conferencing, the exhibition was for an extended period of three hours, giving delegates meaningful time with all exhibitors, allowing more in-depth discussions and demonstrations of new products and initiatives. The afternoon then progressed in to what has been hailed as the most daring team-building event ever hosted by IANZ, with 11 teams prepping for a Soul Train lip-sync battle, which was showcased later that night. The feedback from insurers and delegates alike was unanimous, as evidenced by Debbie Mayo-Smith’s (Successis) comments. “I know it’s strange to hear this from a speaker, but I swear I had the best time I’ve ever had at any conference I’ve been to. Everyone was so warm and friendly. The Tuesday night event was out of this world – oh my goodness.” Day three was led by Shaun Standfield (Managing Director IA), sharing the vision for Insurance Advisernet both in Australia and New Zealand and giving an overview of both markets. This was followed by Peter Baines from Hands Across the Water, Debbie Mayo-Smith from Successis and finally Simon van Velthooven from Emirates Team New Zealand. A day full of great speakers, filled with emotion, thought-provoking innovation and pride in what a small country like New Zealand can achieve on the world stage. The finale was the black-tie gala dinner and awards, held at the Great Lake Convention Centre, where everyone gathered to celebrate with the winners of the 2017 IANZ awards. The Broker of the Year award was won by Donaldson Brown Insurance Brokers, with the inaugural emerging broker of the year won by James McCarthy of Guardian Insurance Brokers. The all-round “good guy” award went to David Burroughs for his unselfish contribution to the group. David Crawford acknowledged and thanked insurer partners for their commitment to Insurance Advisernet at the gala dinner. “We appreciate the support our insurer partners give us, both during the year and at events like our annual conference. “ Delta Insurance was named insurer of the year and Dinesh Murali was insurance person of the year.

COVER STORY

BLOCKCHAIN COULD MAKE INSURANCE PAYMENTS MORE EFFICIENT

NZ, IBM and Suncorp New Zealand are working together to develop a blockchain solution for the insurance industry that will help make the data transfer and payment reconciliation process faster and more transparent between brokers and insurers. Blockchain, a distributed ledger technology, is a secure and decentralised way of sharing data and transactions. “Reconciling policy information and premium payments made by a broker to an insurer on behalf of customers is a slow and painful process,” said Paul Goodwin, ANZ managing director, institutional, in New Zealand. ANZ said the current insurance process was not efficient because the data held by brokers and insurers could be different. That created challenges for the insurer in allocating payments received to the correct policy. The new proof of concept established that a distributed ledger could provide this “single source of truth”, removing the need for reconciliation and rework throughout the process, as well as eliminating the exchange of manually-created documents. ANZ said it had seen a particular pain point around the reconciliation of the monthly bulk payments made by a broker to an insurer 38

June 2018

to pay for all policies. It focused on the efficient transfer of data throughout the process of quoting to issuing an insurance policy, removing the need for keying and reconciliations at various stages throughout the process; the automated allocation of a bulk payment by a broker to the individual policy level for an insurer; and the removal of the manual generation of operational reporting, and the ability to automatically generate insightful reporting to aid management decisions “The blockchain solution will be much more efficient for the industry as well as being very secure. As a ‘single source of truth’, it will provide greater visibility throughout the process, remove uncertainty and help make response times faster,” Goodwin said. “This technology will work with existing industry solutions to capture relevant information, ensuring payments can be forecast and made without the need for reconciliation.” Mike Smith, IBM’s managing director in New Zealand, said distributed ledger technologies could drive major efficiencies when they were able to turn complex, manual processes into real-time systems.. “IBM used design-led thinking principles and practices to reinvent the

COVER STORY

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business processes behind intermediated insurance at ANZ. “The result is an interoperable network that could not only decrease policy costs and improve customer service, but also build a foundation for the introduction of other transformative technologies, such as artificial intelligence.” Tim Buckett, chief financial officer at Suncorp, said the insurer was always looking at ways to work more efficiently. This was a way to speed up the reconciliation process for insurance premium payments, while at the same time improving the customer experience for policyholders and our business partners, he said. A key concern is maintaining confidentiality between the parties involved. This proof of concept considered this, using encryption to protect all data but also implementing channels, so only the data relevant to that party being sent to them. With this, a future ecosystem with multiple insurers and multiple brokers is a viable outcome. This would unlock the potential of this solution and allow the industry to unlock further process efficiency and greater visibility, ultimately improving the proposition for the insured parties.

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FEATURE

'EVENTCOVER' OFFERS LOCAL SOLUTION

he owner of a new insurance business says there is a big gap in the New Zealand market for a provider to offer cover for the country’s events industry. Auckland-based Stuart Hartley has launched EventCover, which is the country’s only underwriting agency focusing exclusively on events providers. Its policies are underwritten by Sage Partners, a Lloyd’s coverholder. Hartley said he spotted a need in the market after dabbling in event insurance as a “side hustle”. He arrived in New Zealand in 2011 and had previously worked as a partnerships manager at Marsh before deciding to start up on his own. “There’s no market in New Zealand to facilitate these risks or anyone who really understands event management, so I decided to do it myself. It’s a good few years in the making.” Until now, brokers wanting cover for events had had to go overseas to get it. There had been strong interest from the events industry so far, he said. “New Zealand is now firmly on the global map as a destination for events, therefore the inherent risks associated with the industry are constantly changing.

June 2018

“With New Zealand's climate also being quite varied, there may also be a number of reasons for event cancellation due to a weather-related event. Event organisers and others involved will need to consider those risks as they could vary greatly depending on the location and type of event.” He said the 2018 ASB Classic was an event that highlighted the need – wet weather washed out a day’s play and delayed other matches but Tennis Auckland had a robust event cancellation policy to protect them. EventCover offers policies to cover event cancellation, non-appearance, prize promotion and event liability, among other risks. It only offers deals with insurance brokers. Hartley said the insurance sector would need to be educated about the products on offer to be able to in turn educate the event industry about what protection was available, he said. “With the main exposures including irrecoverable costs and expenses, contractual obligations, tickets refunds and lost revenue, it pays to work with insurance experts who know [the events] business and anticipate its needs.”

FEATURE

FIRE RISK IN HIGH-RISE BUILDINGS By John Lucas,

Insurance Council of New Zealand

ack of passive fire protection is a growing problem in New Zealand. Simply put, passive fire safety is about limiting the ability of fire and smoke to spread through a building. And it’s an issue in both commercial and residential high-rise buildings. Construction can affect the passive fire compliance of a building. Smoke dampeners in ventilation systems, sprinkler systems, fire doors, smoke vents and pressurisation in stair wells and lifts can all affect how well a building is able to manage passive fire risk. The most important factor is how well service penetrations through floors and fire ceilings have been fire stopped, especially in apartments. In New Zealand, the Building Act provides for minimum passive fire compliance levels through sections C3-C6. Unfortunately, insurers are seeing issues showing that in a growing number of cases these are not being met. It seems to be a case of what can’t be seen isn’t to be concerned about. But that’s a dangerous approach to take. It’s not just an issue in new buildings, either. Refits can be a big cause of passive fire non-compliance.We know, for instance, that cutting holes in the concrete support structure to install electrical cabling can provide pathways of cables between floors that fire can traverse. Another growing fire risk issue is inflammable cladding, particularly cladding made of aluminium composite panels (ACPs). Some ACPs pose a high fire risk. If one panel of ACP cladding catches fire, it can drive the fire up the building, quickly setting alight the floors above where the fire started. In one case overseas, an entire high-rise apartment building caught fire because a smouldering cigarette on a balcony had set alight a single ACP. Not all ACPs are inflammable. If your client thinks their building may contain ACPs, they can take a sample and have them tested. If they turn out to be highly inflammable, they should be replaced as soon as possible. It’s cheaper than repairing a building after a major fire, and it’s safer for its occupants too. In Australia, the ICA has worked with insurers to develop a protocol for testing and detecting the flammability of ACPs so insurers can more accurately assess and price risk. The Residual Hazard Identification Protocol allows insurers to understand the passive fire risk of a building before they provide cover for it and, if the risk posed is too high, suggest remedial actions that can be taken to improve the building’s risk profile. www.covernote.co.nz

FEATURE

MARSH RALLIES FOR KIWI KIDS Marsh chief executive Marcus Pearson spent five days in March on a 1960 Los Angeles Fire Dept articulated fire truck, travelling across various parts of New Zealand raising and distributing funds for Kiwi kids in need. It was part of the The Trillian Trek (formerly the Variety Bash), which visits schools and communities as part of a seven-day car rally held in March every year. The trek aims to raise money for things such as specialist mobility or medical equipment, learning tools, speech lessons, school sports equipment or basic supplies. Marsh has sponsored the fire truck for over 20 years. The activity is part of Marshâ&#x20AC;&#x2122;s 60 acts of service for 60 years, which the company is running to celebrate 60 years of being involved in the New Zealand business community.

June 2018

OPINION

ARE FINANCIAL STRENGTH RATINGS A WASTE OF TIME? IT SEEMS IT'S THE AGENCIES - NOT CONSUMERS OR INSURERS - THAT BENEFIT MOST. By Crossley Gates

n 1994, the government enacted the Insurance Companies (Ratings and Inspections) Act The act provided for ‘The rating of the claims paying ability of insurers in relation to the business of insurance except life insurance …’ It obliged nearly all general insurers to obtain a claims paying ability rating from one of two approved rating agencies: Standard & Poor’s and AM Best. General insurers had to disclose the rating to prospective policyholders before those policyholders entered into contracts of insurance with them. The rationale behind the new law was laudable at the time; the government viewed it as the answer to recent insurance company insolvencies. Essentially that rationale could be summed up as buyer beware. Consumers could use the ratings as a way of assessing the risk of an insurer’s insolvency. There was no minimum rating required to conduct business in New Zealand. Rather, consumers could use it as a tool to compare insurers – it was up to the consumer to decide whether to pay more (in theory) for a higher rated insurer or less for a lower rated insurer. This made assumptions about how the market would react to the ratings. The original act was repealed when the Insurance (Prudential Supervision) act came into force in 2010 (Supervision Act). Most of the provisions of the original Act in relation to ratings were transferred into the Supervision Act at sections 60 – 71. The rating was renamed as the "financial strength rating", and an offence was created for not complying with disclosure, punishable by a fine of up to $500,000. This regulatory regime has been in place for over 20 years now – is it a useful consumer tool? Insurers encountered two practical problems with the regime under the original act. The first was that the rating disclosure prescribed included the date of the rating. As the rating had to be reviewed every 12 months, the date changed every 12 months even if the rating itself didn’t. This caused unnecessary costs. The second was a view held by some insurers that the two approved rating agencies were possibly acting as a duopoly. The Supervision Act addressed both of these problems by dropping the need to provide the date of the rating in the disclosure (it just has to be no more than 12 months old) and adding a third rating agency to the approved list of rating agencies. However, some core issues with the regime remain: 1. The three rating scales for the three rating agencies are all different. This makes comparing insurers with different rating agencies a challenge. For example, how does one agency’s rating of B+ compare to another’s of BBB? 2. In my experience, awareness of the ratings and the purpose of them is not widespread among consumers even after 20 years. Are consumers in fact gaining any benefit from the regime? 3. The cost to insurers of obtaining the ratings is significant. I understand the cost is measured in tens of thousands of dollars. Is it worth it?

The final core issue is whether the ratings are sufficiently accurate to provide meaningful information to consumers. History would suggest otherwise. Before AIG’s near collapse at the beginning of the GFC, it enjoyed an AAA rating (highest) from Standard & Poor’s. More recently, we have seen AM Best downgrade CBL Insurance Limited, a New Zealand licensed insurer, from A- (Excellent) to B++ (Good) on 6 February 2018. Then 18 days later, it had to downgrade it again to E (Regulatory Action) when the Reserve Bank of New Zealand successfully sought an interim liquidation order against the company in the High Court. In order to appreciate the scale of that last change, the rating in one day moved through the following bands of AM Best’s scale: Fair, Marginal,Weak, and Poor, before reaching the lowest scale of Regulatory Action. I suggest this raises concerns about the accuracy of a B+ rating only 18 days earlier, and perhaps about the A- rating before that. These are examples, both nationally and internationally, of the ratings enjoyed by two insurers immediately before they suffered calamitous financial events being a very poor guide to their financial strength at the time. Given this and the other concerns referred to above, I suggest the question should be asked: is this regulatory requirement delivering to consumers or not? I suggest not. The only winners so far have been the rating agencies.

Crossley Gates is a partner at Keegan Alexander.

www.covernote.co.nz

ASK AN EXPERT

One incident, or many? QUESTION… I have a claim for a building that is used for accommodation for seasonal workers. It's apparent that these guests apply oil to their bodies after they shower. The oil has dripped from the guests' bodies onto the floor, staining it but only becoming visible after a period of some months. This hasn't happened before and is likely the cause by a single certain product (or a particular batch of that product) shared amongst the guests. The oil cannot be cleaned off and the carpet must be replaced. The damage is in 13 rooms of the building. The insurer has agreed to meet the claim but cites 13 separate events/excesses. The insurer states the cause of each room's damage is a separate action, so a separate event. The insurer also states that it is incorrect to assume that the damage occurred at the same time, despite the damage appearing at the same time. The policy defines an event as "an event or series of events arising from one source or original cause". Is the one source the oil? Is the original cause the guests applying the oil and it dripping on the floor? Is this one event or a series of events?

REPLY… CROSSLEY GATES An event has been defined by the courts as something that happens at a particular time, in a particular place and in a particular way. Each incident of oil dropping onto the carpet, marking it, will be an event. It is likely that the marks have built up over a period of time and will involve multiple events. How many, no one will probably ever be able to establish. I can’t see the logic of linking the number of events to the number of rooms - there seems to be no connection between the two. As there probably has been a series of events, do they arise from the same source or original cause? If all the evidence points to the tenants allowing excess oil to drip from their bodies, then I would have thought that is one original cause. Therefore, on the balance of probabilities only one excess applies.

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.

June 2018

ASK AN EXPERT

Liability

Getting out

QUESTION…

If a client is required to increase his public liability limit as the result of work that he is undertaking for a customer, does that increased limit need to stay in place after the work is completed? We are often asked to increase these limits but only for the period of time that the client may be on site or until the job is done. I believe that if an occurrence happened resulting in a claim on the policy after the works were completed and the liability limit reverted back to the original figure, then the insurers would be entitled to limit the indemnity figure to the lesser amount at the time of the occurrence. I hope that I have conveyed that clearly.

Policy has a definition of house which includes; 1. recreational features (swimming pool, tennis courts etc) 2. Patios, paths and paving of permanent construction The policy sub-limit for recreational features is $40,000. There is no sub-limit for patios, paths and paving of permanent construction. There is an option to set a higher limit for recreational features which hasn't been taken.The insurer is stating that the client's swimming pool is insured for $31,500 only. It is unclear if the client ever listed a value for the swimming pool in conversations with the insurer. As the policy sub-limit is $40,000, we suggest that the limit payable for the pool should be the automatic allowance, regardless of if a lower value was ever declared in a verbal agreement between client and insurer. The recreational feature cover is an automatic allowance for which there is no specified premium charged. I am interested to know if you agree that the policy automatic sublimit for recreational features is the minimum level of cover, or if in fact the insurer can limit their offer to a lower amount based on an alleged verbal agreement? If the answer is yes they can (and as a second note) could it be debated that any concrete area surrounding the pool is in fact paving of permanent construction and therefore covered in addition to the policy allowance for recreational features?

REPLY… CROSSLEY GATES, You are absolutely correct and this is a real trap. As you will know, a PL policy is triggered by property damage occurring during the period of cover for which the insured is then held legally liable for (not when the negligent act occurred). Under the Limitation Act 2010, a cause of action in contract or tort can be brought up to six years after the negligent act or breach of contract occurs (there are a number of exceptions). This means that the insured is at risk of being held liable for a negligent act that occurred while he or she did the work, up to six years later. If the negligent act results in property damage in say year four, the insured will need a PL policy with the increased sum insured in year four. It is that policy that will respond, not the PL policy when the work was done. Therefore, an insured that perhaps carries out some work that is unusually large and who seeks extra cover for that work, should carry the extra cover for a minimum of six years after the work is completed. I am glad you have raised this issue and I hope every broker who reads this takes it on board. Of course, if after you have advised your client of this, your client instructs you not to carry it forward for six years, you are in the clear - just make sure you make a record of your advice and the instruction you received so you can prove it later if need be.

REPLY… CROSSLEY GATES The sub-limit is a maximum for the items that fall within the definition of “recreational features”. Assuming there is no other clause in the policy setting an individual maximum figure for the insured's swimming pool, the only other constraint on the $40,000 figure is the principle of indemnity (on a new for old basis presumably). In other words, if the actual repair/ replacement cost is $31,500, that is all the insured is entitled to obviously. You refer to a possible verbal conversation between the insured and the insurer. It is possible that this varied the standard wording by imposing a specific limit on the swimming pool. However, such variations are usually recorded in writing to avoid arguments (as may be happening here) as to who agreed to what.The absence of one in writing would make it difficult for the party asserting the variation to the standard wording (presumably the insurer) to prove it.

45 www.covernote.co.nz

IFSO CASE STUDY

LOG ACCIDENT

n November 2015, the insured’s broker arranged commercial vehicle insurance with the insurer. In March 2016, the insured made a claim to the insurer, because he had damaged his commercial mower by mowing over a log when he was mowing a paddock. The repairs to the mower were about $17,000. The insurer accepted the claim, subject to a policy limit of $10,000 for ingestion of a foreign object. The broker argued that the policy

wording was unclear. He also believed that the insurer had not made him aware of the limit when he arranged the cover. THE CASE MANAGER’S ASSESSMENT The case manager considered the policy wording and believed it was clear that a limit applied for ingestion or entanglement of a foreign object. Because the log was caught in the mower and caused internal damage, the case manager believed the damage was caused by ingestion of a foreign object and the limit applied to the claim.

Smith&Smith® welcomes Michelle van Gaalen as their new Managing Director. Michelle will be heading the vehicle glass repair and replacement business as well as newly acquired Laser Plumbing & Electrical. 46

June 2018

When he arranged the cover, the broker asked about “entanglement cover” and the insurer provided the policy limit in a document. The case manager believed that the insurer had provided sufficient information to make the broker aware of the limit and, as he had not asked to increase the limit, the insurer was entitled to restrict payment of the claim to the policy limit of $10,000, less the excess. Complaint not upheld.

CONGRATULATIONS ON YOUR APPOINTMENT. PLEASE TELL US ABOUT YOUR BACKGROUND. Thank you, I’m thrilled to be part of the Smith&Smith® and Laser Plumbing & Electrical team. My background is in service-based industries. I’ve been lucky enough to work in a range of industries, from banking and insurance to telecommunications. I’ve worked in NZ and offshore, including in Africa and Asia. Every business I’ve worked in has been focused on solving customer problems, but they all approach them in different ways. VEHICLE GLASS REPAIR, PLUMBING AND ELECTRICAL ARE QUITE DIVERSE BUSINESSES. WHAT MADE YOU INTERESTED IN THE ROLE? Fundamentally, it was the people and culture. Within Smith&Smith® and Laser there is a strong focus on solving our customers’ problems with real care something I am extremely passionate about. I know that how we treat a customer that has come to us for an insurance repair ultimately reflects back on their broker and that a positive experience can absolutely influence the relationship the broker has with their client. Moving forward I would like to explore how we can partner with brokers in new ways to benefit both our businesses, especially now that we have Laser Electrical and Plumbing as part of our business. WHAT ARE YOU REALLY INTO OUTSIDE OF WORK? As Kiwis we are lucky to live in such a beautiful land. I love being outdoors and try to see as much of this country as I can – I tramped Lake Waikaremoana at Easter and that is my ideal way to spend my leisure time – good friends, beautiful scenery and great conversation. WHAT WAS YOUR JOURNEY LIKE TO GET WHERE YOU ARE? Varied! I’ve always attracted to new challenges, and so have done a variety of jobs. I started working at 10 in my parents corner dairy, and I’ve also worked at McDonald’s, in bars and restaurants etc. The one consistent theme through them all is customer - every business I’ve worked in has wanted to deliver great experiences that their customers value.

IFSO CASE STUDY

CANTERBURY COVER I

n August 2011, through a broker, a company arranged business insurance on its shop. Due to the recent Canterbury earthquakes, the insurer excluded cover for loss due to earthquakes. About 18 months later, it contacted the broker, to make a claim under the business interruption cover for the loss of profits at the shop, as a result of many of the buildings on the street being deemed unsafe and cordoned off, due to damage from the Canterbury earthquakes. In May 2013, through the broker, it arranged business insurance on another shop in another town. In June 2013, a window was broken at the second shop and through the broker, the company made a claim for the damage. The insurer spoke with the broker and said that there was no cover for the building, only stock and contents. However, it was suggested that the position could change depending on the company’s tenancy agreement. Based on this, the claim was withdrawn by the broker. In August 2013, the second policy was retrospectively cancelled due to non-payment of the premiums. In about November 2015, the company raised concerns about the claims. The insurer stated that it had not received notice of the business interruption claim until contacted 2015. However, it stated that, even if it had, it would have declined the claim on the basis that the business interruption was not caused by physical damage to the shop and earthquake losses were excluded. THE CASE MANAGER’S ASSESSMENT When making a claim under an insurance policy, the initial onus is on the insured to establish that he/she has suffered a loss, which is covered by the policy. This is known as a prima facie claim. If the prima facie claim is established, then the insurer is entitled to raise an objection to meeting the claim. However, if the insurer wishes to rely on an exclusion in the policy, the onus is on it to establish the application of the exclusion. THE BUSINESS INTERRUPTION CLAIM The company made a claim for loss of profits as a result of many of the buildings around the shop, and the street itself, undergoing repairs. However, the policy only covered loss if the business was interrupted as a result of damage to the shop or other property owned by the company. Damage was defined as “physical loss”. Therefore, in order to trigger the business interruption cover, the shop or other property must have been physically damaged, and this must have caused the loss claimed. The company could not provide any evidence of any damage to the shop or other property it owned. The policy also contained some additional benefits such as closure of public transport routes and prevention of access. However, these provisions required that there be damage or threat of damage “as covered by this business interruption section”. The policy excluded cover for earthquakes and, therefore, there was no damage or threat of damage “as covered by this business interruption section”, which would trigger the additional benefits. Therefore, the company could not show that the business interruption claim fell within the scope of cover provided by the policy. As such, the insurer was entitled to rely on the terms and conditions of the policy, to decline the business interruption claim.

THE WINDOW CLAIM In 2013, the company made a claim for a broken window and signage. It leased the shop and did not have material damage cover for the building itself, only the contents. The definition of contents included “glass and other landlord’s fixtures and fittings if you are responsible for insuring them ...”. Therefore, in order to show the window claim fell within the scope of cover provided by the policy, the company needed to prove that it was responsible for insuring the window. On June 2013, the broker contacted the insurer to discuss the window claim. However, it was agreed that, as there was no cover for buildings under the policy, the claim should be withdrawn. The insurer’s file notes indicated that it was suggested to the broker this position may change, depending on the arrangement with the company’s landlord. The insurer did not have any other records of contact with the broker about the contents claim. In addition, on or about August 2013, the policy was cancelled, back to its commencement, as the company had not made any payments of the policy premiums. At the time, in order to make a claim under the policy, the company would have had to have shown that the lease required it to insure the window and that the repair cost was more than the policy excess of $1,000. The company would also have been required to pay the premiums of $1,881.24. It did not provide any evidence to show that the repair to the window would have cost more than $2,881.24, or that the lease required the company to insure the window. In addition, payment of the premium was a condition precedent, meaning that before the insurer was required to provide the cover set out in the policy, the company was required to pay for it. It would have been allowed a reasonable time within which to pay the premium. The policy was cancelled after two months and the company had not made any payments during that time. Therefore, even if it was able to prove the cost of the window and its liability under the lease, the insurer could not now be required to provide the cover set out in the policy documentation. Complaint not upheld. www.covernote.co.nz

FSCL CASE STUDY

YELLOW-STICKERED T

he insured owned a small business which was “yellow-stickered” as a result of the Kaikoura earthquake on November 14, 2016. His business was largely undamaged, but the potential for a neighbouring building to collapse on to his business premises meant that he was could not operate his business until the unsafe building had been demolished. He had full business interruption insurance and thought that, as a result of not being able to open for eight months, his losses would be fully covered by his insurance. However, his building was not sufficiently damaged to trigger the material damage clause in his insurance policy. Because he was prevented from trading on the leased premises due to the unsafe neighbouring building, the prevention of access clause of his policy was triggered, rather than material damage. This clause limited his claim to 10% of the sum insured ($27,000). This sum was not enough to cover his loss. Before he brought a complaint to us about the insurance broker, who placed his insurance, he received legal advice. His lawyer told him he could not see where the insurer got the 10% limit from. He complained to FSCL about the broker. He believed that it was the broker’s fault that his cover was limited to 10% of the total sum insured. He said that after lessons learned from the Christchurch earthquakes he should have been given insurance cover for this type of situation, where his business premises were not damaged, but damage to surrounding buildings prevented him from trading. The broker had an obligation to discuss the amount and level of payment for this type of circumstance. He explained that payment of only 10% of his full policy entitlement was not enough to cover the costs of his lease, payment to suppliers and the fact he had no revenue stream for eight months. Further to this, he stated that he had no control over the demolition process and it was the council’s delay (through transitional orders) that had indirectly caused his loss. He explained that he had received $20,000 from the insurer as a progress payment on January 26, 2017, and believed more would be forthcoming once it had properly assessed his claim. He alleged that the broker didn’t provide insurance advice with the reasonable, care, diligence and skill required of an adviser under the

June 2018

Financial Advisers Act 2008. He believed that the broker should have arranged more, or a different type of cover in order to have protected him for all of his loss. He said if he had been aware of this limit in his policy he would have asked his broker to find a policy which covered 100% of loss caused if a natural disaster forced closure occurred. BROKER’S VIEW The broker believed the business interruption insurance obtained was standard to the industry after the Christchurch earthquakes. It maintained that a 10% limit when the insured’s property was not materially damaged was commonplace in the industry. Because the building was not materially damaged, the broker believed the insurer was correct in declining to pay the full sum insured. The broker maintained that it could not have done more to obtain further ‘prevention of access’ cover because none existed in the industry. REVIEW Upon investigation, we determined that a 10% limit for ‘prevention of accesses’ was commonplace in the industry. It was clear from our research, and consultation with industry experts, that all business interruption policies currently available on the market limit cover to 10% of the insured sum when prevention of access is not caused by damage to the insured person’s building. The insured was not prevented from trading due to damage, rather from the lack of access to his premises. Unfortunately, we did not believe that there was anything else the broker could have done to obtain more extensive cover for hisbusiness or to change the stance taken by the insurer. We explained to the insured that this 10% limit was standard to the industry. The policy clearly stated that it only allowed for the 10% which had already been paid out. As a result, the broker’s actions had not caused a loss. OUTCOME The service and information provided to the insured in the situation was adequate. We acknowledged and sympathised with his loss, but noted that if we had to make a decision, we would confirm that the broker had acted properly. He advised that he would withdraw his complaint.

FSCL CASE STUDY

DELAYED REPAIRS

he insured owns a commercial building in a small town, and was running a café from the premises. In June 2015, the town suffered severe flooding and the building was damaged. The café could no longer trade. There were delays in the building repairs, which were not completed until March 2017. He thought he had the benefit of business interruption (BI) cover under the café’s business policy, for 24 months following a material damage event. However, about eight months after the flood, he discovered BI cover had only been placed for 12 months. From mid-June 2016, he was without BI cover. He complained to FSCL that his broker had not placed BI cover for 24 months. We investigated that complaint, and it was not upheld. His complaint then became one about the insurer (which accepted the material damage claim and took on responsibility to oversee the repairs). He said the insurer unnecessarily delayed the completion of the building repairs, taking him outside the 12-month BI indemnity period. REVIEW In assessing whether the insurer caused unnecessary delays, we considered two key issues. The first issue was whether the insurer contributed to delays in obtaining a building consent for the intended repairs. Any delays caused by agents of the insurer (for example the architects and the builder), were attributable to the insurer. The second issue was whether the insurer and/or the insured had contributed to delays in the repairs being completed, after the consent was issued.

OBTAINING THE BUILDING CONSENT The consent was prepared by the architect and was ready and submitted on December 2, 2015. It took until May 2016 for the consent to be issued. The local council required further information to process the application, including about earthquake strengthening, and fire egress and accessibility reports. The insurer argued it is standard process for a consent application to be submitted, with the council then responding and outlining what further information it needed. The insured said that when the consent application was submitted, it could and should have included fire egress and accessibility reports, and details of strengthening required. FIRE EGRESS AND ACCESSIBILITY REPORTS ALWAYS REQUIRED We accepted it was likely that in any building consent application, there would be further information a council would require to process the application. However, we noted fire egress and accessibility reports are always required when there are alterations to existing buildings, under section 112 and 118 of the Building Act and the Building Code. The fire egress and accessibility reports were ready on 17 February 2016, but were not submitted by the architect until 19 April 2016.The insurer said

it would always have taken time for these reports to be prepared in any event; if they were prepared before the consent was applied for, this would have delayed submitting the consent application until after 2 December 2015. We did not accept the insurer’s argument. It was clear a consent was required from September 21, 2015 (and that consent would require fire and egress reports under the Building Act/Code). It took two-and-a-half months for the reports to be obtained after the council replied to the original consent application. We said the reports could have been prepared in the period between 21 September and 2 December 2015 and submitted with the original consent application. EARTHQUAKE STRENGTHENING A detailed engineering evaluation report had been obtained at some point prior to September 2015. We said the architect had information about the earthquake strengthening required and could have submitted its drawings and recommendations for strengthening in the original consent application. INSURER CAUSED DELAYS IN OBTAINING THE CONSENT We accepted it was always going to take until December 2, 2015, for the consent application to be submitted; there was some initial inevitable delay caused by a change in architect. However, we considered it should not have taken until May 2016 for the consent to be issued. If a more complete application had been submitted, consent would likely have been granted in mid-January 2016. We considered the insurer had, by way of its agents’ shortcomings, caused a four-month unnecessary delay in obtaining the consent (that is, the four months from January to May 2016). DELAYS AFTER THE CONSENT WAS ISSUED After the consent was issued in May 2016, it then took 10 months for repairs to be completed. There were several factors contributing to the overall delays including changes of architects and builders, unavailability of materials and contractors, and bad weather. These factors were always going to be present, outside either party’s control, and likely to contribute to delays. Other factors contributing to delays were that the insured wanted the building upgraded while being repaired, and wanted a building consultant appointed because he was not happy with the way his claim was being handled. We thought the request for a building consultant was not unreasonable. The repair process was protracted and the relationship between the insured and the insurer broke down. We said if the insurer had communicated more clearly with the insured, truly managed his claim on his behalf, and not involved him in directly communicating with the various parties involved, a building consultant would not have been required. PROPOSED RESOLUTION In an effort to assist the parties to resolve the complaint we considered how much of an impact the upgrades and having a building consultant contributed to the fact it took 10 months to complete the repairs after the consent was issued. In the round, we said those factors contributed 20% to the delay, and the parties contributed equally to those delays (meaning they each contributed to 10% of the delay). This meant each party contributed one-month delay each. The other 80% of the delay was caused by the other factors outside the parties’ control. This meant that, overall, the insurer contributed to five months of unnecessary delay. Based on the payment the insured received for the 12 months he had BI cover, the final amount the insurer had to pay was $55,000, representing five months’ lost business income. The parties accepted our proposed resolution and signed a settlement agreement. www.covernote.co.nz

Professional

College

Professional Development: Professional IQ College

Plan now for the future

new Code of Professional Conduct is being developed. What will it mean for you? This new code will specify minimum standards of competency, knowledge and skill for people working in the insurance and financial services sector. When the new code is announced, how prepared will you be for those changes? The sooner you start preparing for those changes, the better and easier it will be for you. Most people are afraid of change, but this can be overcome by being prepared. If you have not done so already check out the IBANZ webinar on the "Future of Financial Advice". The New Zealand Certificate in Financial Advice (Level 5) has been identified as the reference point for all financial advice providers. The Level 5 or equivalent is said to be the necessary competencies for anyone giving advice, including those who offer insurance advice. Professional IQ College is the only industry-owned provider of education and training accredited by the NZQA to deliver New Zealand insurance and financial services qualifications. Remove the pressure and develop your plan now. Show your clients you are serious about professionalism and talk to us about the Level 5, our bridging programme and relevant experience and knowledge requirements for the future. Professional IQ can help develop an education and qualifications plan for you and your team to ensure that your future training is within budget and the necessary timeframes.

Soroptimist International of New Zealand

BETTY LOUGHHEAD SOROPTIMIST SCHOLARSHIP 2019 Soroptimist International exists to inspire action and create opportunities to transform the lives of women and girls. The Betty Loughhead Soroptimist Scholarship offers grants to women over 25 who are studying to enter the workforce or change roles. Who can apply? Women who are: • New Zealand citizens • At least 25 years old on 1 September 2018 • Enrolled in an NZQA approved education programme, undertaken in NZ • Have a proven record of academic achievement • Able to use the scholarship in the 2019 academic year Download an application form at: www.blsst.co.nz Application period is 1 June 2018 to 31 August 2018

“Education is the most powerful weapon which you can use to change the world”

Soroptimist International Educate, Empower and Enable

Brush up your knowledge

rofessional IQ College is pleased to announce the availability of two short videos about the New Zealand Certificate in Financial Services (Level 5). Find out how you can earn a CPD point by watching these videos for free while learning about the Level 5. The first is a brief overview of the Level 5 qualification - it includes the content of each strand, study commitment required and duration of each strand. The second is about the core knowledge module, which provides information about the learning content, distance learning and learning material. Contact: Sylvia on DDI +64 9 306 1737 or email at Sylvia@professionaliq.co.nz

June 2018

DATE

TITLE

PRESENTER

WHERE

TIME

COURSE DESCRIPTION

The 21st Century Broker: Breakthough Strategies for Driving Growth and Profitability

Clifton Warren

Auckland & webinar

10.3011.30

Learn strategies for Driving Growth and Profitability.

Introduction to Mediation - Process and Participating

Trevor Slater

Auckland & webinar

10.3011.30

Trevor Slater has been a commercial mediator for over 20 years. He has used mediation to resolve numerous disputes and complaints. In this session he will explain how the mediation process works, the difference between mediation and conciliation, what to expect as a participant in a mediation and how to prepare.

Anti-Money Laundering – New exposures for lawyers, accountants and real estate agents

Matthew Atkinson/ Virginia Wethey

Auckland & webinar

10.3011.30

Over the next twelve months, phase two of New Zealand’s anti-money laundering regime will be progressively rolled out. In this seminar the presenters will consider the purpose and objectives of the Act.

Quit apologising, overexplaining and justifying

Laurel McLay

Auckland & webinar

10.3011.30

Many women (and men!) hold themselves back by constantly second guessing themselves and demonstrating cautious behaviour. This often presents itself as apologetic language, but also as spending considerable time over-explaining or justifying a point.

A round up of recent cases involving insurance brokers and lessons learned

Susan Taylor

Auckland & webinar

10.3011.30

More details to come.

Marine Cargo

Henry Wallace

Auckland & webinar

10.3011.30

More details to come.

Business Interruption – Common problems, preloss & post loss – & how to minimise or eliminate these

Mark Anderson

Auckland & webinar

10.3011.30

It is often only when a loss occurs that a broker finds out how good their clients BI policy is. It is too late after a loss to retrospectively change the cover. You may not have seen your client’s financial accounts.

The 9 Habits of Highly Effective Brokers

Clifton Warren

Auckland & webinar

10.3011.30

More details to come.

Managing people who don't return calls or answer emails

Laurel McLay

Auckland & webinar

10.3011.30

In order to be able to provide a quality service, we are reliant on communicating with other people. But how often are you prevented from getting your job done because you are waiting on information from others, who simply will not return your calls or emails?

Legal issues arising from Fires

Andrew Hooker

Auckland & webinar

10.3011.30

Andrew Hooker presents a seminar on insurance issues arising from fires. This will cover arson, as well as various liability and recovery issues, from bailee’s liability, to nuisance and of course basic principles of arson cases and proof.

When you talk, what does your client hear?

Trevor Slater

Auckland & webinar

10.3011.30

Why, when you meet some clients they instantly like you, whilst sometimes you need to work hard to create that connection? Why do clients sometime go ‘cold’ on you?

June

July

August

www.covernote.co.nz

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 52

David Crawford Director, New Zealand PO Box is 37670, Parnell, Auckland 1151 Tel: 09 926 2062 Mob: 021 905 537 dcrawford@ianz.co.nz

June 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 STEVENS MAR

KS 20 YEARS

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: SEPTEMBER 2018

AS OMBUDSMAN

June 2018

CAPACITY TO

ADAPTIVE LEA

THRIVE:

DERSHIP

CHALLENGES Blockchain coul FOR NZ’S TEC d make insuran H SECTOR ce payments mor Degree rule wou e efficient ld shake up indu stry, IBANZ war Brokers should ns encourage busi bit to prevent fire nesses to do thei damage r www.ibanz.co.nz

CONTACTS: IBANZ CORPORATE COMPANY LIST IBANZ CORPORATE COMPANY LIST Abbott Group

Christchurch

Insurance Advisernet NZ Ltd

Auckland

Adams Trimmer Insurance 1992 Ltd

Whangarei

Insurance Brokers Alliance Ltd

Invercargill

Addex Ltd

North Shore City

Insurance People (Fire & General) Limited

Auckland

Advance Insurance Services Ltd

Paeroa

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

Amicus Brokers Ltd

Christchurch

Matt Jensen Insurance Brokers Ltd

Taupo

Andrew Scragg & Associates

Manukau

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

Nelson Marlborough Insurance Brokers Ltd (NIB)

Nelson

Avon Insurance Brokers

Christchurch

Neville Newcomb Insurance Brokers Ltd

Auckland

Baileys Insurance Brokers Ltd

Auckland

Orewa

Bay Insurance Brokers Ltd

Tauranga

Benson Insurance Brokers Ltd

Christchurch

North Harbour Ins Services (1985) Ltd incl Northsure Group Limited Northco Insurance Brokers Ltd

Boston Marks Group Ltd

Auckland

Northcrest Insurance Brokers Ltd

Auckland

Brave Day General Ltd

Auckland

O'Connor Warren Insurance Brokers

Tauranga

Bridges Insurance Services Limited

Hamilton

OFS Insurance Brokers Ltd

Dunedin

Broker Direct Services Ltd

Christchurch

Omni Fire & General Ltd

Auckland

BrokerWeb Risk Services Limited

Auckland

Paramount Insurance Agencies Ltd

Auckland

Cambridge Insurance Brokers Ltd

Cambridge

Paterson & Co NZ Ltd

Auckland

Capital Risk Solutions Limited

Wellington

Penberthy Insurance Ltd

Auckland

Card Marketing International Ltd

Wellington

Peter C Cranshaw Insurance Broker Ltd

Levin

Cartwright General Insurance Limited

Ashburton

PIC Insurance Brokers Ltd

Manukau

CBA Insurances Limited

Tauranga

Primesure Brokers Ltd

Auckland

Certus Insurance Brokers NZ Ltd

Auckland

Property and Commercial Insurance Brokers

Feilding

Coast Insurance

Whangaparaoa

Protekt Insurance Brokers 2008 Ltd

Auckland

Coastal Insurance Brokers Ltd

Papamoa

Provincial Insurance Brokers Limited

Masterton

Commercial & Rural Insurance Brokers Ltd

Alexandra

PSC Connect NZ Limited

Auckland

Crombie Lockwood (NZ) Ltd

Auckland

River City Insurance Brokers 2000 Ltd

Wanganui

Dawson Ins. Brokers (Whakatane) Ltd

Whakatane

RMA General Ltd

Warkworth

Dawson Insurance Brokers (Rotorua) Ltd

Rotorua

Rothbury Group Ltd

Auckland

Edward Ruys & Co Ltd

Hamilton

Runacres & Asssociates Limited

Christchurch

Emerre & Hathaway Insurances Limited

Gisborne

Seneca Insurance Brokers Ltd

Auckland

Frank Risk Management

Cambridge

Sit & Blake Limited

Auckland

FundAGroup Insurance Brokers Limited

Auckland

South Pacific Insurance Brokers Ltd

Auckland

Future Insurance Mortgage

Auckland

Sweeney Townsend & Associates Ltd

Rotorua

Glenn Stone Insurance Limited

Waitakere

Thames Valley Insurance Ltd

Thames

Grayson & Associates Ltd

Auckland

The Advisers 1 Limited

New Plymouth

Gregan & Company Ltd

Papakura

Thorner General Insurances Ltd

Upper Hutt

GYB Insurance Brokers Ltd

Lower Hutt

Towes Insurance Brokers Ltd

Te Aroha

Harden & Hart Insurances Ltd

Auckland

Trevor Strong Ins Ltd

Auckland

Hazlett Insurance Brokers Ltd

Christchurch

Vercoe Insurance Brokers Ltd

Morrinsville

Honan Insurance Group (NZ) Ltd

Auckland

Vision Insurance (S.I.) Ltd

Ashburton

Hood Insurance Brokers NZ Ltd

Auckland

Waikato Insurance Brokers Limited

Hamilton

Hurford Parker Insurance Brokers Ltd

Hastings

Wallace McLean Ltd

Auckland

Hutchison Rodway Ltd

Auckland

Wanganui Insurance Brokers Ltd

Wanganui

ICIB Limited

Auckland

Willis Towers Watson

Auckland

ILG Insurance Brokers

North Shore City

Yesberg Insurance Services Ltd

Christchurch

Ingerson Insurances Ltd

Wellington

Masterton

www.covernote.co.nz

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