CoverNote June 2019 issue

NZI MARKS 160 YEARS

June 2019

WHAT IF HOMES BECOME UNINSURABLE? Wellington: What’s really happening here?

Duty to disclose gets update

www.ibanz.co.nz

You don’t want your customers facing an unexpected insurance problem when they meet an unexpected legal one.

With over 45 liability insurance specialists all working together under one roof, you can expect VL to provide an end to end solution to help your customers find their feet again.

Get in touch on 09 306 0350 or visit our website.

veroliability.co.nz

New Zealand’s leading liability insurer

WELCOME

Advertising/Editorial: Robert Johnson, Benefitz Telephone 09 477 4702, Mobile 027 4970 712, Email: robert@benefitz.co.nz Design/Production: Craig Burkett, Benefitz Imaging: CTP by Benefitz Produced for IBANZ by: Benefitz, Cnr Constellation Drive & Parkway Drive, Mairangi Bay, North Shore City.

PO Box 33-1630 Takapuna.

Telephone 09 477 4700, Fax 09 477 4799 Advertising Deadlines: Bookings 10th of the month prior to publication, material 15th of the month prior to publication.

Gary Young CEO, IBANZ

Welcome to

Insurance industry must keep lines of communication open

T

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

hese are challenging times for both insured and insurer in those areas of New Zealand considered at risk to natural disasters. Some would say that is most of the country and there is no doubt that for a small nation we have some very large exposures.

Christchurch and Kaikoura raised the awareness of the potential for widespread damage from earthquakes, even in areas not thought to be most at risk. Add flooding, driven to new extremes by climate change, and there is plenty to cause concern for insurers.

Their response has been measured to date, but they are changing the way risk is viewed. With far greater access to data, risks can be analysed in great detail. Averaging the risk across the country is on the way out; instead pricing individual properties according to their specific risk profile is becoming more the norm.

The media are taking notice, highlighting the difficulties, for example, with Wellington homes, particularly apartments. I have received a number of calls from journalists asking why is this happening. They ask is the call for a government insurer an answer?

Of course it’s not, because the Government cannot afford to carry the risk. It would need to turn to the same reinsurance market the local insurers do.

New Zealand has been very lucky. Despite being one of the most risky environments for natural disasters, we can still get insurance, and at a reasonable price in most instances.

Compared to, say, California or Japan, we are far better off.

What insurance brokers, and insurers, need to get better at is informing clients of the realities of the marketplace. We also need to be more proactive when it comes to renewals. Many of the complaints I get relate to an insured finding out at the last minute that their insurance is going to cost far more, or that the excess is substantially higher. Worst case, the cover they had is not available.

It puts insurance in a bad light when clients get a nasty surprise at the last minute.

Everyone needs to be managing expectations; insurers need to be confirming terms earlier and brokers need to be talking through the likely issues with upcoming renewals well in advance.

Communication is the key to ensuring everyone involved is on the same page and has time to organise solutions to the coming changes.

Gary Young, CEO, IBANZ

Features

18. Work accidents attract bigger consequences

10. COVER STORY: What if homes become uninsurable?

28. Cyber risk product aims to fill market gap 30. QBE pledges support

Regulars 1. Welcome to CoverNote 3.

News 41. Ask an Expert

46. Professional Development: Professional IQ College 48. IBANZ Contacts

WANT YOUR VERY OWN COPY OF

COVERNOTE? 32. Who are you, anyway?

40. Safety tips for Lithium Ion batteries

NZI MAR

KS 160 YEA

RS

June 2019

See page 48 for details on how you can have your very own copy delivered directly to your door...

HOT OFF THE PRESS!

WHAT IF HOMES UNINSU RABLE? BECOME Wellington: happening What’s really here?

Duty to disc lose gets update www.iban z.co.nz

NEWS

IAG joins risk-rating IAG customers in areas that are high-risk for natural disasters or weather events will face higher premiums under changes recently announced by the insurer.

IAG, which operates the State, AMI, NZI and Lumley brands as well as offering insurance through major banks, is moving to a risk-rating approach.

Customers who live in areas that are more prone to natural disasters and severe weather events will likely have to pay more for insurance.

Those who live in areas that are less prone may pay less.

IAG’s executive general manager customer and consumer Kevin Hughes said premiums needed to reflect the level of risk and costs associated with providing insurance cover, including reinsurance costs.

“Every customer and every property is different and so every policy will be affected differently, whether that be a price increase or decrease.

“We realise these changes will be a challenge for some customers and we will work through this with them.

“There are a range of options available to customers to make this easier, including taking a higher excess or adjusting the frequency of payments to suit them.

“We will continue to provide solutions and work to make insurance as affordable as possible.

“New Zealand’s environmental risks have evolved over the past few years and we need to take more account of those risks, so we can continue to be there for our customers across New Zealand when misfortune strikes.”

There will also be changes as a result of EQC moves.

EQC will cover more of the costs for rectifying damage to residential homes. From July 1, EQC will pay up to $150,000 plus GST per residential home. But EQC will no longer provide cover for contents.

IAG will provide this to its customers who have contents insurance.

Insurance expert Michael Naylor said the extent of premium changes would depend on how deep the isurer’s algorithms went.

He said it seemed to indicate it would use data based on individual building type and ground type.

“The results for individual properties could vary widely even in areas with the same general risk level.”

BE YOUR OWN BOSS PSC Connect gives you the power to succeed.

If you want the freedom and flexibility to run your own general insurance broking business then speak to PSC Connect.

The PSC Connect team provide you with full administrative and compliance support. Plus, you’ll have the support and buying power that comes from one of the largest publicly listed insurance broking groups to help you build your own asset.

For confidential enquiries, call: Dave Penfold 09 358 1186 dpenfold@pscconnect.co.nz Proud members of IBANZ & Steadfast

www.pscconnect.co.nz

www.covernote.co.nz

3

NEWS

New Zealanders don't understand insurance: Canstar Many New Zealanders are missing basic knowledge about their vehicle insurance policies, a new survey suggests.

Canstar research showed New Zealanders spent an average of $801 a year on their policies but while 87% said they preferred comprehensive cover, 32% did not understand what it entailed.

While not mandatory in New Zealand, comprehensive, third-party and third-party fire and theft insurance are available to policyholders – all of which offer different levels of cover.

Canstar found 10% of those surveyed preferred third-party fire and theft, and the remaining 3% compulsory third-party.

The most frequent type of car insurance claim is for damage to car (48%), followed by accident (32%). Theft from car (3%) and theft of car (2%) represent much smaller proportions of claims made. Other claims make up the balance.

State was awarded Canstar’s Most Satisfied Customers Award for car insurance for the first time. Its overall customer satisfaction performance has steadily increased since 2014.

“State scored particularly well for quality of its service, and throughout the customer claims journey – lodgement, process

and outcome,” said Jose George, general manager of Canstar New Zealand.

Executive general manager customer and consumer Kevin Hughes said he was proud.

“Cars are often one of the most valuable items we own, both in terms of value and convenience. We know our customers are busy people and we’re committed to taking care of them when they need us most, so they can get back on the road as quickly as possible.

“We’re excited to be recognised as the leading brand for overall satisfaction. It’s a competitive market and a testament to the efforts our teams make every day for our customers.”

Nine providers were compared on value for money, claims lodgement, process and outcome, quality of service, clarity of policy, communication and overall satisfaction. To take part in the survey, the 1782 Kiwi respondents had to have a current car insurance policy for which they were the bill-payer, they also had to have made a claim within the last three years.

EQC concerns voiced People are saying they want to see more empathy, transparency, relevant expertise, quality assurance around assessments and repairs, and greater timeliness with claims, in feedback so far to the public inquiry into the Earthquake Commission.

To date, almost 400 formal written submissions have been received on New Zealanders' experiences with EQC and what changes are needed for the future, alongside more than 200 comments received via social media.

Public forums have also begun, where people can speak face to face to the Inquiry.

“Anyone who has experiences with EQC and views on change, but hasn’t shared them with the Inquiry yet, I would urge them to take the time to do so,” said Dame Silvia Cartwright, who is chairing the inquiry.

“There are already some clear themes coming through. It’s obvious in the stories from people that many are still living with the lasting impacts on them and their families.”

“People have been prepared to detail their experiences – which 4

June 2019

clearly hasn’t been easy for some – and still focus in on specific changes they feel are needed in how EQC responds and handles insurance claims after disasters. Suggested changes are around issues such as the damage assessment process, managed repair process and claims management. Some people have seen positive gains over time depending on who manages the claim, but that is still a contentious area.”

The independent Inquiry is tasked with making findings and recommendations as it relates to the operations, policies and service of EQC, following the Canterbury earthquakes and other natural disasters around New Zealand in recent years.

The inquiry can find fault as it relates to EQC’s processes, but will not apportion blame or revisit individual insurance claims or legal judgments.

Dame Silvia expects to report her findings and recommendations to the Governor-General by the end of 2019, and they can then be considered by the Government.

NEWS

Insurers, brokers welcome levy review The Government will review how Fire and Emergency New Zealand (FENZ) is funded, a move that is being welcomed by the industry.

The FENZ levy has been controversial for many years.

In 2017, the fire service levy for households was increased when the country’s fire services were amalgamated.

Insurers at the time said the burden of funding emergency services should not fall on those who took out policies, when the benefit of having the service was felt by all New Zealanders. The levy collects more than $450 million annually.

“We’re having a look at the funding structure of FENZ to see if we can provide a stable, simple funding system that is fair to individuals and businesses,” said Internal Affairs Minister Tracey Martin.

“The establishment of FENZ has gone well and New Zealanders are beginning to see the benefits of a modern, unified fire and emergency service.

“However, FENZ, like the fire service before it, is funded by a levy on property insurance and there are flaws in insurance-based funding.”

She said property owners without insurance were able to “free-ride” and charging people on their insurance increased the insurance cost and could reduce the incentive to properly insure.

“Levy collection is complex to administer for insurers, and FENZ’s levy income may become uncertain as the commercial insurance market evolves,” Marin said.

“I have also heard concerns from large property owners who are facing substantial levy increases under the modernised levy regime that was proposed in 2017. While the modernised regime would improve equity across levy payers, it appears that it may unnecessarily impact New Zealand businesses and other large property owners.

“The Government considers that there may be better ways to fund such an important organisation.”

She said the timing was right for a review.

There were a number of different funding regimes for fire services internationally, but there appeared to be a trend away from insurance-based levies and four Australian states have changed from an insurance-based model.

“We will be looking to achieve a model that is stable, universal, fair and flexible.

“No single option will fully satisfy all of these criteria, but I think we can do better than what we currently have.”

A public discussion document on the FENZ funding model will be released later this year.

The Insurance Brokers Association welcomed the move.

“The blinkered approach of successive governments has finally been replaced with common sense,” said chief executive Gary Young.

“However there are no guarantees that the current patently unfair, complex and inefficient process will be replaced. The review is going back to first principles so everything should now be on the table. What might replace insurance is open to debate.

“No doubt options such as a levy through local body rates will be strongly opposed by local authorities. The most obvious solution for an emergency service used by all New Zealanders is central government funding. But the $450m burden currently imposed on insureds is significant; no one else will want to take it on. We need to prepare for a robust round of consultation to ensure the right solution is found.”

The Insurance Council also praised the decision.

"This is a grossly unfair tax that penalises people who try to do the right thing to protect their assets, lumping them with the cost of running FENZ while also supporting access to emergency services for those who choose not to insure," said chief executive Tim Grafton.

"The Government has made the right call to review how to fund FENZ in a way that is fair to everyone, simple, low cost to administer and lines up with what happens in most other countries," he said.

"I want to acknowledge New Zealand First and Minister Tracey Martin who have successfully argued the case to review the funding system and to the coalition Government for accepting the need to look at a better way of supporting FENZ. "There is now an opportunity for the first time in many years to get this right. Hopefully, all parties will support change to a fairer system."

www.covernote.co.nz

5

NEWS

Insurers praise climate move Insurers are backing the Government’s Climate Change Response Amendment Bill.

Governments will be required to reduce biological methane by at least 10% by 2030 and between 24% and 47% by 2050.

All other emissions must reach "net zero" by 2050 to limit global warming increases to 1.5C. The Insurance Council was pleased to see the bill introduced to Parliament.

coastal inundation, as well as the increased risks of ever higher water tables and sunny day flooding."

Adaptation actions can include improving infrastructure such as stormwater systems, moving properties away from coastal areas and floodplains and not consenting new properties in these areas, and building new residential and commercial buildings to be more resilient to a changing climate.

"Failing to adapt will cost us greatly and the longer we delay, the

Chief executive Tim Grafton said the organisation was committed to working with the Government on understanding and adapting to risk to reduce the cost of climate change for communities and New Zealand as a whole.

He said insurers had a lot of knowledge about the risks posed by climate change, including increased frequency and severity of storms and changes in flood risks.

"We are especially pleased to see that bill will place a legal obligation on the Government to support adaptation initiatives,” he said.

"Mitigation is simply not enough on its own; even if all carbon emissions ceased today, we would still be dealing with the effects of a changing climate for years to come."

Figures presented by UMR at the 2018 ICNZ conference showed a majority of people thought climate change was concerning or very concerning.

"According to preliminary research from NIWA, there are 125,600 buildings and $38 billion of replacement costs within 1m of sea level rise and there is near certainty that the sea will rise a further 0.2m to 0.3m in the next 20 years," said Grafton.

"With these sea level rises come increasing risks from storms and

more that cost will increase," Grafton said.

IAG New Zealand chief executive Craig Olsen also praised the bill.

“The Government is not just focussed on the target of keeping climate change below 1.5C, it is also taking firm action to ensure New Zealand is ready to adapt to the climate change that is coming at us.

“NIWA predictions already point to tens of thousands of properties, worth billions of dollars, that will be under threat in New Zealand with climate change of just 1C – we need to be ready for that challenge.”

He said IAG was a founding member of the Climate Leaders Coalition, which also supported the bill. IAG is committed to reducing climate change and supporting adaptation.

“IAG hosted a Climate Leaders Coalition workshop on climate change adaptation in Auckland last month, attended by Climate Change Minister James Shaw and more than 80 business leaders.

“I mentioned at the end of this event that when it comes to climate change in New Zealand, we can’t rely on the old adage ‘she’ll be right’. She actually won't be right, we need to take action.”

6

June 2019

NEWS

Code of conduct approved A code of conduct for financial advice has been approved by the Commerce Minister and will come into effect in about nine months’ time.

The code sits alongside the new advice legislation, which creates a level playing field for everyone giving financial advice.

Those who have been in the industry before the introduction of the code will have a transitional period of two years in which to comply with the competency standards.

It requires, among other things, that all advisers can demonstrate they are operating with capabilities equivalent to the general qualification outcomes of the New Zealand Certificate in Financial Services Level 5.

The simplest way to do this is expected to be to have completed the qualification or to work as a representative of a company with the processes to backfill any gaps in knowledge.

Other requirements may also mean changes for those who do not have sufficient existing systems and processes in place.

Advisers will be required to show that they treat clients fairly – including not applying undue pressure, act with integrity, give financial advice that is suitable, ensure their clients understand the advice, and protect client information.

Ensuring the advice was suitable should include having reasonable grounds for the advice.

“Depending on the nature and scope of the financial advice, a detailed analysis of the client’s circumstances may be required or it may be reasonable to make assumptions about the client’s circumstances based on particular characteristics of the client,” the code’s guidance says.

“If the financial advice includes a comparison between two or more financial advice products, the financial advice should be based on an assessment of each product.”

There is also a requirement to complete continuing professional development.

While a number of hours of CPD has not been prescribed, advisers will have to, at least annually, plan for and progressively complete learning activities to ensure they maintain the knowledge, skill and competence for the advice they give and keep up-to-date with the regulatory framework.

Entities must, at least annually, review their procedures, systems and expertise to ensure that they maintain the capabilities for the financial advice they give.

PART 1: ETHICAL BEHAVIOUR, CONDUCT, AND CLIENT CARE 1. Treat clients fairly 2. Act with integrity 3. Give financial advice that is suitable 4. Ensure that the client understands the financial advice 5. Protect client information PART 2: COMPETENCE, KNOWLEDGE, AND SKILL 6. Have general competence, knowledge, and skill 7. Have particular competence, knowledge, and skill for designing an investment plan 8.

Have particular competence, knowledge, and skill for product advice 9. Keep competence, knowledge, and skill up-to-date

AMI may shut branches AMI is reviewing aspects of its nationwide network of retail stores as customer preferences change.

Alex Geale, executive manager of the AMI retail network, said it was the biggest of any insurer in New Zealand and that was not going to change.

“We are increasingly finding that our customers across New Zealand are preferring to contact AMI through other means, rather than visiting their local stores," Geale said.

“We are seeing strong growth in digital engagement, including through social media and our website. The phone also continues to be a very popular way of contacting AMI. “This means the number of customers visiting some stores has reduced significantly.

“As a result, we are considering closing our stores in Alexandra, Feilding, Hawera, Motueka, Porirua, South Dunedin and Thames.

“While it is disappointing that we might have to close a small number of stores, AMI will continue to be there for New Zealanders, whether they live in urban areas or smaller communities, by providing service in the way they want it to be – conveniently, efficiently and effectively.”

Geale said it was expected the changes would mean few job losses.

All affected customer-facing staff would be offered other employment in the organisation, including allowing them to work remotely from home or in other locations.

www.covernote.co.nz

7 7

NEWS

Dash cams offer clarity for claims QBE Insurance and road safety organisation Brake are encouraging businesses and motorists to embrace New Zealand’s dash cam usage trend, citing the devices’ significant potential insurance, financial and safety benefits.

Dash cam devices provide a video recording of the environment in front of drivers, while some also record views from additional perspectives, allowing them to capture evidence of unsafe driving and road accidents.

Andrew Corbett, chief customer officer of QBE New Zealand and Pacific, said footage could be useful in both police and insurance investigations.

“As a commercial motor insurer, we know firsthand the devastation that can follow a motor accident, so we encourage drivers and businesses to consider dash cam systems not only to support them should they need to make a claim, but more importantly for their safety benefits.”

According to the Ministry of Transport, 377 people were killed in 2018 on New Zealand roads, while the social cost of crashes is $4.8 billion annually.

Caroline Perry, New Zealand director of Brake, said dash cams and related systems could be part of the solution to addressing these figures as footage helps authorities look at serious road safety issues

“We’ve seen an increase in customers providing dash cam footage at claim time – which in many cases has provided invaluable evidence, supporting fast and fair claim processing," he said.

“Footage has been particularly useful in situations where liability is unclear or disputed and in cases where a vehicle was unattended when an incident has occurred.

“For example, we recently processed a claim where our insured’s employee was parked and hit by a third-party vehicle which drove away. The dash cam footage from our customer’s vehicle meant the other driver was found liable and our customer was not out of pocket for the standard excess."

In another case, a QBE customer's vehicle crashed into the back of another.

Corbette said, while that would normally mean the driver was at fault, footage showed the other vehicle had overtaken in a dangerous manner and then slammed on the brakes.

“There are also cases where dash cam footage is not only submitted to us but also submitted to the police – helping them to address unsafe drivers and investigate serious motor crashes.

and the potentially life-saving technology provided numerous safety benefits.

“Dash cams and GPS or telematics systems that incorporate them have become increasingly popular in both commercial and personal vehicles and can offer a range of safety benefits for businesses, drivers and the wider public.

“Front-facing cameras on dash cams can capture unsafe driving and road behaviour by others, which can be passed on to police to assist investigations into dangerous driving and hold drivers to account.

“Some systems, popular with commercial vehicles and fleets incorporate dash cams with both forward-facing and inward-facing cameras.

“These can alert the driver if they look like they’re falling asleep at the wheel, or not keeping their eyes on the road. They do this by tracking eye movements and the angle of a driver’s head, making this technology potentially life-saving. This helps to prevent crashes by keeping drivers alert, deterring use of smartphone devices, and ensuring they’re paying attention to the road.”

8

June 2019

NEWS

Insurance laws under spotlight A review of insurance contracts law wants to tackle issues of non-disclosure.

Submissions are currently open on an options paper that sets out the Ministry of Business, Innovation and Employment’s plans to revamp the laws that apply to the sector.

“I have heard from stakeholders throughout this review that there are significant problems with New Zealand’s insurance contract law,” Commerce Minister Kris Faafoi said.

“At the moment, individuals must tell insurers everything that could affect their decision to offer insurance or how much they charge in premiums. The review has found that people often do not understand the kind of information that must be disclosed and that the consequences for not disclosing the information can be very harsh. This paper proposes options to change the rules about disclosure to better reflect the information known by consumers and businesses.”

MBIE said, as it was, consumers could not reasonably be expected to know what an insurer could consider material.

In a 2018 Colmar Brunton survey commissioned by MBIE, 51% of respondents thought they needed to tell the insurer everything that might affect their insurer’s decision, even if the insurer did not specifically ask for it.

Another 24% thought that they needed to tell the insurer everything relevant that they can remember, while 18% thought that they only needed to answer the insurer’s questions.

Among the proposals are a change to the law that would only require consumers to answer questions truthfully from their insurers.

MBIE said that would make it easier for them to know what they needed to disclose when they were applying for a new insurance policy but getting insurance could take longer because there would be more questions to answer.

Another option was to introduce a requirement to “disclose what a reasonable person would know to be relevant” but MBIE said that could still mean it was hard to know what needed to be disclosed.

Options for ways for insurers to deal with non-disclosure were also proposed, including allowing insurers to avoid contracts when the objectively material non-disclosure was reckless or deliberate. Proportionate remedies would apply where non-disclosure or misrepresentation was not deliberate or reckless, but was both careless and induced the insurer to enter the contract on those terms.

Another option would allow insurers to avoid contracts where the non-disclosure was fraudulent and induced the insurer to accept the contract on those terms. This would allow a court to disallow avoidance when the insurer had not suffered a significant loss.

A third option was to create proportionate remedies based on what the insurer would have done had it known the correct information.

It is also considering how insurance contract terms are dealt with. The Fair Trading Act allows some insurance terms that would normally be considered unfair.

An example of a term that could be the potentially unfair was that car insurers could decline a claim for an accident if they could not contact he person at fault. MBIE said the consequences were still borne by the insured in this situation even though the insurer had the responsibility.

“Without the exceptions, insurers say they would face uncertainty regarding the extent of risk they take on. For example, an insurer may include terms which exclude it from liability on the happening of certain events, and prices its premiums based on those exclusions. If a court can strike down those terms as unfair, the insurer has not factored this additional liability into its premiums. If insurers can’t accurately price risk, they may cease offering cover or increase premiums,” MBIE said.

An option was to remove the insurance-specific exemptions and instead tailor the generic exceptions to accommodate insurance, rely on generic unfair contract terms provisions, or completely exempt insurance contracts.

www.covernote.co.nz

9

COVER STORY

WHAT IF HOMES BECOME UNINSURABLE? Rising sea levels may be the most predictable outcome of climate change, but what will happen to the insurance industry – and property prices? Covernote spoke to the experts to find out.

By Angela Cuming

T

he efforts to combat climate change have begun in many corporate sectors around the world, and here in New Zealand that effort has been led by the insurance industry as it grapples with what to do when coastal properties become too risky to insure.

For the most part, the loss of insurance can be put down to rising sea levels. Sea level rise is the most predictable outcome of climate change, as expanding warmer waters and melting ice push sea levels up and cause flooding. Aside from the environmental impacts, however, rising sea levels are also expected to affect the insurance industry at a significant level.

That’s where people like Belinda Storey come in.

Storey is a climate scientist from Climate Sigma. She believes there is a big question mark over coastal properties and rising sea levels when it comes to insurance in New Zealand.

Storey is undertaking research under the Deep South National Science Challenge, and part of that research is looking at when we are likely to experience insurance retreat from the New Zealand coastline - and how

10

June 2019

that is likely to impact property values.

Storey says one difficulty is finding out exactly which areas in New Zealand may already be experiencing insurance retreat because it is information that insurance companies are reticent to make public.

“Anecdotally, we know that there are locations that have lost insurance,” said Storey.

“But when it comes to the availability of insurance, effectively no one who is involved wants to talk about it.

“So the insurers who are no longer making insurance available don’t want to provide that information. The homeowners who lose insurance don’t want to communicate, and the local council doesn’t want to communicate that.

“We know anecdotally that there are locations, and we can estimate where we anticipate those to be, but we don’t have information on that from the insurers or from the homeowners or the local council.”

Tower and IAG have both now moved to risk-based pricing, which

COVER STORY

requires people whose homes are at higher risk from natural disasters and weather events to pay more.

IAG was also reportedly reticent about issuing new contents insurance policies in Wellington earlier this year.

In terms of coastal properties, Storey said locations with a small tidal range and significant rainfall catchments were the most at risk.

“There are places around New Zealand that meet that criteria and the key point is the tidal range," she says. "You can have a location, for example, in Auckland which has a large tidal range, which means the probability of a storm surge coming in at low tide and not overtopping any of the fences. There’s a much better probability of that in Auckland than for example in Wellington, which has a much smaller tidal range.

“So you may have locations that, under sea level rise in Auckland versus Wellington, would both be inundated with 50 centimetres of sea level rise by the end of the century. But the Wellington ones will lose insurance earlier because of their tidal range.”

Jeremy Holmes, a principal at actuarial firm MJW, points to wellknown flood risk areas like South Dunedin as being an area often referenced as a “casualty of climate change”.

But a flood risk can also be very localised, he says.

“You can have house number seven on a street that may be in a onein-20-year flood zone and meanwhile number eight on the same street only floods at a one-in-200-year level,” he says.

“Modelling of climate-related risks needs to be done a very granular level.”

Christchurch may be another city to watch, where post-earthquake the water level table rose relative to the land and there was frequent flooding, resulting in excesses going up for every flood event.

Storms are another concern in a future with rising sea levels.

“The key factor is that even with very small amounts of sea level rise, that allows the existing storms to reach further in,” Storey said.

“So you can have something as little as a 10-centimetre sea level rise in Wellington, for example, that changes a one-in-a-100-year event or an event with a 1% probability to a 5%t probability .

“So that very small amount of sea level rise has a really significant shift

on the probability as far as insurance are concerned and if you get to that it is extremely unlikely that you will still have insurance.”

The timeline for insurance retreat or increased premiums is a matter of debate.

Holmes expected to see increasing numbers of uninsurable properties and put it down to a combination of properties being built in high risk locations due to increasing demand for land, better understanding of risk by insurers and other parties and the changing nature of climaterelated risk. “It is very likely we will see insurance coverage becoming unavailable or very expensive in certain locations,” he said.

But Tim Grafton, chief executive of the Insurance Council of New Zealand, said insurance retreat would not happen overnight.

“Clearly, though, there are many properties located close to the mean high tide levels which come under increasing risk of damage over the next decades as sea level rises and the climate changes as these conditions mean we will experience more extreme weather conditions,” Grafton said.

“This is why we are urging a strong focus on adaptation or risk reduction to enable insurance to remain affordable and available and many, though not all, territorial local authorities are addressing these issues.”

Rather than full retreat, Grafton said to expect a typical response of a pattern of increased premiums and/or increased excesses reflecting increased frequency of losses unless risks are reduced.

“The Parliamentary Commissioner for the Environment in a report released about three years ago identified properties around many parts of New Zealand that were close to today’s mean high tide levels and this is a good indicator of areas where local councils need to be looking at risk reduction plans,” Grafton said.

So how would house prices respond to insurance retreat? The news was not all bad, Storey said.

“People anticipate that if you would lose insurance that property values will crash, but it’s not necessarily the case.

“What we find is that property values are often quite sticky, and they bounce back quickly. www.covernote.co.nz

11

COVER STORY

“So even if you have something that is much more damaging than a loss of insurance, say an actual event, house prices will rebound within a really short period of time, sometimes as short as three years.”

That itself was surprising, said Storey.“What seems to happen is people tend to forget about things that should have changed house prices like a loss of insurance,” she said. “And so house prices don’t crash, and if they do dip they tend to recover.

"However, you do expect to see that house prices will decline over time.

“And if they get closer and closer to the period where you can no longer insure houses or borrow money to purchase houses then you would expect to see house prices fall more sharply.”

That did not, however, happen the moment that insurance was withdrawn, said Storey, because there will always be someone willing to pay cash for homes by the sea.

“For some there will always be a romantic attachment to a home that has a view of the sea or is close to the sea.

“So there will always be someone who is willing to pay for a particular home even if they can’t get insurance on it. They will instead pay for the property in full with cash, even if they can’t get insurance on it.”

In essence, said Storey, there would be fewer buyers, but there would still be buyers.

Grafton predicted property prices would eventually fall as limits on insurance cover started to create issues for banks and other loan providers who looked to insurance cover as underwriting for their loans.

“If insurance cover is harder to obtain or is not obtainable then banks will not provide loans,” he said.

"This, in turn, will limit the number of people who are prepared to purchase properties, thus reducing demand, and as demand declines, so do property prices.”

As New Zealand continues to see – and feel – the increased effects of climate change, attention will turn to the role of local government and the EQC. Storey said there was already significant discussion being undertaken within local government about its role going forward.

“At the moment EQC has potential liability in terms of storms and floods but only with regard to the land, not the house itself,” she said.

“So there are proposals that have been developed about whether we need to have an EQC-type model to be able to facilitate the movement out of the high-risk areas."

Grafton, however, warned against governments becoming too involved.

“If private insurance gauges the risks of insuring to be too high, it makes no sense for central or local government to underwrite these risks,” he said.

“Indeed, it would be unsustainable to do so and the real answer is to plan now to reduce risk and so avert these outcomes.”

It was important to remember that EQC’s current role was to operate as a first-loss insurer for properties that had secured cover in the private market, said Holmes. “Although it is possible to apply for cover directly with EQC.” EQC, however, was only able to provide the cover specified under the EQC Act and this included (capped) building damage due to natural landslip and land damage due to a storm or flood.

“Importantly, it does not include building damage due to storm or flood, other than via landslip,” Holmes said, “and EQC therefore has little-to-no ability to operate as an ‘insurer for the uninsurable’ under the EQC Act. “Local government has responsibility for determining whether or not a parcel of land is suitable for building on, and under what conditions.

“There is probably some scope for better cooperation between insurers and local government in terms of identifying land which is unsafe or 12

June 2019

uneconomical to build on and insure.”

A more difficult issue was what to do about locations with existing homes which might become uninsurable, Holmes said.

“This is either because there is a better understanding now about the risks present at that location than was the case when the council granted permission to build, or because the nature of the risk has changed over time.

“If a home becomes uninsurable then this will undoubtedly affect market values, and this is another issue various stakeholders will need to address.”

Storey said it was important for the industry to study and learn from overseas case studies regarding severe weather event.

She nominated what happened in Florida as a textbook example.

When Hurricane Andrew barrelled through the region in 1992 it left 26 people dead and destroyed 250,000 homes.

In the aftermath eight insurers went bust and private insurance withdrew from the market.

“Florida, in a way, has been a laboratory of what happens when insurance becomes unavailable because they’ve have taken a number of different approaches,” she said.

The storm was one of the costliest natural disasters in US history with an overall damage bill at the time of $US15.5 billion, leaving an insurance industry simply not able and not prepared to pay that amount in claims.

It was a wake-up call to the industry about how vulnerable insurance companies could be to a major catastrophe and how inadequately insurers were pricing their risks, Storey said, and Hurricane Andrew forced insurers to take a more responsible approach to how they managed their books.

In an effort to boost insurance capacity, insurance companies bought greater amounts of reinsurance from reinsurers less affected by Andrew.

“Additionally, another one of the approaches they did is they created a state-funded insurance to be able to sell the debt when the private insurance withdrew,” Storey said.

Called the Florida Hurricane Catastrophe Fund (FHCF), its purpose was to protect and maintain insurance industry capacity and it still provides reimbursements to insurers for a portion of their hurricane losses.

In New Zealand, insurance retreat is still very much incremental, Storey said.

“It is based very much on each insurer making decisions about their risk appetite but also their public relations.

“What we are seeing is insurers almost experimenting with lines about how they going to respond to increases in risk, for example, AIG’s recent public communications around providing seismic insurance in Wellington.”

Over the next 10 to 20 years expect to see the roles of actuaries expand, she says, and for the thorny issue of reinsurance to play a more critical role.

“We would expect to see availability of insurance based on an actuarial model but there’s also the broader question that you could have a withdrawal of insurance at a reinsurance level,” Storey said.

“This will be because either there’s a flood of capital out of the companies, or there is a growing understanding about, first of all, the frequency and severity of events and also the attribution of those events to climate change.

“As attribution science expands, there’s more confidence that these events are caused by climate change.

“And then you may get reinsurers saying, ‘We are not going to provide cover to these locations for these types of hazards’.”

Storey’s research will be published in September of this year.

HUMANS of NZI motor manager living a passion I

t would be fair to say that Oliver Jepson, NZI’s national motor manager - corporate and fleet, lives and breathes all things motor.

“I've been obsessed with cars my whole life, so it’s awesome that the focus of my working week is on vehicles.”

It was Jepson’s grandfather that sparked his interest.

“My grandfather was a huge Formula 1 fan, I grew up watching some of the greats like Ayrton Senna and Nigel Mansell.”

He says it’s always been a dream of his to be a professional driver but taking the driver's seat came at a cost, so he found an alternative to get up-close to the race track.

“I wanted to get into motorsport, but I quickly ran out of talent and money as car racing isn’t exactly cheap.

"One day at Pukekohe a cameraman didn’t show up, so I was asked if I wanted to film for TV and really enjoyed it – I then filmed drifting, v8 racing, Formula 5000, and go-karting for various motorsport programmes, for the next eight years.”

Being a motor insurance underwriter has given Olly the opportunity to combine his passion with his career.

The variety of the job is what’s kept him in insurance for 15 years.

“I like the fact that no two insurance risks are the same. Underwriting varies, depending on circumstances and is never black and white. I am always being challenged to come up with new ideas to solve our customer' insurance needs in an ever-changing world of exposures.”

Today, Jepson looks after some of NZI’s largest fleet customers. He provides tailored motor insurance and fleet risk management solutions, with the help of NZI’s broker partners.

“We work with our fleet customers on things like better monitoring and training of drivers; managing fatigue issues; and improving their risk awareness and safety culture as an organisation.

"I believe most New Zealand companies care about their employees and management of the risks they face, day to day behind the wheel is crucial. I enjoy being able to help companies do the right thing and when I see a video of a Seeing Machine wake a driver up, saving him from harming himself and crashing his truck, It gives me an absolute buzz.”

He believes that reliability, consistency and transparency are the most important parts of any broker/underwriter relationship.

“Our broking partners put a significant amount of trust in us, to be there when it matters for our customers – we need to deliver on that promise.”

14

June 2019

When speaking with Jepson, there’s a sense of pride as he talks about the NZI commercial motor team.

“I’m a firm believer that NZI has some of the best motor brains in New Zealand. It’s a privilege to work alongside the best in the business” The dream for Jepson is still to be strapped into a race car, zooming his way around the Pukekohe Racetrack.

“I admit that would be pretty cool, but this is definitely the next best thing.”

FEATURE

NZI

years strong Thanks for your support over the years.

www.covernote.co.nz

15

Cover Story

1859 NZI marks 160 years

By Joanna Mathers

T

he founders of NZI (then New Zealand Insurance) were unlikely to have foreseen a future when insurance advice came via the mouth (or, rather, speakers) of robotic advisers. In fact, when the company was established in 1859, the word “robot” wasn’t even in the common vernacular.

But it’s technologies such as these that will provide the industry with fresh challenges as we head towards the mid 21st century. And NZI’s executive general manager Garry Taylor says that these will be met head on by a company that’s celebrating 160 years in the New Zealand insurance business.

“We have a great history and we need to acknowledge this is a significant milestone for us. But we can’t rest on our laurels.

“We operate in such a dynamic and innovative industry, and need to keep ahead of the changes. At the same time, we need to bring to life the story of our history, and celebrate the trust and confidence we have earned.”

New Zealand in the 21st century is “a much riskier place” than it was at NZI’s inception, says Taylor. Climate change, extreme weather events, and recently, the horror of a terror attack are creating an increasingly complex environment for insurance providers.

But as the oldest insurance brand in New Zealand, NZI has weathered many (literal and figurative) storms.

It was there for the Napier earthquake in 1931, and withstood the shock brought on by the destruction of the town and the deaths of 256 people. It was there through the Great Depression, wars, cyclones,

16

June 2019

and remained strong through corporate changes such as its merger with South British Insurance in 1981 and the acquisition by IAG in 2003.

Taylor believes that while its owners are located elsewhere, NZI remains “an insurer for all New Zealand”.

“As an example, some of the brands aren’t insuring in Wellington due to the earthquake risk; but we have been there for all the disasters and will continue to be.”

But with an increased premium. The increases by the IAG brands in natural disaster or weather prone areas have raised questions in the mainstream media in the past few months. Taylor says that this reflects a move towards transparent, risk-based policies, and that educating the general public around this is vital.

“If someone buys a brand-new home in a flood prone area, it makes sense that the premiums will be higher. But this may level out with reduced premiums for homes in less risky areas.”

NZI will be spending the next 12 months celebrating their big birthday with an internal roadshow, the aim of which is to reflect on the achievements of the past and consider their wider culture and values.

“This will be a great opportunity to acknowledge the past and celebrate our history, and what we stand for.”

It’s a good time to be taking stock, with the Financial Services Legislative Amendment Act looking to change the way in which advisers and insurers engage with their customers and bring more transparency to the industry.

Cover Story

- 2019 Taylor sees this as an excellent opportunity to look at the industry as a whole and make sure advisers are putting clients at the forefront. “Having transparency, openness and clear communication as a bottom line can only do the industry good.

“As I see it, there should be a sort of conduct test that can withstand the court of public opinion, which is very vocal. The simple test is this: if you are not prepared to advertise aspects of a policy on the front page, don’t use it.”

He views the role of the adviser as being the conduit for knowledge, offering clients solutions that are spelled out in clear language and avoiding pitfalls that can come when the minutia of a policy isn’t made apparent from the outset.

“Transparency is extremely important. The changes that the act is proposing will put more ownership on the insurance brands to encourage all advisers to communicate policy details well.”

While there have been huge challenges industry-wide due to earthquakes, increased weather events, and lately the terrorist attack in Christchurch, they have brought with them opportunities for NZI and the wider industry to learn and respond to change.

“The earthquakes necessitated that insurers move from open-ended home insurance to set sum limits. And the Earthquake Commission changes have given insurers like NZI the opportunity to manage claims first after an incident like an earthquake.

“We can use these challenges to change the way we operate as an industry and learn from them.”

He goes on to say that NZI led the industry when it waived its terrorism exclusions after the tragic mosque shootings in March.

“This was a new event for us, and for New Zealand. It led us to explore the original extent of the policy wording and it felt like an opportunity for us to be purpose led. The policy is being reviewed; it’s complex as the exclusion is wrapped up in the relationship with reinsurers, but it is being addressed.”

“The waiver was the right thing to do and it will lead to changes in the future.”

Technology and the changing face of the workforces are other key areas in which Taylor sees challenges arising. As automation of the workplace increases, there will be huge implications for all industries.

Robo-advice is definitely on the cards, but for more complex insurance needs, the relationship between adviser and customer will remain vital.

Cyber risk is another area in which insurers need to stay ahead of the game. Developing products to help companies deal with cyber risks is a tricky business – risks are constantly changing and morphing – but IAG have specialists based in Australia who are charged with researching and developing products that mitigate future cyber threats.

Looking back is often a good way to inform the way in which a company looks forward. During NZI’s 160-year celebration roadshow staff nationwide will be able to consider their values and draw upon the strength and knowledge from 160 years at the coalface.

“We are a market leader, with a proven record of proactively manage challenges,” says Taylor. “And we need to use knowledge to explore thoroughly who we are and where we are going.”

He says that popular psychologist and speaker Nigel Latta has created a bespoke video for NZI that will be played during the roadshow.

“In it he talks about working with people from all walks of life and how relationships are the most important things. He says that it’s important for people to be themselves and understand what others are thinking, before you try to change it.”

This, in a nutshell, is what NZI is looking to achieve: great relationships with advisers, customers and those they work with. And by using the gravitas that comes with decades of experience, Taylor foresees a positive and innovative future.

“We want NZI to remain a trusted brand that people can have confidence in, especially at claims time,” he concludes. www.covernote.co.nz

17

FEATURE

WORK ACCIDENTS ATTRACT BIGGER CONSEQUENCES Brokers told to check policies have high enough indemnity limits to cover rising health and safety reparations.

T

he most significant recent development in statutory liability insurance has been the rising costs of reparation payments made to victims following health and safety prosecutions, says Adrian Tulloch, managing director of Vero Liability Insurance.

Paying reparations to victims has been a routine part of sentencing in health and safety cases for many years. The payments help to compensate the victim for the emotional harm resulting from a work accident as well as any further losses arising as a consequence of emotional or physical harm.

Reparations awarded for emotional harm have been steadily rising.

It is now common to see payments of $110,000 or more ordered if a person is killed at work. Ten years ago, this figure was likely to be around $60,000.

But it is the orders of reparations for consequential losses that have led to the most significant increases over recent years and the biggest impact for insurers.

18

June 2019

“The increases can be traced back to the Sentencing Amendment Act 2014 which allowed the Courts to order reparations to top up the 20% of a person’s earnings not covered by ACC income compensation payments,” Tulloch said.

“This opened the door to much larger reparation payments.”

In 2017, in the first case of its kind, the court ordered that a 27year old victim, who sustained tetraplegia from a work accident, be compensated for the 20% shortfall in his ACC compensation up until he was 65 years old.

The court discounted the total top up amount, which was based on an actuarial calculation, by 50% after observing that the victim had “benefitted” from ACC in other ways. Despite this, the reparations still amounted to $226,300 and, along with reparations for emotional harm of $110,000, the victim was awarded $336,300 in total.

A few months later, a 52-year-old victim who sustained severe and

FEATURE

permanent spinal injuries in a fall at work, was awarded reparations of $76,940 to bridge the 20% ACC income gap until he retired. On this occasion, the court applied a significantly lesser discount of 15% for the benefit brought by ACC. In addition, $100,000 was ordered for emotional harm.

The highest payment to victims to date came in 2018 when Oceana Gold (New Zealand) paid over $1 million to a deceased worker’s family. This included $660,000 which was voluntarily paid by the company before sentencing, and a further $350,000 ordered by the court to bridge the gap between ACC income compensation and what the worker’s income would otherwise have been. On appeal, the High Court set aside the additional order for $350,000 and directed that reparations should be based on Schedule 1 of the ACC Act. WHERE DOES THIS LEAVE BUSINESSES? “Thanks to the High Court decision, there is now more clarity around

reparation payments. Nonetheless, businesses can still expect to face large payouts, especially when victims are young and suffer severe and permanent disability,” Tulloch said.

The good news is that health and safety reparations are fully insurable – although Tulloch adds a note of caution.

“Brokers need to consider whether their client’s policy has an adequate limit of indemnity to cover what may be large reparation orders as well as substantial fees for legal representation and orders for regulator costs.”

“Added to this, if several or many people could be injured in one event like an explosion or structure collapse, the limit will need to factor in the potential for multiple reparation orders.

“For our part, Vero Liability has recognised the growing cost and complexity of health and safety claims by employing a specialist consultant. Jane Birdsall joined us in July last year after ten years with WorkSafe to help brokers understand and keep up with developments in this area.” www.covernote.co.nz

19

COVER STORY

DUTY TO DISCLOSE GETS UPDATE

by Lloyd Kavanagh, Jeremy Muir, Kara Daly, Andrew Suggate, Maria Collett-Bevan, Andrew Horne and Nick Frith, of Minter Ellison Rudd Watts

A

little over 20 years ago, the Law Commission published a paper with a title that hinted only vaguely at its contents: “Some Insurance Law Problems”.

It examined five unrelated aspects of insurance law that were generally accepted as problematic, with the potential to produce unfair outcomes.

The first issue discussed was the most problematic and contentious: an insured’s duty to disclose material circumstances to an insurer. Then, as now, under New Zealand law an insured owed an insurer a duty to disclose circumstances that a reasonable insurer would regard as material to its decision to accept the risk insured.

The Law Commission identified four problems with this approach: • what the insured is obliged to disclose is uncertain • an insured’s honest ignorance of what it must disclose will not assist if it fails to make the necessary disclosure • where an insurer asks specific questions of an insured, the insured still has a general duty of disclosure in addition to answering the insurer’s questions A breach of the duty may have disproportionately harsh consequences for an insured, as the insurer is entitled to treat the policy as void from the outset even if it would have accepted the policy had it known the relevant facts (albeit on different terms, such as a higher premium).

The Law Commission observed that non-disclosure issues were one of the main reasons for complaints to the Insurance Ombudsman (now the Insurance and Financial Services Ombudsman). Reference was made to judgments in which the courts had remarked upon the unfairness that resulted where insureds innocently failed to appreciate that circumstances outside the questions asked by the insurer, such as prior criminal convictions, were considered material by insurers.

20

June 2019

The Law Commission discussed a number of possible reforms, including the following: • limiting the duty of disclosure or changing what was considered material • warning insureds of their duty more clearly • requiring insurers to set out expressly what they required to know in questions (in effect, abolishing the duty and replacing it with an obligation to answer specific questions truthfully) • limiting the consequences for insureds of getting it wrong The proposals made were, in short, the following: • insurers would have 10 working days in which to pose specific questions to the insured and have them answered – within this time period the insurer could cancel the policy from the outset if it did not find the answers acceptable • only an inaccurate answer or “blameworthy” conduct would entitle an insurer to cancel a policy from the outset.“Blameworthy” was intended to mean circumstances where the insured knew, or a reasonable person in their position would have known, that the undisclosed circumstances would be material to an insurer HOW THE ISSUE HAS BEEN DEALT WITH IN THE UK AND AUSTRALIA In the intervening years, both the UK and Australia have passed legislation to amend the duty of disclosure.

In Australia, the insured’s duty is limited to disclosing circumstances that the insured knew or a reasonable person in their position would have known were relevant to the insurer’s assessment of the risk. The insurer must inform the insured of this obligation.

Furthermore, the insurer may cancel the policy for innocent non-

COVER STORY

disclosure only if it can prove (for instance by using examples of its refusals in other cases) that it would have refused cover had the circumstances been disclosed. In other cases, it may reduce the payment instead, for instance, by deducting the amount of a higher premium that it would have charged if disclosure had been made. Where a claim is fraudulent, a court may order that the insurer pay what is “just and reasonable”, which may be ordered where, for instance, the fraud related to an insignificant part of the claim.

In the UK, the duty of disclosure has been abolished for consumers, who instead owe a duty to take reasonable care not to make a misrepresentation when answering an insurer’s questions. Insurers are obliged to ask questions upon all circumstances that they wish to consider when deciding whether to offer cover.

Insurers may cancel consumer policies only for a deliberate or reckless misrepresentation by an insured (in which case they may keep the premiums unless it would be unfair to the consumer to retain them) or a careless misrepresentation where the insurer would not have accepted the policy if it had known the relevant circumstances. Where, however, the insured made a careless misrepresentation but the insurer would have offered cover on different terms (such as limited cover or a higher premium) then the policy will be treated as if it was entered into on those terms.

With business policies, the duty of disclosure is amended to a duty of “fair presentation”, in which the insured must provide enough information to enable the insurer to make a fair assessment of the risk or identify a need to investigate further.

On May 2018, exactly 20 years after the Law Commission’s paper was published, the Ministry of Business, Innovation and Employment issued

a paper inviting comment on (among other insurance issues) essentially the same issues with respect to insureds’ non-disclosure that the Law Commission had discussed. While observing that reform of insurance law generally was well overdue, no explanation for the lengthy delay was given.

That was followed, in late April, by an options paper.

It considers key issues within the insurance law framework. Any reforms that come out of this review may have a considerable impact on the insurance sector, so this will be of interest to anybody that provides or makes use of insurance.

WHAT DOES IT COVER? The options paper considers (among other things) the following: 1. OPTIONS IN RELATION TO DISCLOSURE BY CONSUMERS The options paper considers concerns regarding the existing duty for consumers to disclose material information to their insurer, presenting the following options: (a) Option 1: Duty to take reasonable care not to make a misrepresentation This option would abolish the duty of disclosure for consumer insureds and replace it with a duty to take reasonable care to not make a misrepresentation. Insurers will be required to identify, through questions, the information they need to underwrite the risk. (b) Option 2: Duty to disclose what a reasonable person would know to be relevant This duty would be to disclose information that the consumer knows, and that a reasonable person in the circumstances would be expected to know, to be a relevant matter to the insurer in making a decision to accept risk. www.covernote.co.nz

21

COVER STORY

(c) Option 3: Require life and health insurers to use medical records to underwrite This duty would remain similar to the status quo, however there would be an obligation on life and health insurers to seek permission to access consumer medical records and use those records to underwrite the risk.

Also being considered as “design options” that would apply to all the above listed options is a statutory requirement that insurers (i) warn insureds of the duty in writing before any contract is entered into and (ii) inform consumers about whether and when they will access third-party records (including whether this would relieve the insured of the duty to disclose particular matters).

WE STILL EXPECT THE END RESULT TO INCLUDE SOME CHANGE (LIKELY A REDUCTION) IN THE DUTY OF DISCLOSURE.

2. OPTIONS IN RELATION TO DISCLOSURE BY BUSINESSES (a) Option 1: Duty to disclose what a reasonable person would know to be relevant This option is similar to Option 1(b) above for consumers, however applies a higher standard.

Under this option, businesses would be required to disclose what a reasonable person would know to be a material fact. (b) Option 2: Duty to make fair presentation of risk This duty will require businesses to disclose every material circumstance which they know or ought to know, or if they are unable to, to make disclosures that gives the insurer sufficient information to put a prudent insurer on notice that it should ask further questions to reveal those material circumstances. (c) Option 3: Duty to take reasonable care not to make a misrepresentation As per option 1(a) above for consumers.

3. OTHER DISCLOSURE CONSIDERATIONS The options paper also considers: • the question of whether the business disclosure duties should apply to small business (including proposing how “small businesses” should be defined); and • options in relation to disclosure remedies (i.e. options to provide remedies based on intention and materiality, or on materiality only).

4. OPTIONS IN RELATION TO UNFAIR CONTRACT TERMS The options paper also looks at how to respond to unfair contract terms (UCT) in insurance contracts, presenting the following options: (a) Option 1: Tailor generic UCT provisions to insurance This option would remove the insurance-specific exceptions but amend the generic UCT exceptions to accommodate specific features of insurance contracts. (b) Option 2: Rely on generic unfair contract term provisions This option would remove all insurance-specific exceptions from the Fair Trading Act. The generic UCT provisions would apply to insurance contracts unconditionally. (c) Option 3: Completely exempt insurance contracts from UCT provisions and rely on conduct regulation 22

June 2019

Under this option, insurance contracts would be largely or completely exempted from the UCT provisions in the Fair Trading Act. The costs and benefits of this option would rely on the outcome of the separate review being carried out by MBIE into the way that conduct is regulated in the insurance industry.

5. OPTIONS IN RELATION TO UNDERSTANDING AND COMPARING POLICIES The paper lastly looks at the difficulties consumers face in trying to understand and compare policies, presenting the following options: (a) a requirement for insurers to present their policies in plain language; (b) a requirement for core policy wording to be clearly defined; (c) a requirement for policies to highlight core policy terms or include a summary statement to draw consumers’ attention to the key aspects of the policy; (d) a requirement for insurers to work with third-party comparison platforms; and (e) a requirement for insurers to disclose key information to clients in a clear, concise and effective manner, using plain language.

OUR VIEW We still expect the end result to include some change (likely a reduction) in the duty of disclosure.

It will be important for insurance companies to engage in the law reform process at this stage to ensure any law changes are fit for purpose.

We view the Australian approach as problematic, as it only partially answers the main problem with the present duty, which is that many insureds do not know that they must disclose circumstances that an insurer would consider material and they do not know what those circumstances are. There is also considerable uncertainty as to what a reasonable person should know about insurers’ views. If the obligation is amended to a “reasonable person” test, this will leave insureds at risk.

The UK regime may be preferable, at least insofar as it relates to consumers, as a requirement that insurers ask questions that identify what circumstances they consider relevant should be easier for insureds to follow and should help them make full and honest disclosures. There is, however, a significant disadvantage from an insurer’s perspective, which is the risk that an insured may be aware of a circumstance that is clearly relevant to the risk but is so unusual that it is not within any of the insurer’s specific questions.There is also a risk that insurers may feel obliged to ask a large number of questions about matters that will be irrelevant for the great majority of insureds, which will produce inefficiencies. The Law Commission did not regard either of these factors as insurmountable, giving examples of general questions that insurers could ask such as “Do you know of any reason particular to you why you may not attain your normal life expectancy?”, while not going so far as becoming a general question about any risks, which would reintroduce the common law duty by the back door. However, it is too early to say how requiring insurers to ask questions about every matter about which they expect disclosure will play out.

It is less clear why there should be a different approach to consumer and business insurance, as in the UK. Many businesses are no more sophisticated than consumers when it comes to placing insurance and if a regime is considered fair and effective for consumers it is not easy to see why it should not be applied consistently to all insureds.

The UK approach to remedies in consumer insurance, where policies may be avoided only where the insured has been deliberate or reckless or where the insurer would not have accepted cover, but the policy in other cases is amended to reflect the arrangement that the insurer would have accepted, also seems fair and practical in principle. There may be difficulties, however, in drawing the line between conduct that is reckless and that which is merely careless.

FEATURE

KEEP YOUR BUSINESS AT THE TOP OF ITS GAME. @AIGRugby

The All Blacks and Black Ferns success on the field comes from their focus and preparation off it. At AIG, we take the same philosophy when developing insurance solutions, making sure we’re there to help businesses tackle their future with confidence.

aig.co.nz

|

Talk to AIG today.

www.covernote.co.nz

23

COVER STORY

WELLINGTON: WHAT’S REALLY HAPPENING HERE?

By Tim Grafton

T

o understand what is happening to insurance in Wellington, it’s worth reflecting that the November 2016 Kaikõura earthquake caused about $1.5 billion of insured losses in the city. That’s from an event with an epicentre about 200km from the capital.

The economic losses from the Canterbury earthquakes were about $40 billion, or 20% of GDP at the time.The insurance and reinsurance sectors met about $34 billion of that cost, something they were able to do because we have the highest levels of property insurance penetration in the world.

24

June 2019

In an ideal world, we maintain that penetration and insurance remains affordable and available. What we don’t want is to end up like other risky places, such as California and Japan who are woefully under-insured. It’s time for serious debate to be had about whether the inhabitants of one of the riskiest countries in the world (us) can expect that no matter what happens, either insurers or the government will always put them back to where they were before catastrophe struck.

Should we expect there be an open-ended commitment to pay for losses, whatever the cost or circumstances? Wouldn’t that serve to

remove the incentive to share or reduce risk?

Wellington has always been at higher risk of earthquake than most of the rest of New Zealand. For this reason, the Reserve Bank, the prudential regulator of insurers, requires all New Zealand insurers to be sufficiently capitalised or have the necessary reinsurance to meet the costs of a one-in-1000-year earthquake event occurring within 50km of the Beehive.

The way insurers work out how much capital they need is to rely on models that calculate the probable loss incurred for such events. Following the Canterbury earthquakes, which proved the models to be more than

COVER STORY

Tim Grafton is chief executive of the Insurance Council of New Zealand.

100% incorrect, the companies that create the models recalibrated New Zealand’s risk to achieve more accuracy. One of these models, finalised in the last couple of years, showed a 30% increase in New Zealand’s projected annual average loss due to earthquakes.

The Kaikõura earthquake was not included in the revised modelling, yet the losses here were big for such a geographically-remote event. When risks get higher, there are always predictable and prudent insurance responses – prudent because insurers need to be here for the long-term and be able to meet the costs if the worst happens.

One notable effect of the Kaikõura earthquake was the total loss of modern multistorey buildings, some of which exceeded the seismic resilience requirements in new building standards (NBS). New Zealand has always prided itself on the seismic resilience of its buildings, so to have lost so many new buildings shows that something is wrong with our current building standards. While they appropriately address the importance of preserving the lives of those within them during an earthquake, they do not address building resilience – the ability to withstand a big quake and still be largely functional afterwards.

There are serious issues for our building sector to address. There is systemic noncompliance with the installation of nonstructural seismic restraints and passive fire protection systems in commercial buildings.

This is far from the first time we have said so!

The options available are to 1) increase premiums to better reflect the risk, 2) limit the amount of cover provided by raising excesses, 3) limit the amount some items will be insured for or exclude some items from being covered or 4) avoid taking on the risk altogether.

Remember: insurance has never existed to take on all risks – only some and only to a www.covernote.co.nz

25

COVER STORY

prudent level.

One of the casualties of the Canterbury earthquakes was a New Zealand insurer, the old AMI. It was insuring about one-third of all the homes in Christchurch and was unable to meet its commitments to its policyholders after the earthquakes because it was overexposed.

Exposure, then, is also an important consideration for insurers.

There has been a lot of attention paid to New Zealand’s largest insurer, IAG. They have been accused of withdrawing from the Wellington house and contents market and leaving people without options for cover. This is far from the truth. They are not withdrawing from the Wellington market. IAG has confirmed they are open for business in Wellington for both existing and new customers. They see

natural disasters. These buildings typically have an excess equal to about 5% of the sum insured for their earthquake cover. That means that for a $20 million sum insured, owners pay the first $1 million of losses themselves.

For those living in a predominantly commercial building, they’ll need to contribute to the first loss before EQC and insurance apply. This is what happened for residents of a Marion Square property damaged by the Kaikõura earthquake because EQC assessed their building as being predominantly commercial.

If you don’t believe this is a desirable outcome, the solution lies in changing the EQC Act. Of course, all that is assuming they’re still taking out cover for natural disasters. Despite it

risks and deliver affordable cover for their customers. Some have offered up a small number of buildings in Wellington as part of a larger portfolio composed predominantly of less risky properties. Others have offered a portion of a building to multiple insurers, spreading the risk more widely and therefore making the property more attractive to underwriters.

On the importance of maintaining affordability and accessibility, there’s another policy issue government might want to consider: Should body corporates be allowed to insure for a lower level of indemnity and so share the risk more evenly with their insurer?

Recently, it has been suggested that a stateowned insurer could be the answer to these issues. But could it? A state-owned insurer

the Wellington region as a very important market and will continue providing home and contents insurance there. All insurers providing house and contents insurance have the same commitment. Each insurer will have different appetites for risk, how they want to price it, and how much share of the market they want.

So, when you contact them, expect a different response from each. But no one is withdrawing from Wellington.

Some apartment dwellers are also facing issues. An apartment building is also, from an insurance perspective, a commercial building, presenting a single, complex risk. Insurers will look at this risk differently to a stand-alone house and price it accordingly.

For solely residential properties, the EQC Act provides some first loss support. For properties that are more than 50% commercial use, however, commercial property insurance does not qualify for EQC cover for losses caused by

being a contravention of the Unit Titles Act for body corporates to choose not to fully insure their property, we’re hearing anecdotal reports that some people are making this decision.

There’s no doubt the underwriting environment for commercial buildings in Wellington has changed since the Kaikõura quake. The damage to modern multi-storey buildings noted earlier in this piece was a real shake-up for commercial insurers as it showed the disconnect between current NBS and true building resilience. It’s understandable, therefore, that insurance for a single commercial property could become more costly. An unresilient commercial building in a seismically risky area is, after all, a large and potentially costly risk.

But a change in underwriting environment shouldn’t necessitate that people give up their commercial natural disaster cover.

Increasingly, we’re seeing brokers looking to innovative solutions to place Wellington

would still need to retain sufficient capital for a 1-in-1000 year event (a governmentmandated requirement for insurers operating in New Zealand); source reinsurance offshore; and model, rate and price risk. Unless there was additional government support for first losses or the business was partially subsidised, it’s unlikely the cost to consumers would end up being that different. And that’s without accounting for how the money would be found to pay for such a venture. In any event, state subsidisation in many jurisdictions has led to bankruptcy.

This brings us back to the fundamental issue of how much risk individuals, EQC, insurers and, ultimately, the government should take on and how much we should all be investing in reducing risk. In a post-Canterbury, postKaikõura world, these are the difficult topics we need to be discussing. The sooner we start, the better.

26

June 2019

FEATURE

Underwriting

Claims

Support

Account Liasion

Assessing & Logistics

5-Star service happens when all services are under one roof.

Handling every aspect of our policies in-house is good for you and your clients.

We are experts at creating and managing niche vehicle insurance policies. We specialise in RVs Motorcycles, Prestige, Vintage, Classic, Project and European cars. We prefer building solid relationships to create custom policies for your clients.

But we also offer a self-serve option through our advanced, secure Broker portal system.

We’ve set the industry benchmark for 360 degree policy support because

everything we do happens on one floor in our Auckland building. Not separate buildings, or cities or even countries.

We outsource nothing, which means we have an incredible wealth of knowledge inside our four walls. 9.9/10 times the person you speak to has the authority to make things happen.

That kind of superior, full service experience makes a huge difference to our brokers. But more importantly, it makes our brokers look like rock stars to their clients. Any questions?

Our underwriters sit next to the claims and assessing teams, so we can provide answers fast, often whilst you’re waiting on the phone.

Find out more about our family of products. starinsure.co.nz

Find us online:

Call us:

Email us:

starinsure.co.nz

0800 250 600

admin@starinsure.co.nz

www.covernote.co.nz

27

FEATURE

CYBER RISK PRODUCT AIMS TO FILL MARKET GAP D

elta Insurance has partnered with global security leader DynaRisk to deliver a cyber-protection and insurance product for businesses and their employees and customers across the AsiaPacific region.

Delta Insurance Group managing director Ian Pollard said the cyber-risk product, which will be managed and marketed from Delta Insurance’s New Zealand and Singapore offices, was a first for the AsiaPacific region, where industry commentators have long lamented the lack of innovation in cyber-risk solutions targeted at smaller enterprises.

Delta Insurance New Zealand chief executive Craig Kirk said cyberattacks increased 205% last year in New Zealand and individuals bore the brunt of 65% of the financial losses reported in 2018 to CERT NZ, the New Zealand Government’s cyber-attack monitoring department.

One in five of the 3445 cyber-breaches incurred a financial loss; total losses for 2018 came to $14 million – “and that was only those matters reported; inevitably this is likely to be the tip of the iceberg,” he said.

“Netsafe has also reported that the losses were around $33 million from 13,000 instances of scams or fraud.”

Currently 82% of losses from cyber-attacks are not reimbursed, and victims take on average nine hours to recover, Kirk said. “Businesses can lose whole days of trading.”

While cyber-insurance isn’t new, the combination of insurance and risk mitigation in this part of the world is, Pollard said. “We’ve been involved in cyber-insurance for some time, but we’ve been concerned there hasn’t been much in the way of proactive and user-friendly, upfront protection against cyber-crime available.

“We’re passionate about this area and have been looking for some time for a product like DynaRisk, which mitigates risk by providing an initial assessment of the current state of exposure and then provides practical, guided steps that customers can take to improve their risk position.While we can provide DynaRisk independently of an insurance solution, it also sits perfectly with a robust insurance package for those hopefully rare occasions when breaches do occur. We’re thrilled to have entered into this exclusive partnership with DynaRisk in the Asia-Pacific and Australasian region.”

Kirk said the Delta/DynaRisk package was intended initially for businesses but was perfectly applicable to their customers, their employees

28

June 2019

or their family members. “We’ll be offering it to both new and existing commercial cyber-insurance customers, individuals and their families.”

He said affinity partners such as banks and telecommunications companies would be strongly attracted by the opportunity the product presented to minimise cyber-exposure for their customers, while insurance brokers will welcome a solution for the increasing number of clients suffering cyber-scams and fraud.

“In addition to SMEs, we’re keen to work with banks, life insurers, telecommunications and technology companies and corporates in general to build this product into what they offer their customers and employees – and the response so far has been enthusiastic. But this is a package that can benefit anyone who is exposed to the internet’s cyber-dangers and we’ll be exploring how it may be possible to take this offering to an even wider audience.”

Pollard said customers taking up the offering received a cybersecurity scorecard which told them how well-protected they were, a step-by-step continuous action plan to tighten security and monitoring of multiple devices, a personal dashboard which included alerts if security and anti-virus software were not installed or were vulnerable, simulated phishing, and router scans. “DynaRisk helps the customer avoid losing sensitive information, photos and data, suffering fraudulent transactions or personal information theft, and being attacked by ransomware.”

Kirk said, for businesses, the scorecard also enabled them to identify if employees’ data was on the dark web, which could increase company exposure to cyber-attack.

DynaRisk has access to 1.4 billion records where individuals are comprised through email and password theft on the dark web that they can review, and it reduces this risk of such theft by specifically enabling employees, the weakest link in almost all cyber-attacks, to reduce their cyber-risk exposure.

DynaRisk founder and chief executive Andrew Martin said customers and small businesses were increasingly asking their cyber insurers to mitigate their risks because they wanted more than just an insurance policy to help keep them safe. “We are thrilled to join with Delta and bundle our Cyber Security Score into consumer and small business policies.Together, we can now offer insureds a comprehensive prevention, monitoring and response solution backed by insurance.”

START SOMETHING

amazing

The time has never been better to start your own Broking business Insurance. It’s what you know. It’s what you do best.

Join Insurance Advisernet today and get access to

So why not reap the rewards with your own Broking

leading systems and processes that will both support

business?

you through the legislative changes ahead, and enable you to do what you do best - focus on your

Partner with Insurance Advisernet and you’ll retain 100% ownership of your clients while benefiting from the strength of one of NZ’s fastest growing insurance

clients and give advice.

For a confidential discussion, please contact:

networks.

Change is coming and now is the time for the Professional Broker who gives their clients quality advice, to shine. The opportunity is real and it is now.

David Crawford Sue Crawford Travis Atkinson

+64 21 905 537 +64 27 224 5900 +64 27 505 1912

FEATURE

QBE PLEDGES SUPPORT The QBE Foundation has announced its 2019 charity partners, confirming renewed agreements with seven existing partners. The agreements include new and continuing multi-year support pledges from the insurer’s Australia Pacific philanthropic arm.

The QBE Foundation confirmed it would continue to support charity partners R U OK?, Foodbank, Mission Australia, KidsCan New Zealand, The Kids’ Cancer Project, Assistance Dogs Australia and McGrath Foundation.

QBE Foundation chair Bettina Pidcock said the QBE Foundation had renewed the agreements based on the charities’ significant community contributions in 2018 and chose to provide continued support to ensure sustainable and positive impact over time.

“As an insurer, we’re in a unique position to help people and communities in their times of need – the QBE Foundation and our work with our charity partners is one of the ways we do this.

“Importantly, we recognise that certainty of funding is a challenge for the not-for-profit sector and ongoing support is vital to success.

“Provision of continued support and multi-year commitments allows us to address this, support longer-term projects, leverage momentum and ultimately achieve a deeper and broader impact long term.

“Beyond a financial contribution, our partnerships also allow our people to get involved in many ways, including volunteering, fundraising, and other activities and events which raise awareness of the various causes.”

Pidcock said the foundation had committed to more multi-year partnership arrangements than ever before.

“For example, this year we’ll be broadening out our work with R U OK? by funding and supporting its R U OK? in Sport campaign.

The campaign will launch later this year and through our multi-year partnership we’ll continue to share its critical peer-to-peer support message with the sporting community for years to come.

“Another example is our work with McGrath Foundation. Our donation directly funds McGrath QBE Breast Care Nurse, Vicki Bell who we’ve supported since 2014, and our agreement means we’ll continue funding her work until 2021, at a minimum.”

Along with its charity and community organisation partnerships, the foundation has numerous programmes in place to help QBE’s people support causes that matter to them.

Additional programmes for staff include local grants up to $10,000, donating through workplace giving, fundraising effort support through.

Big changes are coming to our industry.

Are you equipped to weather them?

Apex are prepared to meet the demands of a changing world.

Considering selling your business or working under our licence?

Let’s talk options.

Email jamesm@apexinsurance.co.nz or phone 021 625 634

30

June 2019

Thinking of selling your business?

Do you have an exit plan?

Talk to us today.

“Rothbury are a progressive company, joining them just seemed so right.”

JANE COOK, COMMERCIAL BROKER

rothbury.co.nz

CHRIS HUGHES P 021 241 7231 CHRIS.HUGHES@ROTHBURY.CO.NZ

PAUL MUNTON P 021 243 9207 PAUL.MUNTON@ROTHBURY.CO.NZ

Your clients care about the environment and so do we.

Our windscreens are recycled into bottles, glass wool building insulation and sand for top turf.

Choose the company that recycles more glass than any other repairer.

FEATURE

WHO ARE YO Here’s how to build up your personal brand as an independent insurance broker

By Lou Draper

Y

our personal brand is about your reputation and being known for what you do. Have you heard of it? Let me fill you in.

Regardless of where you are on the experience scale of insurance brokerage, or how thick your book is, you probably know that if your clients are currently falling from the sky, busting down the door to work with you, that it won’t last forever. Similarly, if you are just starting out on your own, thinking about how you’ll build up your business could take up a bit of your time. Here’s where a strong personal brand can help.

Your personal brand is being known by others for what you do. That means when people are discussing insurance and their requirements, that it is your name brought up in conversation, and not your competitor’s.

All you need to build up your personal brand is a bit of prep work, and some consistent delivery of value to anyone you come across.

Let’s assume you’re starting from scratch, and no one knows who you are.You’ll need to kick off with some prep work.

DEFINE YOUR BRAND Insurance is a big game. What type do you specialise in? How do you help your customers? Who are they? Do you help retired people feel secure with their house and contents, or are you working with younger people who may have bought their first home? Do you work commercially with businesses? Once you know where your skills are best suited, you can start to build your purpose statement. And this statement 32

June 2019

can be used in your social media bio statements, too.

“I help business owners to understand what insurance they need, so they can feel secure knowing they are covered for any eventuality.”

“I help young families understand what cover they need for their homes and families, so they are covered for any eventuality at home.”

In this purpose statement you can also add what makes you different and why people should choose you to help them. You could state your years of experience, or your empathy and understanding if you have a young family too.

Once you’re clear on who your customer is, and how you’ll help them, it’s time to start building your profile and reputation. And you can do this by demonstrating your value online. Note, this is not the time to pull marketing offers together or use social media as a sales channel. For now, you’re going to earn the trust of random strangers on the internet and get known for what you do.

DEMONSTRABLE EXPERTISE Arguably the best place for you to demonstrate your expertise is a website or blog. Somewhere you can create important and useful content that your potential customers are already searching for. A new website won’t necessarily have enough power behind it to rank on the first page of Google, but you can start by thinking about all the questions you’ve been asked by your target market, and writing content that is snappy,

FEATURE

OU, ANYWAY? Lou Draper is a managing partner of communications specialists Draper Cormack Group.

short, and interesting on those topics. Perhaps the most frequent question you get asked is “how much cover do I need?” and while you’re possibly groaning at the response you always give, this is a great opportunity to be the insurance broker that explains all things insurance in simple to understand, and entertaining ways. Perhaps a video is the best way to explain. Or maybe you are a killer illustrator in your spare time and can draw your explanation. The main thing is to think of questions you get asked all the time and answer them in a way that your target market will love.

SOCIAL MEDIA Online promotion of what you do is no longer optional. It’s also a lot of hard work. In order to be successful with social media for your insurance brokerage, it’s important that you only choose the platforms where your target market hang out and platforms that you love to use. It’s highly unlikely that you’ll find your target market of retired people hanging out on Instagram, but Facebook is much more likely, and so that’s where you need to put most of your effort. Keep this in mind though, social media is not a channel for direct selling, only for contributing to the conversation.

WHO ARE YOU? It’s also important to name your social media channels with the same account name. We are talking about raising up your profile here, and so

if you are called John Doe on Facebook, but JDInsurance on Instagram and DoeInsurance22 on Twitter, people will have a hard time finding you when they have heard or read about you somewhere else. A strong personal brand will be based on your first and last name, not a made-up company name, however, the most important thing here is that your name is memorable. Perhaps you work with young families, maybe you have a young family yourself. You could create a website called “The family guy – explaining insurance to keep your family protected” Rather than “John Doe Insurance” It all comes down to your target market and what sort of name will be memorable for them.

And if you’re a new recommendation to someone, they will be looking for social proof that you’re worthy of a phone call. Here’s where using your blog and your social channels to deliver value will help. That value can be a blog post on how to read the fine print of an insurance policy document, a run through of types of insurance a new business owner needs, or maybe your niche is actually looking after the insurance needs of a contractor in public service – you could write a mini glossary of what terms mean to help them understand what they need to be fully covered at work.

If any person looking for insurance cover feels well supported with the value you’re sharing before any exchange takes place, your personal brand will reflect this. www.covernote.co.nz

33

IFSO

ADVISERS SHOULD EDUCATE CLIENTS ABOUT GRADUAL DAMAGE T

he best time for clients to understand how insurance works is before they might need to make a claim, says Karen Stevens, Insurance and Financial Services Ombudsman.

“Advisers have a really important role in educating their clients about what an insurance policy does and doesn’t cover."

She said gradual damage was a good example of where more information would help clients.

“We hear from many people who don’t understand that insurance is there to cover you for damage which happens suddenly and accidentally, and not for damage that happens gradually.

“12% of all general insurance complaints to the IFSO Scheme relate to gradual damage,” Stevens said.

“People make claims for damage that has developed slowly, or gradually, and they are very unhappy when they learn it’s not covered.

“Water damage is a recurring issue, especially when the damage is discovered suddenly, but has been happening over time. It might be the much loved and watered plant which has caused the carpet below to rot, or the rotten laundry floor which suddenly gives way, having been saturated by a leaking washing machine for months."

She said clients needed to understand it was not the discovery but the cause of the damage that had to be sudden.

"Your clients need to know that if they do find a leak, they should take immediate steps to prevent further damage and notify their insurer.

If they don’t take immediate action, they won’t be covered.”

She said one homeowner discovered her driveway was sinking in the middle. But after she made a claim she found it was the result of water leaking from a basement that had flooded months earlier. Her claim was declined.

34

June 2019

GENERAL INSURANCE COMPLAINTS ACCEPTED 2018 Other 1%

Commercial Property 8%

Travel 24%

Contents 8%

234

COMPLAINTS

House 39%

Motor Vehicle 20% Marine Craft 3%

Liability 3%

TOP TIPS FOR ADVISERS TO SHARE WITH YOUR CLIENTS Gradual damage is a common exclusion in insurance policies.

2. The cause of the damage (not the discovery) must be sudden.

3. The insured must show that the damage was sudden to get cover.

4. The onus is on the insurer to prove an exclusion relied on if cover would otherwise be available (e.g. that the cause of the damage was gradual deterioration, mould, mildew or rust).

5. Some policies have limited cover for gradual damage, which

IFSO

applies in certain circumstances, set out in the policy (e.g. water leaking from an internal waste disposal pipe with limited cover up to a set sum).

2018 CASE STUDY After the insured's property manager inspected her rental property, she said the floor in the lounge in front of the ranch slider was rotting, and there was a hole due to water ingress through the ranch slider from storms.​ ​The insurer’s loss adjuster inspected the damage to the carpet, particle board flooring and a timber door jamb and concluded it was the result of an on-going leak through the ranch slider. The damage was, therefore, gradual in nature. The loss adjuster appointed a builder to inspect the damage and the builder reported that the damage had been caused by long term water leaks, over many months. ​ The insurer said the cleaning and drying costs of the carpet that would have applied for sudden damage would be covered, but it was not economical to proceed with the claim, as the costs were the same amount as the excess.

The client complained. She said the water damage was not visible as it looked like the carpet stain had happened in one or two events, and the tenant hadn’t told her about the stained carpet and damp smell until it was too late.​ The insured said the damage was caused by continual rain ​ “hammering” at the ranch slider, and, as soon as she saw a stain on the carpet, she immediately contacted a builder to fix the problem. She said it was “hidden and could not be physically seen unless you pulled the carpet up”.

POLICY WORDING: The policy covered “accidental physical loss or physical damage”,

where accidental meant a “sudden and unforeseen event, not intended or expected by” the insured. Cover was excluded for “mould, mildew, rot, fungi, or gradual deterioration”, and “any other gradually operating cause”.

EVIDENCE The loss adjuster’s report:​the damage was “a result of an on-going leak through the ranch slider door and is therefore gradual in nature.” ​ The builder’s report:​the “flooring had suffered from long term water leaks … to completely fall away would have taken many months of exposure to the leaks.”

IFSO SCHEME INVESTIGATION The IFSO Scheme case manager spoke to the property manager and the builder the property owner had engaged to repair the damage.

The property manager said she found the carpet was damp and, when she pulled it up from the edge, the carpet was soggy and disintegrating, the particle board flooring was flaking and a hole had developed in the floor from the water.​ The case manager also reviewed the photographs taken by the loss adjuster, a few days after the claim was made. The photographs showed the stain on the carpet, the hole in the floor, the watermark, and flaking and discolouring of the floor. The extent of the damage indicated that it could only have happened over a period of time; none of the aspects of damage identified in the photos usually occurred in a one-off drenching by water.​ Although the damage to the carpet and flooring was partially hidden, and the insurer had become aware of it suddenly, the cause of the damage was gradual. It had not occurred immediately or all at once.

COMPLAINT NOT UPHELD www.covernote.co.nz

35

OPINION

SHOULD THE EXISTENCE OF DOUBLE INSURANCE BE LIKE A GAME OF...

Scissors

Paper ROCK 36

June 2019

OPINION

I

nsuring the same risk twice with different insurers is not as silly as it sounds.

In the early days of marine insurance, insureds commonly purchased more than one insurance policy to cover the same risk in order to protect themselves against insurer insolvency. In England, insureds placed the bulk of their marine insurance with individual underwriters through a certain coffee shop called Lloyd’s Coffee House. Those individual underwriters were not subject to any financial controls and insolvencies were common.

Before you dismiss the risk of this happening in New Zealand today, I remind you of AMI and CBL, and of HIH in Australia. In the USA, AIG narrowly avoided insolvency through a government bailout.

By having more than one policy, the insured could decide which insurer to claim against and in what order. This was viewed as unfair to the insurer first claimed upon as it was forced to bear an unfair burden of the insured’s loss. The law addressed this unfairness by developing the doctrine of contribution, allowing the insurer first claimed upon to spread the claim amongst all the other insurers on risk.

It is more common these days for double insurance to occur by accident.

A good example is a building contractor with its own comprehensive liability insurance entering into a contract with a head contractor or principal, which requires that party to arrange liability insurance for the benefit of all the parties. Unwittingly, the building contractor now has two liability policies.

Over time, insurers developed clauses in their policies that tried to contract out of the right of other insurers to seek contribution from them in an effort to deflect the loss entirely to other insurers. Insurers commonly call these clauses ‘double insurance’ or ‘other insurance’ clauses.

Insurers have come up with ever more elaborate clauses, leading to determining which insurer bears the claim being determined in a similar way to the game of paper/scissors/rock.

PAPER/SCISSORS/ROCK Although the exact drafting will vary, there are generally three levels of clauses.

At the lowest level, there is the rateable proportion clause. This clause says that where there is double insurance, that insurer’s policy only pays to the insured its rateable proportion of the loss. In the absence of both policies having any double insurance clauses, this probably would have been the outcome anyway. However, this clause allows the first insurer to only pay its portion and to force the insured to go to the other insurer to collect the other portion. That way, the first insurer avoids having to pay the claim in full and then obtain contribution from the other insurer later.

At the middle level, there is the excess clause. This clause says that where there are two policies covering the same loss, the policy with the excess clause only pays in excess of the other policy. In other words, the other policy goes first and only once it is exhausted does the policy with the excess clause start meeting the loss.

At the highest level is the escape clause. This clause often appears as an exclusion and it says that where the loss covered under the policy is covered under any other policy to any extent, there is no cover under the policy with the escape clause at all.

These days it is common for all policies to have a double insurance clause. However, which level it has varies between insurers. This has resulted in a number of court cases where the courts have had to interpret competing clauses at different levels in order to see what the net effect of both of them is. They have also had to interpret competing clauses at the same level.

Subject to compulsory legislation, parties are free to enter into contracts on whatever terms they desire. The court’s task is to interpret them. As a number of the cases show, the interaction between double insurance clauses may result in the courts interpreting one policy in a way that it meets all of the loss, and the other policy in a way that it meets

none of it. In this situation there is, in fact, no double insurance because of the interaction between the clauses.

This exercise has led to the paper/scissors/rock analogy.This is because generally, a rateable proportion clause is gazumped by an excess clause, and an excess clause is gazumped by an escape clause. In each case, the gazumping policy ‘wins’ and pays nothing.

What happens when both policies have an excess clause or an escape clause? The courts have ruled that this leads to an absurdity whereby whichever policy is looked at, the other policy responds. In order to give the contract business sense, the courts have ruled that the clauses cancel each other out and the default common law position of each policy paying its rateable proportion applies.

ALLIANZ INSURANCE AUSTRALIA LIMITED V CERTAIN UNDERWRITERS AT LLOYD’S OF LONDON A good example of the courts interpreting competing clauses occurred recently in the New South Wales Supreme Court decision of Allianz Insurance Australia Limited v Certain Underwriters at Lloyd’s of London [2019] NSWSC 453.

The Allianz insured entered into a contract with a state road authority to upgrade a road. Under the contract, the authority agreed to arrange a full suite of insurance policies that insured not only itself, but also all the contractors including the Allianz insured. The Allianz insured already had its own suite of insurance policies with Lloyds of London.

The underlying insurance claim involved a payment of approximately A$1 million. Allianz paid this and then upon discovering the Lloyd’s of London policy, sued the syndicates involved for contribution on the basis that both policies covered the liability. The syndicates resisted, because in their view, properly interpreted the two policies did not create double insurance, and the claim sat entirely with Allianz.

While it was slightly more complicated than this, the Allianz policy had an excess clause and the Lloyd’s of London policy had an escape clause.

The court found, after carefully interpreting the competing policy’s double insurance clause side by side, that the loss fell to be covered under the Allianz policy only. There was no double insurance and Allianz’s action for contribution failed. This is consistent with the usual outcome that an escape clause gazumps an excess clause.

IS THIS A SENSIBLE INDUSTRY APPROACH? To anyone reading this, it should be obvious that this is a rather haphazard way of dealing with double insurance across the industry. The inevitable result must be that over time all insurers will use escape clauses.

This will be an ‘own goal’ for the industry as it will mean the legal outcome goes full circle – they are all back to paying their rateable proportion because the clauses at the same level cancel each other out.

It is interesting to see that Australia addressed this issue all the way back in 1984 when it enacted the Insurance Contracts Act. Section 45 has the effect of making all double insurance clauses in insurance policies void.This was to stop insurers trying to ‘gazump’ each other contractually.

However, it appears that it was not drafted widely enough to apply to all insurance policies. The case considered above is an example of a situation that fell outside section 45.

Interestingly, the England and Wales reforms of insurance law in 2015 did not address this issue.

Is this something that should be fixed in New Zealand’s pending reforms? We think so. We say unseemly legal scraps between insurers as to who should end up paying the insured’s loss are not a good look for the industry.

Crossley Gates is a partner at Keegan Alexander.

Email: cgates@keegan.co.nz Direct Dial: (09) 308 1809

www.covernote.co.nz

37

IFSO CASE STUDY

FAILING CRANK SHAFT

I

n December 2015, a trust arranged insurance on its boat with an insurer.

In January 2016, a trustee of the trust was driving the boat when swells developed. He said he went over a wave and the boat landed awkwardly, there was a bang, the engine temperature rose rapidly and so he shut down the motors. It was later discovered that the crank shaft had snapped.

Unfortunately, through an error, a claim for the damage was made to another insurer, which arranged for a company to assess the damage. The company viewed photos of the damage and said the damage was not a oneoff break in the crank shaft, rather the metal had fatigued over time. On that basis, a metallurgist was appointed to determine whether there had been metal fatigue. The metallurgist stated that the crankshaft “fractured due to torsional fatigue failure”, and this fatiguing must have started well before the trust purchased the boat. The metallurgist confirmed that this would have occurred over period of time.

In April 2016, the trust made a claim to the insurer for the damage.

The insurer had a copy of the information provided by the company and the metallurgist. Based on these opinions, the insurer believed the damage was not “sudden” and, therefore, fell outside the scope of cover provided by the policy.

The trust did not believe that the insurer could rely on the expert opinions, because they did not provide a definitive opinion on the cause of the damage, instead using the term “likely”. The trust believed that the

38

June 2019

damage was sudden, caused by the bad landing coming off a wave. The trust also raised concerns about delays and the conduct of the company.

THE CASE MANAGER’S ASSESSMENT Because the complaint was only referred to the insurer in April 2016, the insurer was not responsible for any delays or conduct prior to this time. In addition, the company was appointed by the other insurer. This meant the insurer was not responsible for the company’s conduct.

Therefore, the IFSO Scheme was not able to assist the trust with this aspect of the complaint. 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.

The legal test for this is on “the balance of probabilities”. In this case, it meant the trust, not the insurer, must show that, on the balance of probabilities, the damage was more likely than not “sudden”. However, the reports, particularly the metallurgist’s opinion, was that the metal in the crank shaft had fatigued over a period of time, and resulted in its eventual snapping. As such, the damage was not “sudden”.

The trust said that the crank shaft has been lost. Therefore, it was not able to get its own expert opinion. As such, the case manager had to rely on the expert opinions provided by the insurer. Accordingly, the insurer was entitled to decline the claim as outside the scope of cover provided by the policy.

IFSO CASE STUDY

METH DAMAGE STANDOFF

A

trust held house insurance for a rental property.

In March 2017, the trust made a claim to the insurer, because methamphetamine testing had shown a composite test result of 66µg, well over the threshold requiring remediation at the time of 0.5µg. The trust made a claim for $50,504.71 for remediation of the methamphetamine contamination and loss of rent (“the claim”).

In April 2017, further testing at the house found levels of methamphetamine contamination in each room of the house of between 4.4µg and 100µg (on a kitchen cupboard).

In this case, the tenant had lived at the house since 2012 and there was some evidence provided that, in about September/October 2016, the tenant’s wife and child left the house and there began to be an increase in visitors and night-time activity at the house. The landlords also provided some evidence of a freshly painted patch on the ceiling above the oven and further methamphetamine testing was performed in the kitchen, which returned a level of 29µg on the kitchen wall.

The insurer declined the claim, on the basis that the trust was unable to prove the methamphetamine contamination was “Sudden and unforeseen accidental physical … damage”.

Based on the evidence relating to increased visitors and other tenants at the house, the insurer believed it was more likely the damage occurred over time, particularly between September/October 2016 and late April/ early May 2017, indicating a gradual process.

THE CASE MANAGER’S ASSESSMENT At law, the trust had the prima facie obligation to prove that the damage, in this case methamphetamine contamination above the recommended level (at the time) of 0.5g/100cm², was “sudden”, which has been held by the courts to mean “‘abrupt’, ‘all at once’, ‘instantaneous’”. If the damage is caused by a single event, such as manufacture or a group of people smoking methamphetamine at the same time, then it could be considered “sudden”.

The insurer believed that the evidence indicated the damage was not caused suddenly and the contamination more likely occurred gradually over time.

Following discussions between the case manager and the insurer, the insurer agreed that the IFSO Scheme would obtain an expert opinion about the most likely cause of the methamphetamine contamination, on the balance of probabilities.

In July 2018, the case manager obtained an expert opinion, which stated that the levels of methamphetamine found at the house, together with the information provided about the tenant and the kitchen, indicated that the damage most likely occurred “as a result of a single event, namely manufacture”.

The insurer agreed to pay the claim amount, in full and final settlement of the claim.

www.covernote.co.nz

39

FEATURE

SAFETY TIPS FOR LITHIUM ION BATTERIES

By Stephen Henkin, risk management services, Vero

L

ithium ion – or Li-ion – batteries are becoming ubiquitous in New Zealand homes and businesses. They’re widely used to power everything from mobiles and laptops to power tools, e-bikes, scooters and motor vehicles.

Li-ion batteries are generally safe, but if they are mistreated or used incorrectly, they can catch fire or explode - many new Zealanders will remember the recall of Samsung Note 7 phones due to fires, laptop recalls or even the grounding of Boeing Dreamliner aircraft for months due to problems stemming from Li-ion batteries.

Brokers can help their clients minimise the risk that these batteries pose by taking a few simple steps.

ABOUT LITHIUM ION BATTERIES Li-ion batteries are a type of rechargeable battery that are widely used because they store a lot of energy for their size, lose little of their storage capacity through recharging and lose minimal charge when not in use.

They consist of a series of cells that store and discharge energy through an electrochemical reaction between lithium compounds and other chemicals – usually graphite, lithium salt and a flammable solvent. Within the battery the cells are separated by a divider which protects each cell from damage.

They are usually equipped with mechanical and electronic safety mechanisms to protect against overcharging, overheating and overpressure in the cells. But it’s important to remember that lithium is highly reactive and flammable, and it can present a fire risk if the battery leak.

Li-ion batteries are found in, among other things: • Mobile phones and tablets • Laptops • Cameras • Drones • Portable power tools and gardening equipment • Electric bikes, scooters and skateboards • Electric vehicles WHEN CAN LI-ION BATTERIES BE A RISK? There are a number of situations that can cause an Li-ion battery to 40

June 2019

leak, catch fire or explode. These include: • The battery being overheated or over-charged • An internal short circuit due to damage to cells within the

battery pack • External short circuits caused by faulty wiring or battery terminals

in contact with metallic items during storage or transport If your Li-ion battery has any of the following symptoms, stop using it immediately, keep it away from combustible and flammable materials and call 111 if in doubt.

• Excessive overheating • Strange odour or noises • Leaking • Change in colour or shape SIMPLE STEPS TO KEEP YOUR LI-ION BATTERIES SAFE 1. Follow the manufacturer’s instructions for safe use 2. Only use the batteries and equipment (including chargers) provided

by the equipment vendor. Third party batteries or chargers could

be of a lower quality, lack safety features or cause overcharging 3. Don’t place charging batteries on anything that could catch fire,

including soft combustible furniture 4. Don’t expose your batteries to fire or excessive heat or allow them

to get wet.

5. Store them at room temperature and away from direct sunlight 6. Don’t carry or store batteries with metal items to prevent short

circuiting between the battery terminals 7. Protect your battery from strong impacts or sharp objects – for

example don’t drop them or carry them with other items inside

a toolbox. It might not be obvious, but this could damage the

protective circuits or dividers within the battery 8. Ensure you install the battery correctly (don’t reverse the polarity) Although they are generally safe, Li-ion batteries do represent a fire risk so it’s also a good tip not to charge devices like mobile phones in your bedroom at night – if a fire does start, you may be placing yourself at risk.

ASK AN EXPERT

Exclusion limits QUESTION… A client was commissioned to build a steel frame on which to place a silo. Several months after it was built, the silo was filled up and the frame collapsed. It has since been found that the failure was due to “a slight eccentric loading and inadequate structural integrity”.

The failure mechanism was “buckling of the western PFC bearer” which had a notch cut in it to accommodate another frame. This is a high stress point and the notch would have materially reduced the strength at this point. On top of this, the silo had been filled and emptied twice previously to the collapse with no issues however there were high winds leading up to the collapse and it is likely the wind event moved the frame causing a slight eccentric loading on the PFC bearer (which is what the notch was cut in).

The insured has a faulty workmanship extension which states: [The insured] agrees to indemnify the insured for personal injury or property damage whilst in New Zealand for liability for the costs of rectifying defective or faulty workmanship including materials, consequent upon accidental damage to property on which you are or have been working, where the damage is caused by your faulty workmanship; Providing that: (a) the faulty workmanship is done or undertaken by any of the persons insured during the period of insurance; and (b) a sub limit of $100,000 shall apply to this extension subject to an excess of $1000 for each occurrence Workmanship means work done in the process of manufacturing, constructing, erecting, installing, servicing, repairing or treating property.

The insurer is in part relying on the following exclusion to decline the costs of rebuilding the stands: Own property and property in the insured’s care, custody or control property damage to: (a) property owned by the Insured, or in the Insured’s care, custody or control; or (b) the insured's products arising out of such products or any part of such products.

They are stating that because the insured built the stands they are therefore the insured’s products and any damage that happens to completed operations (or the insured's products) that arises out of that product/completed operation is excluded by the above.

My argument is that this exclusion is intended for damage which arises out of the failure of a product itself, i.e. faulty steel or bolts used which go rusty after two weeks and cause a collapse. Taking the insurer’s approach, anything which the insured builds would not be covered by the faulty workmanship extension and therefore defeats the entire purpose of paying additional premium to have that extension.

What is your opinion on the insurer’s interpretation of the above exclusion?

REPLY… CROSSLEY GATES The steel frame your client built will be a “product” as that word is usually defined.

The description of the cause of the failure (inadequate structural integrity) sounds more like faulty design than faulty workmanship.

But maybe the inadequacy only arose because of the notch you refer to. Who made the notch - I assume your client did? Presumably, the workmanship of the notch itself is fine? So is this really a faulty workmanship issue or more a faulty design issue?

I assume the exclusion you quote is not either of exclusions 4.8 or 4.18 that don't apply to the extension.

The extension is unusually worded. Paraphrased it says it covers the insured for property damage for liability for rectifying faulty workmanship CONSEQUENT UPON damage to property on which the insured has been working [my capitals]. It is difficult to follow the intention.

As a generalisation, cover for liability for damage to property caused by the insured's faulty workmanship to it, must have the products exclusion removed from the cover for it to work. Something the insured works on will always be a product.

www.covernote.co.nz

41

ASK AN EXPERT

Risk transfer QUESTION‌ We have a client who ships goods overseas on CIF terms, and therefore has to arrange insurance to cover the goods including when risk transfers to the purchaser.

They have suffered a loss which appears to have occurred after loading - therefore after risk has transferred to the purchaser.

If the insurance covers the full journey, are there any implications of the transfer of risk on lodging a claim under the policy?

Presumably as the policy is in the client's name, they have to lodge the claim anyway?

Also this loss occurred a couple of months ago, but client wasn't aware of the extent or details until after the period for lodging a claim with the carrier had passed.

Would the insurers be within their rights to decline the claim on this basis?

REPLY‌ PAULINE DAVIS One of the obligations on a CIF seller is to both procure marine cargo insurance and to provide the buyer with evidence of having done so, generally by way of a certificate of insurance issued by (or with the authority of) the insurer. From your comment about the policy being in the client's name, I assume that the client holds a marine open policy which allows it to issue such certificates.

The benefit of the insurance evidenced by a certificate transfers with the risk in the goods. So the strict position is that when the goods were loaded, your client ceased to hold either an insurable interest in the goods or the risk of loss or damage, both of which passed to the buyer.Your client was, at best, left with a right to be paid the purchase price or any outstanding balance of it, which would remain whether the goods made it intact to destination or not - this is a simple right to recover the debt which is not contingent on the condition of the goods on arrival. At the same time, the right to claim the insurance proceeds passed to the buyer.

So, technically, the insurer would be entitled to decline a claim lodged by the seller and to require the buyer to claim. As a matter of practice though, the point is not always taken. If your client was not paid for the goods and is therefore the party with the loss, something can normally be worked out.

Failure to lodge a claim with the carrier is, on the face of it, a breach of the claims conditions in the policy. If an assessment of the loss indicates that the damage was likely caused by the carrier and that a timely notification would likely have led to a recovery, the strict position is that the insurer can reduce the amount of the claim payment by the amount of any prejudice suffered, which may in turn depend on a number of factors including how any applicable package limitation would operate. A more substantial concern may be that delay in notifying anyone of the loss (including, it would seem, your client and the insurer) could raise issues as to whether the damage really did occur during transit rather than at some later time, whether the loss can be properly quantified and whether it was appropriately mitigated. All here will depend on the facts and what documentation / photographs and the like may be available to substantiate the claim.

42

June 2019

Do you have a question for our experts?

If so, visit iNavigator, www.inavigator.co.nz, or the IBANZ website, www.ibanz.co.nz - and let us know.

ASK AN EXPERT

Risk for storage

Uninsured driver

QUESTION…

QUESTION…

Client is an owner/operator of a vehicle recovery and tow business. He never tows on a hook. All carriages are on a flat deck truck or trailer. The vehicle is winched on to the flat-deck or trailer for the purpose of loading and unloading.

His carriers’ liability policy will cover goods for carriage including loading and unloading subject to the limitations in the Contract and Commercial Law Act 2017.

Example: The insured recovers a vehicle from the roadside at 22:00 on a Saturday. The insured stores the recovered vehicle in a secure yard before continuing the carriage on to the agreed consignee's requested destination at the next available opportunity.

Is the stored vehicle still under a contract of carriage whilst stored and therefore subject to the contracts and commercial law act limitations or is the stored vehicle a bailee's liability risk?

A claim has been lodged, accepted and paid for by the insurer.

An uninsured third party reversed into the customer’s parked vehicle. The uninsured driver was identified. The insurer has established liability with the third party and has set up a payment instalment plan to recover the debt.

Insurer is stating that the customer excess will only be reimbursed once recovery of all costs has been completed. With the payment plan agreed this will take 12 months.

Even if the insurer has a policy of not waiving the insured excess. I have suggested that the customer excess should take priority over the insurer’s costs.

I have asked that once third party payments reach the level of the insured excess, that the insured excess be reimbursed and then all further payments should be retained by the insurer.

REPLY… CROSSLEY GATES If the contract of carriage requires the client to deliver the car to a named consignee, the limitations in the act continue to apply until delivery to that consignee. If, during the carriage, the car is stored for a period of time, this doesn't alter the position.

Technically, the carrier is still a bailee and faces potential bailee's liability, it’s just when this involves the carriage of goods and the act applies, the limitations in that act override the common-law of bailment.

Pauline Davies, of Fee Langstone, adds:According to the only couple of cases on the point, it is fact-specific in every case as to whether time in storage will cause the contract of carriage to be suspended (in which case the ordinary rules of bailment or contract terms governing storage will apply), or whether the storage should be treated as an incidental part of the transit (in which case the act will continue to apply).

The answer is not dependent on whether or not there is a named consignee - in fact, in both the cases mentioned above there was a named consignee but the carrier, on the facts, was still held to be a bailee.

On the facts provided, the time delay was very short and apparently occurred because the pick-up was late at night, presumably making it impractical or impossible to complete the transit straight away. That being so, it seems clear that storage was merely incidental to the transit and therefore the act will apply.

It would be different if the car was collected by your client, and the consignee requested that it be held indefinitely or for some lengthy period of time. In those circumstances the contract of carriage would be considered as having been suspended and your client would be treated as holding the vehicle as a bailee only. The contract of carriage would then re-commence when the vehicle eventually started on its way again.

There is no hard and fast rule that can be applied to situations like this. The test is that "it is an assessment of the totality of the factual position. It involves asking the simple question, on a fair reading of the facts, was what occurred part of the transit".

REPLY… CROSSLEY GATES Unless the policy itself sets out the priority for reimbursing uninsured losses over insured losses, the legal position in New Zealand on this point is unclear.

There is clear legal authority in England that reimbursement of the excess to the insured is the last priority, not the first. This is somewhat surprising, and is based on the reasoning that the excess is something the insured voluntarily agrees to. I suggest that is often not the reality.

The insurer may be relying on this authority being followed in New Zealand in reaching its decision.

Historically, there has been a convention (and nothing more than that) for the excess to have first priority.

43 www.covernote.co.nz

43

FSCL CASE STUDY

COMMUNICATION BREAKDOWN T

he clients were a couple who lived in a remote part of New Zealand, running a building business as well as a bedand-breakfast. They arranged liability insurance for their business, as well as material damage insurance for their buildings and contents through a broker. When a fire destroyed a storage shed, containing building tools, they contacted their broker to lodge a claim for loss of about $160,000. The broker advised that the insurance had been cancelled about three years earlier because they had not paid the premium.

The clients were shocked, how could their broker allow the insurance to lapse? Surely, he should have contacted them to tell them they had not paid the premium?

The broker replied that he had sent their invoice, as usual, to their PO Box. When he did not hear back, he emailed and wrote to them. When the insurance was finally cancelled, he again wrote to the PO Box.When the clients asked if he had tried to call, he said he had not.The broker said he was sorry, but he did not think he was liable for their loss.

They did not agree, and complained to FSCL.

With respect to the July 3 telephone call, the broker said that when he first spoke to the client, he overlooked the note on his file, but is sure he made the call because the email of the same day refers to a message he left on their voicemail.

REVIEW We considered the broker had taken all reasonable steps to tell the clients about their insurance renewal. It was reasonable for him to assume that letters sent to the PO Box, that were not returned as undeliverable, had been received. The broker had also sent an email, and provided confirmation that it had been delivered. Further we were satisfied, given the reference in the email, that the broker tried to contact the clients by telephone.

We also commented that in the three-and-a-half years since the policy was cancelled, the clients had not noticed they were not paying insurance premiums of $5000. This was surprising.

While we sympathised with the significant loss suffered, there was sufficient evidence to show that the broker took reasonable steps to advise them of the renewal and the impending cancellation of cover.

DISPUTE The clients considered their broker had been negligent by failing to take all possible steps to contact them before the policy was cancelled.

They acknowledged that mail to their PO Box occasionally went missing, but said they had checked their email inbox, as well as their email junk folder, and could find no record of receiving the email from the broker.

They also contacted their email provider who confirmed that no emails failed to be delivered during the relevant period. They said that part of running a successful bed and breakfast business was communication and they were adamant they had received no letters, emails or telephone calls.

The broker checked his records again and advised he had: • posted a renewal letter to the PO Box on February 13 • posted statements to the PO Box in April, May and June • posted an overdue notice to the PO Box on June 3 • telephoned on July 3, and left a message • sent an email to their email address on July 3 • posted a letter advising the policy was cancelled to the PO Box

on July 15.

In the circumstances, we could not find the broker liable for the clients’ loss.

RESOLUTION The clients did not accept our view, continuing to maintain they did not receive any information about the cancellation.When they discovered they had no insurance, they said the broker offered to arrange new cover and undertook to speak to them if there was any risk their insurance might be cancelled for non-payment of premium. They said that this proved that the broker would not, as a matter of course, telephone a client in these circumstances. In the clients’ view, it should be mandatory for a broker to speak to a client before insurance can be cancelled.

The clients also said they changed accountants shortly after the policy was cancelled, so the new accountant did not notice the insurance had not been paid.

We took their further submissions into consideration, but were not persuaded to reach a different decision. On the evidence available to us, we were satisfied that the broker did not cause or contribute to their loss and we did not uphold the complaint.

44

June 2019

FSCL CASE STUDY

HOW MUCH SUPPORT SHOULD A BROKER OFFER?

A

client engaged a tiler, to assist with a bathroom renovation.

The tiler engaged a subcontractor to complete one aspect of the renovation. Unfortunately, the clients were not happy with the standard of the subcontractor’s work, and they wanted the entire job to be redone at the tiler’s expense, at a cost of $15,000.

She contacted her insurance broker and made a claim with her insurer.

However, the insurer declined the claim because her policy excluded claims for faulty workmanship. Her broker tried to negotiate a settlement between the tiler and the clients, but the tiler’s clients refused to settle and brought a claim against her in the Disputes Tribunal.

She asked her broker to be a witness at the Disputes Tribunal hearing.

The broker turned up to the hearing, but had to wait outside and eventually left. The Disputes Tribunal ordered the tiler to pay the full amount her clients were seeking.

She complained to FSCL. She said her broker should have had insurance in place for faulty workmanship. She also felt very let down by the broker at the Disputes Tribunal hearing.

The broker provided evidence that it was not at that time possible to

obtain insurance for faulty workmanship. The broker had advocated on behalf of the tiler with the insurer. The broker also explained that, while she was waiting outside the hearing room, Disputes Tribunal staff had told her she could not attend the hearing.

REVIEW FSCL considered the evidence about insurance for faulty workmanship.

The scheme noted that if it was not possible at that time to obtain insurance for poor workmanship, then the broker could not be faulted for not having done so.

It also considered the level of support provided by the broker.

The Disputes Tribunal incident was unfortunate, but likely a result of miscommunication rather than lack of support. It noted that a broker’s legal obligations tend to be focussed on the financial aspects of a broker’s work, rather than what is expected of a broker when it comes to providing support during a claim (or a hearing).

RESOLUTION FSCL negotiated a settlement between the tiler and the broker. The broker agreed to pay the tiler the sum of $1000 in recognition of any inconvenience caused by any of the broker’s actions after she made her claim. www.covernote.co.nz

45

Professional

College

Professional Development: Professional IQ College

The Value of Education T he financial services sector has been overwhelmed lately with legislative change, tightening, loosening and then tightening of regulatory lending policies, housing boom bust cycles and now FSLAA, the code of conduct, insurance contract law review, the enforcement of qualifications and a review of the advisers' earning capacity via a review into commissions and soft dollars. All in all, some might well challenge the reason to stay in, or even join the industry right now.

And then there is the discussion around whether we are a profession or an industry. Continuing to challenge our standards and find ways to improve and grow is never an easy option. To do this, we need to be aggressive with out standards and compliance, character and effort and be bold enough to see the future and not give in. Change is inevitable.

We need to confront it, not hide from it, and be willing to take on the opportunities that are presented with those challenges.

When we look at what makes up a bona fide profession, the hallmarks are typically • A unique and specialised body of knowledge, one that is not generally accessible to the public.

• It usually requires advanced schooling from a university or higher education body.

• Proof of outcomes so the public are assured the adviser has learned their craft and can apply that to their role.

• A recognition from the public that this craft is a necessity within the community.

• Ethics, client care and competence are all demonstrable.

• A binding code of conduct that defines what a professional practice looks like and the disciplinary rules and regulations behind it to ensure those who do not “scrub up” are treated accordingly.

• Membership to a professional body that represents the sector in terms of lobbying, ongoing professional development 46

June 2019

and networking.

• A profession that actually controls the use of its designations, so the public can clearly distinguish between the professional and those claiming to be so.

• A defined and recognised program for ongoing professional development.

So, do you, or will you meet the above criteria. For many advisers in the field right now there is a choice to make. Do you, over the next two and a half years, knuckle down and get your house in order, or do you swing in the breeze and then hang the “for sale” sign out the front and retire or look for a new job?

In my view,now is a great time to knuckle down. There will be some attrition, no doubt, over the next few years, so there will be a real need for quality advisers to continue to help New Zealanders achieve a better financial outcome. New Zealanders need you.You need them. There are plenty of them to go around. Those that get their house in order early, get educated and qualified will be the ones who will lead this industry into a profession.

And this is not a difficult industry to become “professional”. At most it will take a newcomer to the industry approximately 12 months to attain the minimal acceptable standard to becoming a financial adviser - that is, level five. A hairdresser takes three years. Most trades are three to four years. Doctors, lawyers, accountants much longer. If you have been in the financial services sector for some years it should only take you around 200 hours!

Professionals invest in themselves. Personal and professional growth is pursued constantly.Yes, it takes time, effort and money but it does pay off and it will far exceed the cost.

Education isn’t just about learning something. It’s about developing that edge that makes you stand out in the crowd as a knowledgeable professional.

There is real value in education

DATE

TITLE

PRESENTER

WHERE

TIME

COURSE DESCRIPTION

13

Email Marketing Outreach:How to Use Email to Get The Attention and Interest from Prospective Clients

Clifton Warren

Auckland & webinar

10.3011.30

In this webinar you will learn how to quickly fill your sales pipeline with high quality prospects.

19

What should your internal complaints process look like

Trevor Slater

Auckland & webinar

10.3011.30

Having a compliant process and knowledgeable staff is a vital part of good business.

20

How not to respond to a complaint

Karen Stevens

Auckland & webinar

10.3011.30

When a client makes a complaint about you it can be difficult to know how to respond.

25

Newsletter Writing for Financial Services Part 1

Debbie Mayo-Smith

Auckland & webinar

10.3011.30

Newsletter strategy and planning and content

26

Policy Interpretation

Andrew Hooker

Auckland & webinar

10.3011.30

Andrew Hooker will lead a seminar covering off the important principles of the interpretation of insurance policies, some of the common rules, case law and areas of importance for brokers.

June

Risk issues in Rural Industries

Iain Grant

Auckland & webinar

10.3011.30

Farming and Rural Business are a diverse and varied lot. In this session, I will discuss the unique risk factors from different rural industries, from Avocados to Zoological society’s and many things in between. I will discuss how I would approach these risks as an underwriter, specifically how I would accommodate, mitigate, refuse, or manage these risks.

4

Unconscious Bias

Sarah O'Connell

Auckland & webinar

10.3011.30

More details to come.

9

Newsletter Writing for Financial Services Part 2

Debbie Mayo-Smith

Auckland & webinar

10.3011.30

Distribution and response management - this will save you hours and hours

16

Referral Marketing: How to Leverage Your Clients to Get New Ones

Clifton Warren

Auckland & webinar

10.3011.30

The most effective marketing you can do is leveraging your existing clients to get new ones. During this webinar you will learn how to generate high quality referrals and introductions from your existing clients including script templates.

17

Multi-Step Financial Advice Processes

Trevor Slater

Auckland & webinar

10.3011.30

We often hear talk about 6 or 7 step advice processes but what does this actually mean? There are various versions of what constitutes a proper financial advice process and whether such processes should always be used in the provision of all forms of financial advice process, including insurance broking.

23

Google My Business

Debbie Mayo-Smith

Auckland & webinar

10.3011.30

How To Get A Top Google Ranking And Much More Business With A Google My Business Listing

25

Recent cases against brokers

Virginia Douglas

Auckland & webinar

10.3011.30

The IFSO will look at recent complaints about brokers and financial advisers.

8

Prima facie claim: the first glimpse of a problem with the claim

Virginia Douglas

Auckland & webinar

10.3011.30

Clients are often surprised when the insurer asks them to prove or quantify their loss

14

Notification of Claims under a claims made policy

Crossley Gates

Auckland & webinar

10.3011.30

More details to come.

20

How to Create the Ultimate Sales Process for Your Business

Clifton Warren

Auckland & webinar

10.3011.30

The key to success for top performers is having a sales process. The process begins with how to initially identify a process all the way through to the actual delivery of services once you have secured the business. During this webinar you will learn how to create a sales process to drive new sales growth and improve client retention.

28

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.

27

July

August

www.covernote.co.nz

47

CONTACTS: IBANZ CORPORATE COMPANY LIST IBANZ BOARD Roger Abel Rothbury Group Limited PO Box 1596 Shortland St, Auckland 1140 Mob: 021 952 230 roger.abel@rothbury.co.nz Tony Bridgman (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 Insurance Advisernet NZ Ltd PO Box is 37670 Market Road 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 3710 301 Mob: 0275 358 128 allan@avoninsurance.co.nz Duane Duggan (Immediate Past President) Head of Insurance Legal Crombie Lockwood (NZ) Ltd PO Box 91747 Victoria Street West Auckland Tel: 09 357 4805 Mob: 021 833 286 duane.duggan@crombielock wood.co.nz Stuart Speirs (Vice President) Director Abbott Group PO Box 3086 Christchurch 8011 Tel: 03 366 7536 Mob: 021 358 341 stuart@abbott.co.nz

STAFF

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

Ruth Steele (Vice President) Trevor Strong Ins (2013) Ltd PO Box 302635 North Harbour Auckland 0751 Tel: 09 414 2563 ruth@tsibrokers.co.nz

Gary Young Chief Executive, IBANZ Auckland DDI: 09 306 1734

Jo Mason Chief Executive Officer NZ Brokers Management Ltd PO Box 334 012 Sunnynook North Shore City Auckland 0743 Tel: 09 869 2785 jom@nzbrokers.co.nz Angus McCullough General Manager Marketing & Chief Broking Officer Aon New Zealand PO Box 1184 Shortland Street Auckland 1140 Tel: 09 3629059 angus.mccullough@aon.com

gary@ibanz.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

Fred Dodds Waikanae Mob: 021 998 906 dodds@nzemail.net.nz Angi Mann Contract Compliance and Learning and Development Specialist Auckland Mob: 021 293 1724 angim@financialadvice.nz

WANT YOUR VERY OWN COPY OF

Gary Young Chief Executive IBANZ DDI: 09 306 1734 Mob: 027 543 0650 gary@ibanz.co.nz Robyn Gosden Finance & Office Manager DDI: 09 306 1733 Mob: 027 275 2477 robyn@ibanz.co.nz Karen Scard Administration Manager DDI: 09 306 1738 karen@ibanz.co.nz Sylvia Heywood Academic Manager Professional IQ College DDI: 09 306 1737 sylvia@professionaliq.co.nz 48

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

June 2019

Zeeshan Ahmad Manager Student Support DDI: 09 306 1739 zeeshan@professionaliq.co.nz Rod Severn CEO Professional IQ College DDI: 09 306 1736 Mob: 021 749 202 rod@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 NZI MARKS 160

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 2019

YEARS

June 2019

WHAT IF HOME S BECOME UNINSURABL E? Wellington: Wha t’s really happening here ?

Duty to disclose gets update www.ibanz.co.nz

CONTACTS: IBANZ CORPORATE COMPANY LIST IBANZ CORPORATE COMPANY LIST

Abbott Group

Christchurch

Insurance Brokers Alliance Ltd

Invercargill

Adams Trimmer Insurance 1992 Ltd

Whangarei

Insurance People (Fire & General) Limited

Auckland

Addex Ltd

North Shore City

JRI Limited

New Plymouth

Advance Insurance Services Ltd

Paeroa

Luxor Insurance Brokers Ltd

Auckland

Advice First Limited

Wellington

Malcolm Flowers Insurances Ltd

Taupo

Affiliated Insurance Brokers Ltd

Wellington

Marsh Ltd

Auckland

AIB Group Insurance Ltd

Lower Hutt

Matt Jensen Insurance Brokers Ltd

Taupo

AIM Associates Ltd

Auckland

McDonald Everest Insurance Brokers Ltd

New Plymouth

Albany Insurance Services Ltd

Albany Village

Montage General Insurance Ltd

Auckland

Amicus Brokers Ltd

Christchurch

Multisure Ltd

Auckland

Andrew Scragg & Associates

Manukau

Nelson Marlborough Insurance Brokers Ltd (NIB)

Nelson

Aon New Zealand

Auckland

Neville Newcomb Insurance Brokers Ltd

Auckland

Apex General Ltd

Auckland

Northco Insurance Brokers Ltd

Masterton

API Insurance

Manukau

Northcrest Insurance Brokers Ltd

Auckland

Ascot Insurance Brokers Ltd

Whangarei

O'Connor Warren Insurance Brokers

Tauranga

Atlas Insurance Brokers Ltd

Christchurch

OFS Insurance Brokers Ltd

Dunedin

Austinsure Ltd

North Shore City

Omni Fire & General Ltd

Auckland

Avon Insurance Brokers

Christchurch

Paramount Insurance Agencies Ltd

Auckland

Baileys Insurance Brokers Ltd

Auckland

Paterson & Co NZ Ltd

Auckland

Bay Insurance Brokers Ltd

Tauranga

Penberthy Insurance Ltd

Auckland

Brave Day General Ltd

Auckland

Peter C Cranshaw Insurance Broker Ltd

Levin

Bridges Insurance Services Limited

Hamilton

PIC Insurance Brokers Ltd

Manukau

Broker Direct Services Ltd

Christchurch

Primesure Brokers Ltd

Auckland

BrokerWeb Risk Services Limited

Auckland

Property and Commercial Insurance Brokers

Feilding

Builtin New Zealand Ltd

Tauranga

Protekt Insurance Brokers 2008 Ltd

Auckland

Cambridge Insurance Brokers Ltd

Cambridge

Provincial Insurance Brokers Limited

Masterton

Capital Risk Solutions Limited

Wellington

PSC Connect NZ Limited

Auckland

Card Marketing International Ltd

Wellington

River City Insurance Brokers 2000 Ltd

Wanganui

Cartwright General Insurance Limited

Ashburton

RMA General Ltd

Warkworth

CBA Insurances Limited

Tauranga

Rothbury Group Ltd

Auckland

Certus Insurance Brokers NZ Ltd

Auckland

Runacres & Asssociates Limited

Christchurch

Coast Insurance

Whangaparaoa

Seneca Insurance Brokers Ltd

Auckland

Coastal Insurance Brokers Ltd

Papamoa

Sit & Blake Limited

Auckland

Commercial & Rural Insurance Brokers Ltd

Alexandra

South Pacific Insurance Brokers Ltd

Auckland

Crombie Lockwood (NZ) Ltd

Auckland

Sweeney Townsend & Associates Ltd

Rotorua

Dawson Ins. Brokers (Whakatane) Ltd

Whakatane

Thames Valley Insurance Ltd

Thames

Dawson Insurance Brokers (Rotorua) Ltd

Rotorua

The Advisers 1 Limited

New Plymouth

Edward Ruys & Co Ltd

Hamilton

Thorner General Insurances Ltd

Upper Hutt

Emerre & Hathaway Insurances Limited

Gisborne

Towes Insurance Brokers Ltd

Te Aroha

Frank Risk Management

Cambridge

Trevor Strong Ins Ltd

Auckland

FundAGroup Insurance Brokers Limited

Auckland

Vercoe Insurance Brokers Ltd

Morrinsville

Glenn Stone Insurance Limited

Waitakere

Vision Insurance (S.I.) Ltd

Ashburton

Grayson & Associates Ltd

Auckland

Waikato Insurance Brokers Limited

Hamilton

Gregan & Company Ltd

Papakura

Wallace McLean Ltd

Auckland

GYB Insurance Brokers Ltd

Lower Hutt

Wanganui Insurance Brokers Ltd

Wanganui

Harden & Hart Insurances Ltd

Auckland

Willis Towers Watson

Auckland

Hazlett Insurance Brokers Ltd

Christchurch

Yesberg Insurance Services Ltd

Christchurch

Honan Insurance Group (NZ) Ltd

Auckland

Hood Insurance Brokers NZ Ltd

Auckland

Hurford Parker Insurance Brokers Ltd

Hastings

Hutchison Rodway Ltd

Auckland

ICIB Limited

Auckland

ILG Insurance Brokers

North Shore City

Ingerson Insurances Ltd

Wellington

Insurance Advisernet NZ Ltd

Auckland

www.covernote.co.nz

49

Legal problems are always unexpected.

Great insurance outcomes shouldn’t be.

With a highly experienced team of liability insurance specialists working together under one roof, your customers can expect VL to find the best solution, should something unexpected arise.

Get in touch on 09 306 0350 or visit our website.

veroliability.co.nz

New Zealand’s leading liability insurer