CoverNote December 2019 issue

WE CAN’T MAKE EXCUSES

December 2019

CRACKDOWN ON FRAUD

The battle lines have been drawn in the insurance industry’s war against insurance fraud with the establishment of a new Insurance Fraud Bureau set up by the Insurance Council.

2019 in review - Covernote asks insurers about the year that’s been and what might lie ahead.

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A

s 2019 draws to a close, we can reflect on what has been a busy year for IBANZ, representing the interests of general insurance brokers. Our year has once again been dominated by Government legislation and regulation. It seems the rate and scope of change continues to increase every year.

Certainly, this trend will continue in 2020 with transitional and full licensing under way. A totally new regime for financial advisers comes into effect next June, including a code of conduct and comprehensive disclosure requirements.

Gary Young CEO, IBANZ

On the positive side this year has seen a halt to the implementation of the new Fire and Emergency New Zealand (FENZ) levy regime. The current insurance-based levy is deeply flawed and unsustainable; the proposed revised approach was even more so. Eighteen months of work by IBANZ, the Insurance Council, FENZ and government had failed to find a way to make the system work in any practical way.

While we may be sceptical about how this latest review of the levy regime might turn out, at least it is an opportunity to move from a relic of a bygone age to something relevant to the FENZ in the future.

Another important issue has surfaced in recent weeks that also has the potential to pile significant compliance costs on to our members. An overly complex response has been proposed to the problems identified around conduct and culture in banks and insurers.

Once again, we are seeing the unfortunate consequences of consolidating all financial services into a single “industry”. In fact, on these issues, government treating all insurance, life and general, as one is simply not right. These two branches of insurance are very different, and the problems identified in life insurance have not been shown to exist in general insurance.

Unfortunately, it is all too easy for those designing legislation and regulations to take a one-size-fits-all approach. We have seen that in the disclosure regulations, and we now understand it may well happen with the new conduct and culture legislation.

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: Unit 4D, 2B William Pickering Drive, Rosedale, Auckland 0632 PO Box 302504, North Harbour, Auckland 0751 Telephone 09-306-1732.

Website: www.ibanz.co.nz

The latter could mean brokers having to conform not only to the code of conduct under the adviser legislation but also being subject to individual codes of practice each insurer has agreed with the regulator. We are working hard to ensure this compliance nightmare does not see the light of day.

There is no doubt there are plenty of challenges to address in the coming year.

However, with the continued support of our members, IBANZ has the resources to promote their interests. Those interests are of course intrinsically linked to the interests of brokers’ clients, the consumers and businesses of New Zealand.

Thank you to all IBANZ members for seeing value in your professional association, your support is greatly appreciated. We trust you have a well-deserved break over the holiday season and look forward to working for you in the coming year.

Gary Young, CEO, IBANZ

Features 3. Mayor floats insurance changes 4. Reserve Bank watching insurance space

5.

6.

Earthquake Commission to make ex-gratia payments for “on-sold over cap” properties Directors and officers insurance – continued focus on risk 32. COVER STORY: Crackdown on fraud The battle lines have been drawn in the insurance industry’s

16. Liability insurance cover for Santa Claus reportedly “a high risk” 20. Transitional licensing commences 24. Here’s what an external disputes resolution scheme can tell you about licensing

war against insurance fraud with the establishment of a new nsurance Fraud Bureau set up by the Insurance Council. But just how common is insurance fraud? And what kind of scams have people been getting away with?

Regulars 1. Welcome to CoverNote 41. Ask an Expert

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

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30. Getting proactive about cyber risk 40 When you need the best

EXCUSE

CRACKD

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The battl e lines have with the establishm been drawn in the insur ent of a new ance indu Insuranc stry’s war e Frau

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against insur d Bureau 2019 in rev set up by the Insurancance fraud iew - Cov e Council. the year that’s bee ernote asked insu n and wha rers abo After the t might lie ut event insu ahead. to reduce rance- a litigation new opti on risk? www.iban z.co.nz

FEATURE

MAYOR FLOATS INSURANCE CHANGES

W

ellington Mayor Andy Foster has released the Mayor’s Insurance Taskforce discussion document, which looks at ways to address increasing uncertainty in the city’s insurance environment.

The taskforce, which included expert advisers from the science, engineering, insurance, law, and academic fields, as well as apartment owners and property developers, was convened in response to growing anecdotal evidence about cost and availability of insurance for some in Wellington City.

The taskforce identified that there needed to be a move away from the current model, where earthquake risk was transferred to insurers, to a more balanced blend of “transfer, mitigate, accept and avoidance” of seismic risk.

“New Zealand has one of the highest levels of insurance cover in the world. But we may not be able to rely on insurance so much in future to address all property risk,” Foster said.

“Insurers have learned some painful lessons from the Christchurch and Kaikoura earthquakes and, while we might not like what they’ve told us, we can’t afford to ignore the signals we’re being sent.

“In future buildings have to be more resilient, and built in less risky places. Our building code rightly sets out to save lives in an earthquake, but that’s not enough. Buildings themselves need to be usable so we can recover quickly, fix things up and get our economy back on its feet.

“We can’t achieve this by ourselves. We need central and local government collaboration, and the support of developers, building

owners, the banking industry and insurers themselves. We’re currently planning for Wellington’s growth, so now is the perfect time for us to be having discussions around the community’s appetite for living with risk and insurance; and the trade-offs we might need to make.”

The taskforce proposes establishing an integrated Wellington risk leadership group to oversee an agreed implementation plan. It could be cochaired by the Mayor of Wellington and the Minister with responsibility for the Earthquake Commission.

It also proposes immediately commissioning research to determine if building owners (and particularly bodies corporate) are not taking out insurance because of price or availability issues, and trends or factors that might indicate systematic under-insurance of Wellington households.

The taskforce had earlier flagged an option to investigate increasing the EQC cap to $400,000 in order to reflect the original intent of EQC. This is proposed to be in addition to risk reduction and mitigation rather than as an alternative to better buildings on better land.

“We will of course rely on ongoing the best available science and engineering advice to grow the city’s understanding of risk and resilience,” Foster said.

“The taskforce recommendations will go to the Minister of Finance and we look forward to working closely with the Government and others on the issues.”

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FEATURE

RESERVE BANK WATCHING INSURANCE SPACE

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eserve Bank Governor Adrian Orr says his organisation will monitor the development of risk-based pricing for insurance and its effect on the market and New Zealand’s economy.

He spoke at this year’s Insurance Council of New Zealand conference.

Insurers such as Tower and IAG are moving to more risk-based models, in which the cost of a policy is more closely tied to its individual risk profile.

Orr said the Reserve Bank believed the insurance industry must ensure that high-quality risk management capability was in place, to support appropriate insurance outcomes.

“We support insurers using the best information to understand their customers and the risks faced by the insurer. We also respect that insurers are free to make their own commercial decisions. Getting your risk management and pricing right is an important foundation to a sound insurance sector.

“However, we are conscious of the wider implications on the economy and asset prices as insurance providers make their individual business decisions. Orderly and well-articulated changes in insurance and pricing strategies are needed, so that all participants in the financial sector – and wider economy - can adapt their behaviour without creating unintended outcomes.

“The Reserve Bank will be monitoring the development of insurance risk-based pricing, to ensure we understand the potential wider economic consequences and any impact on New Zealand’s financial stability.

In its Financial Stability Report, the bank said that risk-based pricing was pushing up premium as higher premiums for high-risk properties were not fully offset by premium declines for lower-risk properties.

He said the insurance industry was a crucial part of any modern economy.

The Reserve Bank has the job of regulating the 90 licensed insurers operating in New Zealand.

“By definition, this task is far from straightforward. The nature of insurance contracts can vary greatly between insurers or insured events, and are often dependent on the individual circumstances of the policy holder.

“Furthermore, there are significant information-asymmetries between an insurance provider and their customer, and the risks of providing poor

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December 2019

or outdated information run in both directions. ‘Who is good for what, and when?’.

“For example, often there is a long period of time after a customerrelationship has been established. In very difficult circumstances, a customer may find that they do not have the coverage they believed would be available to them. And, on the other side of the ledger, insurers rely on accurate information from customers about their own circumstances.”

He said the Reserve Bank’s regulation and supervision of the insurance sector was based on the same three pillars it used when supervising banks – self-discipline, market discipline and regulatory discipline.

He said its review of the Insurance Act would begin in earnest next year.

“We are aware that the pace of change in legislative policy intentions and broader societal expectations is intense. Insurers tell us that they see regulatory change as a key risk to monitor and manage.

“We expect to give initial priority to the scope of the Act, in terms of how we adequately cater for innovation, different business models, and new entrants competing with established insurers. We will consider whether we need to make changes to the legislation that better ensures appropriate competition between overseas branches and locally incorporated insurers.

And we will look to enhance the enforcement tools available to the Reserve Bank, to better align with our supervisory approach.

“Additionally, the International Financial Reporting Standard, IFRS 17, is scheduled to take effect in 2022 for most insurers. While it sounds minor and detailed, this is a once-in-a-generation set of changes to the way insurance contracts are accounted for, and reported to the market.”

Those standards also drive the insurer solvency standards set by the Reserve Bank, he said.

“We thus need to review our solvency standards to ensure they are effective and in line with lessons from other jurisdictions, such as Australia.

“It is too early to say whether or not our review of insurer solvency will lead to the kind of uplift we have proposed for bank capital. However, we do expect that the current ‘black line’ of a single regulatory minimum limit for solvency will be replaced with a more graduated series of thresholds - and varied regulatory response options - as we have proposed for banks.”

FEATURE

EARTHQUAKE COMMISSION TO MAKE EXGRATIA PAYMENTS FOR “ON-SOLD OVER CAP” PROPERTIES

By Olivia de Pont, senior associate, and Nick Frith, senior associate, Minter Ellison Rudd Watts

T

he Government has announced a new package to assist purchasers of earthquake-damaged homes who have discovered that the property had incomplete or insufficient repairs after they settled their purchase.

The announcement of this support package should help to resolve a number of claims currently before the courts including the resolution of a test case alleging that the Earthquake Commission (EQC) was negligent in completing repairs of earthquake damage to a residential property.

DETAILS OF THE SUPPORT PACKAGE The package is available to homeowners who meet the following criteria: 1. they purchased a property in Canterbury after September 4 2010 (the date of the first earthquake), and/or on or before August 15 2019 (the date of the Government’s announcement); 2. before selling the property, the previous owner settled a claim with EQC on the basis that the damage could be repaired for less than $115,000 per earthquake event (the EQC cap); 3. after the purchase, the new homeowner discovered that the property had not been properly repaired (either because the repairs carried out were defective, or the damage was not properly assessed at the time); 4. the cost of the repair, together with the amounts previously paid

by EQC, is more than the EQC cap; and 5. private insurance will not cover the cost of the repairs.

Eligible homeowners must also take an assignment of the previous owner’s EQC claim to claim an ex gratia payment.

If a person is eligible under these criteria, then the ex gratia payment will be based on a scope of works, taking into account the work required to repair the earthquake damage in accordance with EQC’s statutory obligations, as well as any other reasonable cost of the repair work.

If the previous owner settled on a cash basis for some or all of the repairs, and:

(a) the purchaser also seeks an ex gratia payment for those repairs, then the purchaser will need to find out and notify EQC of who did the original work and which warranties are in place. (b) the homeowner has reason to believe that the cash settlement was insufficient, did not include all earthquake damage, or will not repair the earthquake damage to the standard required by the EQC Act, then the homeowner can request that the EQC review the previous claim.

A claim for an ex gratia payment from EQC for an "on-sold over-cap property" must be submitted by 14 August 2020.

SCOPE OF THE SUPPORT PACKAGE Under this support package, it appears that EQC is willing to make good any defective repairs – even if the cost of doing so is greater than the statutory cap.

It also appears that EQC will pay for unscoped damage, provided that these costs cannot be recovered from a private insurer.

RESOLUTION OF CLAIMS BEFORE THE COURT Shortly after this support package was published, EQC announced that it had settled Gibling v EQC, a test case brought by the purchaser of an earthquake-damaged home that alleged EQC was negligent in meeting its statutory obligations by missing damage and/or failing to properly repair earthquake damage prior to the purchaser. This proceeding would have tested the extent of EQC’s obligations to remediate defective repair – and, in particular, whether this obligation was subject to its statutory cap – and its obligations to pay for damage which had not been scoped.

This support package allowed EQC to settle the case out of court and avoid a three-week trial.

This support package also provides a framework for the settlement of similar cases before the court. Reports have suggested that Shine Lawyers (who acted for the Giblings) had another 54 cases on their books.

EQC and private insurers may see a decline in claims from purchasers of earthquake-damaged homes, who will have access to this support package until August 14, 2020. www.covernote.co.nz

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FEATURE

DIRECTORS AND OFFICERS INSURANCE – CONTINUED FOCUS ON RISK

By Andrew Horne, partner, and Nick Frith, senior associate, Minter Ellison Rudd Watts

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ompany directors are facing increasing challenges. Substantial damages awards in the Mainzeal case, together with a greater presence of litigation funders and an increasing likelihood of class actions are increasing directors’ and their insurers’ risks.

In this article, we discuss our views of four key legal risks facing directors and their insurers in the near future, being: 1. Climate change 2. Securities class action 3. Regulatory 4. Disclosure to insurers CLIMATE CHANGE RISK Climate change should be top of mind as giving rise to potential legal action against directors.

The Intergovernmental Panel on Climate Change’s recent Special Report on the impacts of global warming of 1.5°C above pre-industrial

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December 2019

levels has created a large amount of interest in the impact of climate change from a number of angles.

While the focus has largely been on companies and consumer behaviour, there are some clear indicators that directors may be in the firing line of potential plaintiffs in claims for breach of duty arising from the climate impact of the companies they lead. In a recent extra-judicial article, three judges of the New Zealand Supreme Court wrote on Climate Change and the Law and specifically addressed corporate governance and litigation beginning with: Directors have a duty to consider the ‘best interests’ of the company in all of

the colloquium jurisdictions. It remains to be seen how climate change

impacts that duty.There have already been cases in Australia and the United

Kingdom relying on corporate governance and company law to hold companies

to account for their climate impacts and actions.

While acknowledging that New Zealand legislation does not have an

FEATURE

liability. Insurers will also need to consider the risk of climate change in the Directors and Officers (D&O) context, particularly from the potential class action perspective.

SECURITIES CLASS ACTION RISK In a recent article by Andrew Horne, Marsh, and the Institute of Directors, the authors explored the impact of Australian securities class actions on D&O cover: The D&O insurance market for publicly listed companies (especially where

Company Securities ‘Side C’ cover or Statutory Liability is included) has

incurred the greatest scrutiny over the last two to three years.This change has

been driven predominantly by the impact of Australian securities class actions

claims on insurers’ financial performance, where the losses incurred greatly

outweigh the premium pool available and have done so for a number of years.

Number of securities class action claims in Australia [SOURCE: MARSH DATA]

20 15 10 5 0

equivalent of the UK obligation on directors to consider the impact of the company’s operations on the community and the environment as part of directors' duties to promote the success of the company: …academics have argued that, taken together, annual reporting obligations

and the directors’ duties of care may mean that directors could breach their

duty of care by failing to consider and respond to environmental risks that

later harm the company.The same arguments could apply in other colloquium

jurisdictions. Climate change is no longer simply an ethical issue.As a material

financial risk, directors are accountable under care and diligence duties to take

account of the financial consequences of climate change and this applies

whatever model of corporate governance is subscribed to. Further, the “business

judgement rule” would not protect directors where the legal risk stems from

inadequate information or lack of inquiry.

These comments taken together make it clear that directors ought to be considering their risk profile in respect of potential climate change

2 per annum (average) 1999 - 2006

4 per annum (average)

2007 - 2011

6 per annum (average)

2012 - 2016

10 per annum (average)

2017

16 per annum (average)

2018

While class or group actions in New Zealand have been relatively rare, they are on the rise (e.g. actions against Southern Response, James Hardie and the Ministry of Primary Industries). In 2018, the plaintiffs in a group action against the former directors of Feltex obtained a ruling in the Supreme Court that a forecast in a prospectus was untrue, opening the door to substantial claims against the directors.

We see the Court of Appeal’s recent decision in the Ross v Southern Response case (discussed from page 5) is likely to produce a significant rise in class actions in New Zealand, particularly against D&Os, assuming it is not overturned by the Supreme Court.

REGULATORY RISK Directors are well-aware of the increased focus on conduct and culture.

In its 2019/2020 Corporate Plan, the Financial Markets Authority (FMA) identified two of three sector activities for banking and insurance: (a) Bank conduct and culture and incentives follow-up (b) Life insurance conduct and culture follow-up The FMA’s focus will clearly remain on the conduct of directors and senior management. Following the review of bank conduct and culture in November 2018, the FMA and the Reserve Bank of New Zealand (RBNZ) said that they would: … be expecting to see much deeper accountability of boards, executives and

senior managers.We will be looking for progress and clear evidence of change

and want to see this become part of the ethos of all banks in New Zealand.

This presents a clear risk for directors and senior management to take into account when assessing their insurance needs. And for insurers when assessing whether, and on what terms and limits, they are prepared to insure against D&O regulatory investigation costs and liabilities.

Continuous disclosure risk also remains top of mind for directors of listed companies.

DISCLOSURE TO INSURERS Directors will need to be vigilant in their disclosures to insurers in the current environment of heightened risk from multiple disparate angles.

Close attention should be paid to circumstances that may give rise to claims, to minimise the risk of allegations of late notification. Insurers will also be looking more closely at insureds’ records to determine whether they had knowledge of potential claims prior to the policy years in which claims arise. www.covernote.co.nz

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2019 IN REVIEW

LOOKING BACK... AND AHEAD Covernote asked insurers about the year that’s been and what might lie ahead.

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December 2019

PAUL SMEATON SUNCORP NEW ZEALAND CHIEF EXECUTIVE What has 2019 been like for your business?

Suncorp New Zealand has performed extremely well. We’ve experienced strong growth across both our general insurance and life businesses, with our overall performance supported by positive claims outcomes and benign weather.

Increased regulatory scrutiny into conduct and culture within financial services was also a big part of 2019. We look forward to understanding more about the new regime and the role we can play to help build confidence in the financial services industry.

What have been the biggest challenges?

Trust in our sector is at an all-time low. Collectively, the insurance industry needs to deliver initiatives and front foot changes that enable positive outcomes for New Zealanders. We also need to be more proactive in promoting the benefits and value of independent financial advice.

What’s been the biggest change over the year?

I’m very proud of the effort and focus our people have put into addressing the Conduct and Culture review. By year end, Suncorp teams will have completed over 120 actions to strengthen our culture and enhance customer outcomes.

What have you most enjoyed?

FY19 has been a record year across the board. Customer satisfaction is up, we’re demonstrating enhanced risk maturity, employee engagement has increased, and Suncorp New Zealand has delivered its strongest profit to date. We’ve achieved these results against the background of the Conduct and Culture Review, which is testament to the strong outcomes focus and passion of everyone on the Suncorp team.

What do you expect to be the biggest trend your business experiences over 2020?

I’m picking two key trends for Suncorp. The first is digitisation. We’re looking to automate our more routine, repetitive business processes to boost efficiencies and enhance the customer experience. The second big ticket item for us is around conduct and culture as we focus on building market confidence and community trust.

What’s the biggest opportunity?

Increasing customer confidence and trust. Professional codes of conduct are being introduced and we’re working alongside brokers to support their successful transition.

I’m excited about the direction of our business. We’re clear on our purpose. Suncorp people come to work to create a better today for our customers. That’s what’s uniting us as we move toward the new year.

What are you most looking forward to?

Suncorp’s in a good place. We have achieved great momentum and I’m confident this will enable strong performance across 2020. Digitisation will improve process and cost efficiencies. I want to see Suncorp people continue to grow their skills and unlock value for themselves and our company. We are listening to our customers so we can deliver the financial services they need to support their financial wellbeing in ways that best suits them.

www.covernote.co.nz

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2019 IN REVIEW

Covernote asked insurers about the year that’s been and what might lie ahead.

DECLAN MOORE Chief executive and chief customer officer, NZ and Pacific, QBE What has 2019 been like for your business?

Busy. At the start of this year QBE Australia, New Zealand, the Pacific and India joined together to form the Australia Pacific division. As a subset of this, QBE New Zealand and the Pacific operations of Fiji, French Polynesia, New Caledonia, Papua New Guinea, Solomon Islands and Vanuatu formed the ‘sub’ division of New Zealand and the Pacific that I am now lucky enough to lead.

The decision to bring together the two important New Zealand and Pacific operations was a strategic one - made in line with the objectives of our broader business strategy and synergies between the New Zealand and Pacific Operations.

Contributing to these significant synergies between the New Zealand and Pacific Operations is a shared a shared history with the Pacific. In fact, QBE has been providing insurance in New Zealand and the Pacific countries since opening in the late 1800s (1890 in New Zealand).

Ensuring the right strategy and structure was in place is also of course key to our ongoing drive to better meet the needs of our partners and customers.

In New Zealand, QBE works exclusively in partnership with intermediaries to provide a comprehensive range of quality insurance products for businesses of all sizes across many of the industries that keep New Zealand running.

I arrived a little late to the party in NZ following many of these changes. My first day in QBE’s Auckland office was the 8th August. My first three months have been spent getting to know our people better and meeting with as many of our intermediary partners as possible. Our relationship with our partners is of course key to our success, so really getting to know them has been a significant focus and rewarding experience.

For us as a business, we’re again looking at our insights from our partners to help shape our next year and beyond.

What have been the biggest challenges?

I have been fortunate to be supported by a strong leadership team, and my transition into this role was ably assisted by Bill Donovan, who generously delayed his retirement in order to ensure a smooth transition.

The regulatory environment in New Zealand presents both challenges and opportunities for all financial service participants and we must work hand in hand with government and industry to ensure the best outcomes for our customers and partners.

QBE is supportive of the NZ Government’s outlined approach to upcoming regulation in our space, and the majority of specific changes that have emerged from the review process. We are particularly supportive of the move towards a more transparent and customer-focused industry. This aligns with our business strategy and programme of transformation work already in place.

Like any significant change the devil will of course be in the detail, so we are keen that appropriate time is given to consult with all interested parties.

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December 2019

What’s been the biggest change over the year?

QBE is transforming to become a stronger, simpler, more customer-focused organisation.

We’ve seen significant changes across our business as we seek to do this. We have been working hard to simplify our operation and modernise QBE, seeking to achieve everyday brilliance across all our operations through purpose-driven changes to what we do and how we do it.

Our goal is to build deep, enduring, commercially viable partnerships.

What have you most enjoyed?

There were quite a few highlights, but one that comes to mind is my role as part of a panel discussion at the Kiwi Dads Launch and Photo exhibition.

The Kiwi Dads campaign is about normalising fatherhood in the workplace and encouraging conversations between workplaces, men and their families to break down outdated gender stereotypes. There is great alignment with the Kiwi Dads campaign and the new QBE parental leave policy which aims to promote equal access to paid parental leave.

We call the QBE New Zealand policy Share the Care. QBE’s Share the Care policy provides 12 weeks of paid parental leave to new parents (irrespective of gender) at QBE New Zealand and aims to make parenting, career breaks and flexible working business as usual for both women and men.

We’re really proud of the initiative and believe this is a huge step towards more gender-equality in the workplace and home.

Significantly, QBE is the first organisation in New Zealand to adopt a gender-equal, flexible paid parental leave policy and it has already been utilised by several staff.

What do you expect to be the biggest trend your business experiences over 2020?

I have already seen, and expect to continue to see, an increasingly strong focus on our customers and meeting their evolving expectations and needs – are they getting value for money, do they understand the cover that they are being offered, and is it fit for purpose? We need to continually ask and answer these questions. This focus will extend across the distribution chain.

We’ll see some more disruption across the industry, which is a good thing. Successful disruptors will be those who address the fundamental and emerging customer requirements in innovative ways. This disruption and change is healthy, and QBE must continue to evolve and adapt and pursue innovation ourselves.

Importantly, everything QBE is already working towards in our 2021 ambition to become a simpler, stronger and customercentred organisation is providing the foundational capabilities for our future - ensuring a better future for our people, partners and customers.

What’s the biggest opportunity?

At the end of the day we are a people business. We have a fantastic team with great expertise, capabilities and future potential.

Our biggest challenges are often our biggest opportunities - leveraging that potential is a challenge we’ll tackle together as we seek achieve great things as a team. As we think about our future and look to find improved ways to grow trust and confidence amongst our customers and partners, we know we must look to deliver more.

This means improving our digital and data mining capability, using technology to improve customer experiences and ensuring we are looking ahead to emerging customer needs as the risk landscape changes and we seek to continue to deliver on our purpose.

This will come down to our people, our culture and our work with our partners.

What are you most looking forward to?

A couple of weeks ago I was in Singapore for a QBE Global Leadership Forum. This event is an opportunity for our leaders to come together to think about and start planning for our future – it was inspiring, exciting, and very eye-opening! Globally, we’re building a team and a framework that will see us into the next few years and beyond, and I’m excited to be part of this.

Locally, I’m looking forward to getting to know all my team even better and diving into the rich detail of our business and partners (I have a love of the detail, a failing I can’t seem to shake).

On a personal front, I’m looking forward to seeing even more of this amazing country. The entire family are participating in a "Wild Auckland" series that takes us all around Auckland and its environs we’re off to Tapapakanga this weekend, so can’t wait.

www.covernote.co.nz

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2019 IN REVIEW

Covernote asked insurers about the year that’s been and what might lie ahead.

GARRY TAYLOR EXECUTIVE GENERAL MANAGER, NZI What has 2019 been like for your business?

2019 has been an extremely successful year for NZI. We celebrated our 160th birthday this year – an achievement we’re all very proud of and a milestone that shows NZI knows the value of legacy and playing the long game. NZI is and will continue to be a people business built on enduring relationships. Our people, out in the market trading and managing key relationships, I believe, are the best in the business.

Aside from the birthday celebrations, it’s been a year of consolidation and long-term, sustainable pricing and underwriting decisions. My aspiration at the start of the year was to transition our business from remediation into growth mode and I’m pleased to say we’re on track to achieving sustainable growth and being first in market for quotes, queries and claims.

To me, these are the basic tenets of success.

What have been the biggest challenges?

In my mind, conduct is the single biggest issue for our industry to understand and come to terms with. It’s a good time to be taking stock, with the Financial Services Legislative Amendment Act that aims to bring more transparency to the industry and looks at changing the way in which advisers and insurers engage with their customers. This is a significant leap forward. It gives the insurance industry a clearer and more objective framework to improve itself against. I’m all for it.

How we adapt to the changing climate remains a challenge. In response to the ever-changing environmental risks we’ve seen here in New Zealand and globally, NZI has moved to a riskbased-pricing model. This is because we believe premiums need to reflect the level of risk and costs associated with providing insurance cover, including the cost of reinsurance.

Speaking of environmental risks – earthquake capacity in Wellington continues to be front of mind for our team. NZI is proud to offer insurance right across New Zealand, from Cape Reinga to Bluff, and unlike many other insurers, we are not pulling out of Wellington. We do, however, need partnership with our brokers on this for whole of account national spread and not just single account in Wellington. That is the reality.

At NZI we are continually working to understand where the opportunities sit within these challenges and always try to make strategic choices based around our future state.

What have you most enjoyed?

A key highlight of the last 12 months has been improving our people and culture results. We achieved a significant increase in our employee net promoter score from April last year to September this year.

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December 2019

I believe in a people-first approach to leadership, and my philosophy is that a strong, engaged team that is clear on vision, purpose and customer value proposition, will result in strong partner and financial outcomes.

I am extremely proud of this strong people result for NZI and want to continue to build on a culture where people want to come to work and be part of something special.

What do you expect to be the biggest trend your business experiences over 2020?

The last year has gone fast for me and there has been a lot of change, and I doubt the pace of change will slow down in 2020.

The entire insurance landscape is changing and the regulatory environment we are in is under the spotlight.

This time last year no one in the insurance industry wanted to talk about conduct, yet now, following the Financial Markets Authority (FMA) and Reserve Bank of New Zealand (RBNZ) report in February and regular press on the topic, everyone is listening and engaging. I believe that engagement will only increase in 2020.

Conduct and culture is top of mind at NZI and there is a lot of work going on behind the scenes ensuring transparency, fit for purpose, and a customer-first approach. We are also working closely with our broker partners to understand the inevitable changes that will result. The focus on the customer can only be seen as a positive step for our industry.

What’s the biggest opportunity?

It’s important to note that the industry is currently in good shape, but it’s crucial that as a collective we don’t revert and undo all the consolidation work in underwriting and pricing that we’ve put so much effort into. There’s a real opportunity for us to maintain and build on our strong underwriting disciplines and long-term focus, especially as we weave our way through various challenges and/or opportunities such as climate change and culture and conduct.

Another opportunity is in advancing our technology, specifically digital claims lodgement. NZI is in a good position when it comes to technology advances as we have a range of skills and capabilities to draw on from our parent company, IAG. This means we can ‘lift and shift’ the advances that are happening with other IAG brands both here in New Zealand and Australia and also with our offshore partners.

As always, there will also be opportunities and challenges that we can’t predict. This means new ideas and new ways of working are a given and I’m confident that we have the capability to be agile and develop people into new areas as they arise. It’s an exciting time to be in the insurance industry.

2019 IN REVIEW

Covernote asked insurers about the year that’s been and what might lie ahead.

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December 2019

ADRIAN TULLOCH Managing Director, Vero Liability What has 2019 been like for your business?

It’s been a good year, as at mid-November anyway. Liability lines don’t generally suffer sudden, catastrophic events, so absent that it has been pretty much business as usual, although with some increase in demand for VL capacity as market appetite dictates in some areas (particularly D&O) receded.

What have been the biggest challenges?

No really big challenges this year, but getting the message out around statutory liability, health and safety claims and risk management has been a focus, as well as highlighting design and building product risks emerging in the construction sector.

What’s been the biggest change over the year?

Probably a notable new focus over the year for the industry is around the learnings coming out of the Hayne Commission in Australia and the Reserve Bank and FMA’s conduct and culture inquiries in New Zealand. Although real change is yet to hit the ground in the general insurance industry, it is clear that there will need to be increased commitment from insurers and brokers to ensuring that insurance buyers get insurance products they understand.

What have you most enjoyed?

Enjoyed might not be quite the right word, but I have been very happy to observe the discipline coming into parts of the Lloyds market arising out of Lloyds requirements for syndicates to file realistic business plans.

What do you expect to be the biggest trend your business experiences over 2020?

D&O insurance for public companies will continue to be challenging.

Customer conduct compliance will be to the fore for all market participants including VL. What’s the biggest opportunity?

The biggest opportunity will continue to be winning and retaining clients by providing great products and great service at reasonable price.

What are you most looking forward to?

2020!

www.covernote.co.nz

15

BREAKING NEWS

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LIABILITY INSURANCE COVER FOR SANTA CLAUS REPORTEDLY “A HIGH RISK” Vero Liability Insurance will neither confirm nor deny rumours that the well-known toy supplier and delivery entrepreneur, Mr Santa Claus, is seeking liability insurance cover from the company.

Industry sources have described Claus’s exposures as “almost incredible”.

Numerous elf and safety concerns about unrelenting production pressures, freezing temperatures and work conditions described as “inhumane” were raised by the workforce of the toy factories run by Claus earlier this year. Finnish authorities are reportedly investigating but have faced jurisdictional issues and challenges locating the facilities.

The delivery arm of the business is also said to be a high risk for any insurer.

Landing on 1.5 billion roofs with eight reindeer and a fully laden sleigh will almost certainly result in damage to some houses - and multiple public liability claims. Any insurer will need to consider the vexed question of whether this damage was unintended and unforeseeable given the long history of Claus’s delivery method, the industry insider said.

And as the work occurs at height and within prescribed minimum approach distances to electricity lines, there are ongoing safety concerns for Claus and his staff.

There have also been whispers of employment and human rights issues within the workforce. Bullying and discrimination based on physical differences is said to be rife amongst the sleigh team, according to Mr R. R. N. Reindeer, a long-time employee.

Claus himself is repeatedly exposed to the carcinogens in soot and faces the risk of criminal charges due to his practice of entering homes without seeking the express consent of homeowners.

In addition, there is a potential for claims under the Fair Trading and Consumer Guarantees Act if the business’ toys do not meet mandatory safety standards or make false representations to the end users.

Rounding out these risks, MPI is said to be investigating animal cruelty allegations given that approximately 4 billion packages must be delivered by the reindeer team in the space of 24 hours.

“It’s hard to see how this can be done without treating these lovely animals unkindly”, says an animal rights activist. A legal expert in the field commented that although the practice has been ongoing for almost 1700 years, this is no defence. “While traditions may be relevant in mitigation at sentencing, the offending will be established on the law as it stands in 2019.”

VL’s Managing Director, Adrian Tulloch, says that as New Zealand’s leading liability insurer, VL will consider all proposals for insurance on their merits. “We have a full range of liability insurance products, and we are confident we can offer a tailored package if, or when, we are approached by Mr Claus’ broker.”

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December 2019

HUMANS of

From Novice to Expert Iwona Bettridge discusses her career in insurance

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wona Bettridge admits she barely even knew what insurance was when she joined NZI 15 years ago - now she’s a highly regarded regional manager for the company’s AON CPF (client placement facility) line.

Like many insurance professionals, Bettridge fell into the industry.

“I got really sick of being a poor student, doing part-time waitressing work, so I decided to finish my last semester of Bachelor of Business extramurally and get a full-time job.”

“I landed a job at the NZI direct branch in Takapuna, selling domestic insurance in a call centre environment. Before I started, I didn’t even know what ‘excess’ meant, however, I quickly learnt with the excellent training provided.”

After a year of selling domestic insurance, Bettridge moved into the commercial space, working as a business development manager in SME and corporate environments before securing her current role.

Amongst all of this, Bettridge became a mother and now has two children, a seven-year-old girl and five-year-old boy.

Bettridge says juggling home life while advancing her insurance career was challenging but, she says both helped her realise exactly what she was capable of - professionally and personally.

“I’m a firm believer in the importance of face-to-face interaction as it promotes and instils connection.

In my role, I sit in the AON office. Conducting business with brokers

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December 2019

in their environment has taught me a great deal about myself and allowed me to feel somewhat comfortable in normally uncomfortable situations.

At the end of the day, business disagreements should never be taken personally, and mutual respect and understanding are key."

Bettridge compares the underwriter/broker relationship to an umbilical cord – with brokers connecting the underwriter to the end customer.

“Brokers help us understand our customers’ businesses to enable us to tailor insurance solutions for them, and if that umbilical cord is not strong and healthy we run a high risk of losing the connection with our end customer – and these are the people we are ultimately here for.”

On top of strong broker/underwriter relationships, Iwona encourages diverse thinking in the workplace.

“If we always stick with the same type of people in the insurance industry because it is 'easier and more comfortable', we will only go so far in terms of development. Great ideas and collaboration are born in diverse environments.”

She believes that accepting and embracing each other’s differences will shape the future of the industry and move it forward.

“We are now seeing more inclusive and equal models of reality where you can 'dream big' and 'accomplish big', regardless of your gender, social status or religion. I’m all for that.”

INSURANCE DESIGNED FOR YOUR BUSINESS

nzi.co.nz

FEATURE

TRANSITIONAL LICENSING COMMENCES

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ransitional licensing has begun – and every adviser in the market now has to decide how they wish to proceed.

From June next year, it will not be possible to give advice to retail clients unless you are working for, or are, a licensed financial advice provider.

Advisers can work for a financial advice provider either as a nominated representative or a financial adviser.

But some adviser groups are still trying to determine whether they want to provide a financial advice provider for their members to operate under – with the extra responsibility and potential cost that brings – or whether they will expect advisers to be responsible for themselves.

At NZbrokers, Jo Mason said it would not apply for a licence.

“We don’t give financial advice to retail clients. Our members are independent businesses with their own set of professional standards. We will recommend and publish a broker operations and guidelines manual template which the members will adapt to their practices. If we could implement a mandatory set of professional standards, we might have a different position.”

She said the group supported the lift in standards that the new Financial Services Legislation Amendment Act (FSLAA), and its accompanying code of conduct for advisers would bring.

“It will impose the need to determine a client’s preferences and a requirement to demonstrate the suitability of a product for each client.

FSLAA and the code will impose other professional standards that will result in better record-keeping and client communications as well as advisers with a more rounded education about the financial services profession and the regulations that apply,” she said.

“Most of our members already achieve these standards, with the exception of a competency measure, through qualification. For those members who do not always achieve the required standards, the new

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December 2019

law will be a motivating element. For those who do not we will farewell them from the profession and their clients will be better advised by licenced and regulated general insurance brokers.”

At Crombie Lockwood, plans were not yet in place.

“We’re well underway with our planning and considering what we need to do to fully meet our obligations under FSLAA. However we’re not yet in a position to share or comment.”

As well as regulatory responsibility for members, taking a financial advice provider licence will come at a cost.

Transitional licences will be $450. Would-be FAPs must be registered on the Financial Service Providers Register and with the Companies Office with their relevant advice service before applying for their FAP licence.

But when full licensing starts, the amount paid will depend on the size of the practice.

A sole adviser practice, with the adviser the only director, or one of only two, will be charged $703.80 to apply for a full licence under the new regime, and then $178.25 for each entity that is proposed to be an authorised body under the licence.

Bigger advice businesses, but those which do not have nominated representatives, will be charged $882.05 plus $178.25 per authorised body.

Those with nominated representatives will be charged $1,060.30 plus $178.25 per authorised body.

There will also be FMA levies to pay: $304.75 for adviser sand $258.75 for financial advice providers.

Financial advisers will pay $304.75 in Financial Markets Authority levies and FAPs will pay $258.75 plus $205.85 for each nominated representative. FAPs who give advice on their own account will pay $847.55.

FEATURE

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www.covernote.co.nz

21

OPINION

WE CAN’T MAKE EXCUSES

By Richard Harding, chief executive, Tower Insurance

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e need to do more to deliver good customer outcomes.

Confidence in our industry is at an all-time low.

You only need to open the paper and you can read about a stream of debatable business practices.

And these claims are backed up by ICNZ’s own industry research, which shows trust is declining.

It is disappointing to read and tough to hear consumers don’t trust us and think we’re not there to help them when they need it. It’s disappointing because I am sure none of us come into work to make things difficult.

But it is clear that there is an issue and that we need to change. It would be easy for us to brush off these concerns by saying insurance is a grudge purchase or people just don’t want to understand.

But at its heart, insurance is a vital community product and people do care. Insurance is fundamental to how communities work.

It is a core part of the economic stability that allows them to thrive and to respond to disaster. It enables businesses to invest and grow by 22

December 2019

taking calculated risk. And it gives families the security they need to borrow money, to buy houses and cars, and to create homes and lifestyles.

All of these people are comforted by the fact that their insurer will be there to help set things right when things go wrong.

When you think about that as our collective industry purpose, those excuses of being “too hard”, or a grudge purchase don’t stack up.

Customers should care about every aspect of their insurance, but we’ve conditioned them to think it’s all too hard.

As an industry, we’ve put confusing discounts in place. We penalise people for making a claim by losing their no claims bonus.We incorporate complex jargon into our policies that even lawyers struggle to understand.

It is up to us to change this. There is currently an asymmetry in transparency, information and knowledge.

We expect customers to tell us everything and in return, we tell them the bare minimum.

We design our processes to capture the 1% of insurance fraud, not to care for the 99% of legitimate customers. Decisions and changes are made

OPINION

that impact customers, but these are not communicated transparently.

I know that Tower has been part of that problem, but we are committed to a better future. At Tower, we believe that people deserve better and are on a mission to break these industry norms and empower customers.

I’ve challenged our team to deliver super simplicity and create a twopage policy with NO ifs or buts.

This simplicity and transparency of product coverage makes insurance clear so that customers understand what they’re covered for, and there’s no confusion at claim time.

IT IS DISAPPOINTING TO READ AND TOUGH TO HEAR CONSUMERS DON’T TRUST US AND THINK WE’RE NOT THERE TO HELP THEM WHEN THEY NEED IT. It’s also why we went out publicly and committed to removing the duty of disclosure from our business. This is not just removing the question from our processes, it’s removing all of the implications of this question for customers.

We’re being transparent about what we need to know, and when we need to know it, so that at claims time, customers who have been truthful, lawful and honest will simply have their claim paid. Not declined, withdrawn or some other technical rationalisation.

As an industry we proudly go out and talk about the fact that we pay the vast majority of claims, and only a minute number are declined. And that may be technically true, but is that what customers think? Is that what they actually experience?

At Tower, and I’d be surprised if it were different across the industry, one in five customers end up with what we call a withdrawn claim.

So 20% of customers think there is some trick, some technical clause, or a reason they don’t really understand about why we can avoid paying their claim. It is no wonder that confidence is at an all-time low.

But creating those simple, plain-language product wordings and removing catch-all questions is our way to break this industry norm.

It’s also why we’ve just completed a $47 million investment into a new insurance technology platform.

Digital is the way of the future, and our new platform is completely unique in the New Zealand market, removing complexity internally, and for customers.

It transparently offers up all the information customers need to make an informed decision, without any hard-sell tactics. We are now moving our customers from over 400 legacy products to a core set of just 12 plain-language policies without the duty of disclosure.

And we’ll be continuously reviewing and improving our products so that every year, when a customer renews, they’ll be on the latest policy we offer, with any changes clearly and transparently communicated.

We’re removing sales incentives, improving and automating our claims processes, and as we convert our customers to our new platform, we remove all admin and finance fees.

Transparency is key and is why we led the way on risk-based pricing.

We believe risk-based pricing is fairer and we realised that it was going to be tough for a handful of customers, so we did the right thing – we were transparent.

Before we made the change we spoke with the Government, with media and our customers. We communicated openly and spent time and effort explaining our rationale and supporting customers through the change.

And interestingly, recent research we conducted shows that 70% of people think risk-based pricing is fair. It is a fairer model because it stops cross-subsidisation, it means that the small number of people who are most exposed pay the true cost of the risk they face, and it helps people understand and learn about risk.

It all comes back to our purpose and enabling communities to prosper by taking calculated risk We ignited a much-needed national conversation around risk management.

Risk-based pricing is not new. It is how insurance operates all around the world and what happens every time a customer in New Zealand buys car insurance.

So why then, when this is a fairer way forward and a mature conversation and customer education was needed, did the industry shut its doors and duck for cover?

Instead, embargoes remain in place and customers are confused and unnecessarily concerned about the availability of insurance.

Is it any wonder that Kiwis don’t trust their insurers and we’ve all been asked to look at the culture and conduct of our businesses?

There is a need for a mature and open conversation. The conversation is not about pricing, it is about risk and how we manage and prepare for it as a country.

New Zealand is a small economy. It is one of the riskiest seismic countries in the world and storms are increasing across the Pacific, with rising water temperatures in the Tasman Sea increasing their impact here.

There is a need for a mature open and honest conversation about these issues with all stakeholders, insurers, Government and community talking openly and honestly about this.

Government is currently looking at stop-gap measures that do nothing to educate, mitigate and improve preparedness. If we continue down this path, it will leave issues that future generations will need to deal with and unwind.

We have the data, information and experience to help educate and inform the community and Government on risk. Mature conversations and sharing our knowledge is part of our core purpose and our role as an insurance industry.

It will help us rebuild trust in our industry and create a sustainable future for insurance. In the wake of the FMA and RBNZ report on life insurer conduct and culture it is clear there is a lot to do. There are other areas where we need to have a mature, transparent conversations.

If you apply the conduct and culture, lens not just to the private sector, but across the agencies responsible for responding to the Canterbury Earthquakes, you will see failings that remain unresolved today. The old EQC model and how these claims were handled have done nothing to improve the perception of insurance in New Zealand.

While we have made significant progress since then, it has been a long road for customers, insurers and the community and we have long maintained that the current system is fundamentally broken.

In the true spirit of conduct and culture, and delivering good customer outcomes, I challenge the Government and the EQC to join the industry in and open, honest and transparent conversation on the right model for the EQC. This requires us all to step back from a position of defending the past and to look at outcomes from a customer perspective. We need to work together to ensure a sustainable, customer-focused solution is in place, so mistakes of the past are not repeated and the community is prepared.

We know we’ve been part of the problem before. We have made some progress, but there remains a lot yet to do. We are fully committed to improving and being part of an industry that is trusted to deliver good outcomes for customers.

This column was originally delivered as a speech to the Insurance Council of New Zealand annual conference.

www.covernote.co.nz

23

FEATURE

HERE’S WHAT AN EXTERNAL DISPUTES RESOLUTION SCHEME CAN TELL YOU ABOUT LICENSING FSCL’s Susan Taylor offers insights into what lies ahead for brokers.

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ransitional licensing for financial advisers and brokers opened on November 25.

The FMA has indicated that there will be two standard conditions on financial advice provider transitional licences: • You must maintain adequate written records in relation to your

financial advice service • You must have an internal process for resolving client complaints in

relation to your financial advice service.

GOOD RECORD-KEEPING Brokers are going to have to maintain adequate written records showing how they, and any persons engaged by them to give regulated financial advice to retail clients, have complied with the Financial Markets Conduct Act, Regulations and the new code. Brokers are going to have to ensure the records are kept for at least seven years. Adequate written records include information about any financial advice given to clients, copies of written information and documents, and all file notes and diary entries.

At a recent roadshow, the FMA observed that it has seen: • Incomplete record-keeping • Files not easily accessible • Handwritten notes not legible • Files that are not safely stored • Reliance on free cloud-based storage which is not fit for purpose.

Good record-keeping is often found lacking in cases that come to FSCL for investigation and resolution. We not infrequently receive a broker’s file which has no file notes or diary entries to record important meetings or calls with a client. In a "he said/she said" situation, we may be more likely to prefer the evidence of the client, where the broker has no file notes as evidence of a meeting or call with a client. As the professional in the relationship, brokers and advisers will be expected to keep good

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records and, if their records are lacking, this will reflect on the broker or adviser’s credibility.

Fortunately for the broker, in some cases the lack of records has not been the cause of the loss the client is claiming. However, had proper records been kept, it is more probable than not that the complaint would never have ended up at FSCL. The case below is an example of this.

CASE STUDY WHERE DID MY INSURANCE GO? In December Sanjay arranged insurance for his taxi through an insurance broker. He intended paying for the insurance through an instalment service offered by the broker, but the payments were dishonoured with the notation "account closed".The broker wrote to Sanjay twice, and sent a new direct debit form, but the form was not completed and returned, so the policy was cancelled.

The following May, Sanjay purchased another taxi, and went through the same process again. While Sanjay thought he was arranging insurance for his new taxi, all the broker’s records referred to insurance for the first taxi that was intended to be effective from 1 August. Again, the broker arranged payment for the insurance through its instalment service.

On 10 July the taxi was involved in an accident. The first payment for the insurance was due on 10 August.The payment was dishonoured, again with the notation "account closed".The broker wrote to Sanjay twice, and then the policy was cancelled.

Two years later Sanjay contacted the broker because the insurer of the other car involved in the accident was pursuing him for the cost to repair the damage. Sanjay considered the broker should be responsible for the loss because he had asked it to arrange cover and it had not done so.

The broker responded by saying that it had no record of ever arranging

FEATURE

insurance for the car involved in the accident and, in any event, Sanjay had not paid for any insurance.

Sanjay disagreed and referred his complaint to FSCL. DISPUTE Sanjay said the broker had made a mistake by arranging insurance for the first taxi again in May. Sanjay said he told the broker he had purchased a new taxi and needed insurance cover for the new taxi immediately.

Sanjay agreed that he had received the letters from the broker about the cancelled insurance, but said he thought they related to the first taxi, which he was no longer driving.

The broker could not understand why Sanjay had referred his complaint to us. From the broker’s perspective there was no case to answer: • it had no record of ever arranging insurance for the car involved in

the accident • Sanjay had never paid for any insurance • it knew nothing about the accident for two years.

REVIEW We had very little information about the circumstances giving rise to the complaint. There were no telephone recordings or notes of any of Sanjay’s conversations with his broker. As a result, it was impossible to work out where the misunderstanding arose. Inadequate record-keeping impacted on the broker’s credibility. However, the little information that was available indicated that the broker was not responsible for Sanjay’s lack of insurance cover at the time of the accident.

Although Sanjay said the broker made a mistake by reactivating the cover that had previously lapsed, there was no evidence to support his belief that he had insured the second car. All documentation from the broker referred to the first car.We did not consider it reasonable for Sanjay to ignore the letters advising the insurance had been cancelled because they referred to the first car.These letters should have prompted Sanjay to

contact the insurer to resolve the misunderstanding.

We also would have expected Sanjay to notify his insurer immediately after the accident, even if he believed he was not at fault.

RESOLUTION We explained to Sanjay that we could see no evidence to find that the broker was responsible for his loss. Sanjay did not respond to us, so we closed our file.

OUR INSIGHT This complaint appeared to have little merit from the outset, but the lack of record-keeping meant that it required an investigation and decision from us.

INTERNAL COMPLAINTS PROCESS Brokers will have to have an internal complaints process for resolving client complaints. It is important to bear in mind that a complaint means a “an expression of dissatisfaction made to an organisation, related to its product or service, or the complaints/handling process itself, where a response or resolution is explicitly or implicitly expected.”

An internal complaints process should provide for: • acknowledging complaints as soon as practicable • giving information to the client about the process and how it works • resolving a complaint and providing a response to the client as soon

as practicable • keeping a written record of all complaints and the action taken to

resolve them • telling the client the name and contact details of your external

dispute resolution scheme Once again, we often find that a complaint needlessly escalates to FSCL because the broker has failed to recognise a complaint from a client and has then failed to deal with the complaint promptly, leaving the client with no option but to go straight to FSCL. www.covernote.co.nz

25

COVER STORY

AFTER THE EVENT INSURANCE - A NEW OPTION TO REDUCE LITIGATION RISK?

By Andrew Horne, partner, and Cora Choi, solicitor at Minter Ellison Rudd Watts

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he Court of Appeal’s recent decision in Houghton v Saunders [2019] NZCA 285 indicates that litigants in New Zealand may be able to benefit from an After the Event costs insurance policy (ATE policy). This may increase litigation before the courts, as litigants can issue proceedings with insurance against the risk of large adverse costs awards.

After the Event policies have long been available in England, but they are not part of the New Zealand litigation landscape.The Court’s decision highlights that they are available and acceptable, although they do not provide all of the benefits provided when first offered in England (discussed below). If the policies become widely accepted in New Zealand, this may change the way people approach litigation and assess litigation risk – and a rise in litigation is likely.

An ATE policy is insurance that protects a litigant (normally a plaintiff) against the risk of an adverse costs award if the litigant loses the case. In return for a premium, the insurer assumes the risk of a costs award against the litigant. This allows plaintiffs to bring proceedings without the risk of incurring a costs liability if they lose, in addition to their own legal costs. When ATE policies first became available in England, the courts allowed successful plaintiffs to include the cost of the ATE premium as a disbursement, so that the policy was effectively free to the plaintiff if they won the case and it protected them if they did not. Now, however, the rule has changed and a plaintiff must bear the cost of the ATE premium itself.

BACKGROUND TO ATE POLICIES ATE policies, unlike most forms of insurance, are purchased once a dispute has arisen or proceedings are contemplated. If the insured party is successful in the action and does not have to pay costs, the policy is not triggered. However, if the insured party loses and an adverse costs order is made against it, the policy will cover the insured party’s exposure to the adverse costs order.

Subject to variations and exceptions on a case by case basis, the following is an outline of the basic principles upon which an ATE policy works: (1) Cover is triggered when an insured party loses litigation.

(2) It usually covers: 26

December 2019

(i) adverse costs orders requiring the insured party to pay the winning party’s costs; (ii) the insured party’s own disbursements; and (iii) a portion of the insured party’s lawyer fees.

(3) The insured party could be bringing or defending the claim,

but is normally bringing it.

(4) An ATE policy is available in theory regardless of the subject

matter of the civil dispute and regardless of the type of relief

or remedy being sought (monetary or otherwise).

(5) The main requirement for obtaining an ATE policy is to satisfy

the insurers that the insured party’s chance of success on the merits of the case is at least 60% (this minimum

threshold can be higher) and that the insured party will be able

to pay the ATE premium if required to do so.

(6) The ATE policy premium, often between 20% and 50% of the amount of costs being insured, may be “deferred and

contingent upon success”. This means that the insured party

need not pay the premium up front and is only liable to pay it

if it wins the case. If the insured party loses the case, there is

no premium to pay and the insurer pays out any court costs

and disbursements under the policy.

(7) The level of premium can also be staged, increasing in amount

the further the litigation/arbitration progresses, so that if the

case settles early, a lower premium is payable.

ENGLAND’S APPROACH TO RECOVERING In England, a winning insured party was initially entitled to recover ATE policy premiums from the losing party as a part of the costs award under the Access to Justice Act 1999 (UK) (AJ Act), meaning that insured parties were able to litigate essentially risk free in terms of costs awards.

This principle originated from the argument that the ATE premium cost was incurred as a result of the losing party causing the winning insured party to incur the cost of the proceedings.Where they had lawyers willing to act on a ‘no win no fee’ basis, or a litigation funder, they had no risk at all.

This changed when the Legal Aid Sentencing and Punishment of

COVER STORY

Offenders Act 2012 (UK) (LASPO) came into force on 1 April 2013.

The LASPO repealed the AJ Act which allowed a winning insured party to recover ATE premiums from the losing party. Prior to this, there were growing concerns that ATE insurance was partly responsible for inflating legal costs, and contributing to rising ATE premiums, there being no incentive for insured parties to reduce their premium costs.There was also concern that this could breach consumer protection laws.

The LASPO now provides that premiums for ATE policies entered into on or after 1 April 2013 must be paid by the winning insured party, and will not be recoverable from the losing party. There are a few limited exceptions to this – ATE premiums can be recovered by the winning insured party in certain clinical negligence proceedings, and only to the extent that they relate to the costs of an expert report or reports. However, if the Court finds that the ATE premium is unreasonable to any extent, the winning insured party is liable for the shortfall.

THE COURT OF APPEAL’S DECISION IN HOUGHTON V SAUNDERS The case involved an application for costs by Mr Houghton in the Court of Appeal, following a partially successful application for leave to appeal a Court of Appeal judgment to the Supreme Court. Based on his partial success in the Supreme Court, Mr Houghton sought recovery of his ATE premium of $47,000 from the respondents as a part of his costs award. Mr Houghton categorised his ATE premium as a disbursement.

Recovery of disbursements in the Court of Appeal is governed by rule 53 of the Court of Appeal (Civil) Rules 2005, which provides that “the Court may in its discretion make any orders that seem just concerning the whole or any part of the … disbursements of an appeal”.

“Disbursement”, has the same meaning as defined by rule 14.12(1) (a) of the High Court Rules, being “an expense paid or incurred for the purposes of the proceeding that would ordinarily be charged for separately from legal professional services in a solicitor’s bill of costs”.

The Court of Appeal accepted Mr Houghton’s argument that the ATE premium was capable of being categorised as an expense reasonably paid or incurred by him for the purpose of the appeal.

However, despite that finding in principle, the Court of Appeal declined to allow Mr Houghton to recover the ATE premium as a disbursement.

The Court held that recovery would not be in the interests of justice, because it seemed to be “patently unfair that unsuccessful defendants should have to meet significant additional costs to cover a [litigant’s] insurance against the prospect of their losing” (at [26]).

In reaching that decision, the Court of Appeal was influenced by the approach now taken in England, where ATE premiums are no longer recoverable from a losing party. In particular, the Court referred to one of the reasons behind the LASPO, being that recoverability of ATE insurance premiums imposed disproportionate cost burdens on defendants, while plaintiffs were able to litigate risk-free.

WHAT DOES THIS MEAN IN PRACTICE? New Zealand litigants are unlikely to be able to claim their ATE policy premiums as a disbursement in the event of a successful claim or defence. Despite this, the fact that ATE insurance appears to be available in New Zealand and the courts have not indicated that it is not effective is likely to encourage litigants who have a valid claim but cannot afford a costs liability in event of a loss, to press a case on to trial that they might otherwise not have started or may have settled.

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. www.covernote.co.nz

27

Each year Rothbury Insurance Brokers recognises and celebrates the achievements of individuals and teams across the business. This year the 2019 Rothbury Annual Awards took place at a black tie event at the RACV Royal Pines Resort on the Gold Coast, as part of Rothbury’s biennial Commercial Conference.

Best Commercial Broker was awarded to Steve Pyke from Wellington Capital City Branch. The other winners were: Best Domestic Broker, Donna Hyslop from Tauranga Branch; Commercial Broker Support Service Excellence Award, Fiona Jamieson from Auckland; Claims Adviser Service Excellence Award, Fiona Craig from Canterbury branch; and the Best Broking Branch winner overall went to the Hawke’s Bay Branch.

When asked what it felt like to be awarded the title of Best Commercial Broker, Pyke said: “I was ecstatic, this was my first nomination and I haven’t actually won an individual award before – it’s always been team stuff before.

I think the tools I have to work with at Rothbury and the way our business is structured makes it easier for me to do my

Steve Pyke & Kelly Sturmey

Rothbury Annual Broker Awards 2019

job. Ultimately attitude is everything though. If you think you can do it, you can. I concentrated on my service levels, set achievable goals and followed up on all the leads I got from my clients. I couldn’t have done it without Kelly Sturmey, my broker support. She’s pretty damn good. Kelly was a big part of my win.”

Rothbury expands in Northland Ascot Insurance Brokers has become part of Rothbury Insurance Brokers.

The Ascot partnership will double the size of Rothbury’s existing Northland branch, adding to the team four senior brokers and seven support staff.

Managing director Roger Abel said: “Growing the business and expanding our presence around the country is part of our growth strategy, and building more capability within the Northland team is exciting.

“Ascot is a great fit for us, they have operated in Northland for the last 20 years and have very strong connections to the local community.”

Rothbury and Ascot are working to align the two businesses to ensure minimal disruption to clients. The business will continue to provide a range of insurance services including commercial, domestic and rural.

Rothbury is now the third-largest broking company in New Zealand. It remains a majority-owned and controlled New Zealand company with more than 45,000 clients and almost 320 staff, operating in 20 locations around the country.

Alliance to boost growth Rothbury Insurance Brokers has entered a strategic alliance with Kiwi business advisory group Grow NZ Business to promote growth for its business clients.

Grow NZ Business links Kiwi SMEs to trusted local and global business partners, offering them access to world-class solutions across all facets of business.

As part of the alliance, Rothbury business clients will be offered free Grow NZ Business membership for one year, and Grow NZ Business members will have access to Rothbury’s award-winning insurance broking expertise and claims advocacy services.

Members will also benefit from receiving localised service from its 20 branches throughout the country.

“Our business has never been just about insurance,” said Rothbury strategic partner manager Richard Davis. “We are a people company and we think of ourselves as a strategic business partner to our clients. We’re constantly on the 28

December 2019

hunt for new ways we can add value for our clients and their businesses. Forming an alliance with Grow NZ Business gives our clients access to trusted business advice and hands-on support to help them grow their businesses sustainably.”

Davis said working alongside Grow NZ Business was a natural fit as the two companies shared similar values and the same ultimate end goal: to support New Zealand businesses.

Grow NZ Business founder Jamie Farmer said he was delighted to work with Rothbury to help add value for its clients.

“We are really looking forward to welcoming Rothbury clients to our growing group of more than 8000 Grow NZ Business members. We’re confident our new members will gain instant value by being part of our network and will benefit from the tried and tested hands-on support and strategic business advice our partners offer to help Kiwi businesses grow sustainably.”

50

+

100

$

BROKERS IN THE NETWORK

+ MILLION OF WRITTEN PREMIUM

100

+ PEOPLE COMPLETED STAGE 1 LEVEL 5 WORKSHOPS

27

NEW BESPOKE IANZ/INSURER AGREED WORDINGS

NEW ZEALAND 2019 INSURANCE FINALIST INDUSTRY Large Broking AWARDS

Company of the Year

FEATURE

GETTING PROACTIVE ABOUT

CYBER RISK

By Angela Cuming

30

December 2019

FEATURE

I

n the brave new world of the age of the internet there is one threat that looms largest to businesses: cyber-attacks.

As of January 2020, virtually all of AIG’s commercial property and casualty insurance policies will begin affirmatively covering or excluding physical and non-physical cyber exposures.

The move seeks to address market concerns that traditional commercial insurance policies across the industry – from property to general liability – are often silent about cyber coverage.

Sebastian Hess, a cyber risk adviser who is part of AIG’s Cyber Risk Consulting team, said the move was important because almost every business, regardless of industry, now faced some level of cyber risk.

“We live in an increasingly connected world: 3.8 billion internet users and 6.4 billion connected devices in 2017 is expected to rise to 6 billion users and 200 billion devices in 2022,” Hess said.

“The Internet of Things – the connection of machines and devices to each other – creates new exposures and uncertainties for business.

However, many insurance policies do not explicitly state whether those risks are covered. This can lead to issues and delays in the event of a cyber-related claim. It also prevents an insurer from having a clear understanding of its full exposure to cyber risk.”

THE INTERNET OF THINGS – THE CONNECTION OF MACHINES AND DEVICES TO EACH OTHER – CREATES NEW EXPOSURES AND UNCERTAINTIES FOR BUSINESS

Affirmative cyber coverage aimed to clearly identify the cyber-related risk scenarios, Hess said.

Using the example of a potential risk of a fire caused by a cyber-attack on the computers that control a chemical facility, Hess said affirmative cyber coverage would seek to make a clear statement whether such risks are covered by a given policy, or if additional coverage through a different insurance product should be sought.

“This ensures that both the insured and the insurer have the same understanding of exactly which risks are covered or not covered by a given insurance policy,” Hess said. “We believe that this will ultimately lead to a greater customer satisfaction as there will be no surprises or questions over coverage should a cyber-related event occur.”

Affirmative cyber coverage had clear benefits to an insurance company’s clients, Hess said, because it provided the insured with a clear understanding of how their insurance policy would respond to a cyber event.

“This allows them to effectively incorporate insurance into their cyber risk management plan to help protect them against evolving and significant cyber risks,” Hess said.

This was especially valuable for smaller businesses who might not have cyber risk expertise within their organisation, Hess said. “It also allows the insured to make a conscious decision regarding which cyber

risks should be shared with an insurer and which will be borne by the business.”

For AIG, the affirmative cyber coverage initiative was significant because it provided a deeper understanding of the underwritten risks across the insured’s portfolio, Hess said. “It also helps ease the stress of a claim on both parties by ensuring that conversations about which situations and scenarios are covered happen ahead of the purchase of the policy, and not when an incident occurs.”

Affirmatively addressing physical and non-physical cyber risks also helped AIG manage the aggregation of cyber risk across the company’s portfolios, Hess said, so the insurer continued to provide sustainable solutions to the marketplace.

Affirmative coverage has in the past been overlooked for silent coverage, but Hess warned that the latter had disadvantages that must be taken into consideration.

“Silent cyber coverage can underestimate the cyber risks included within a given insurance product,” Hess said. “Affirming those risks allows for a proper assessment, providing a clear understanding of the impact, likelihood, and associated threats for cyber risks in general and in particular.”

Affirmative cyber coverage was desirable for businesses of all sizes, industry sectors, and geo-locations, Hess said, because it allowed them to make a clear and intentional decision which cyber risks to accept, which to mitigate, and which to share with/transfer to an insurer. “A silent risk is a risk that is not understood and therefore it bears the potential to be disastrous for the insured,” Hess said.

Affirmative cyber coverage also had clear benefits to the wider economy, said Hess.

“While the individual understanding over all risks associated with the cyber domain is essential for an enterprise, the wider implications are significant as well,” he said. “The affirmative cyber initiative creates transparency toward our society’s dependency on the cyber world, its services and its far reach into our business’ value chains and operating models.

“It drives the effort toward a more resilient cyber economy and society by highlighting and identifying potential high-risk areas and allowing risk mitigation to be undertaken well in advance of an adverse cyber event.”

When it comes to cyber security issues, response time from insurers is critical. So just how will AIG’s move to affirmative coverage address that?

“Uncertainty is one of the enemies of a quick and effective response,” said Bhairav Shah – head of financial lines and casualty, AIG New Zealand.

“Proper planning for both the insured and the insurer includes incident response capabilities,” Shah said.

“In the case of positive (or affirmed) cyber coverage, the insured knows of the additional response capabilities he can rely on from the insurer – such as forensic investigation, legal and PR support. In the case of affirmatively excluded cyber coverage, the insured is aware of the gap that needs to be bridged by his own resources and network. This knowledge allows the business to close the gap well in advance.”

Shah said he expected other insurers to follow AIG’s lead and offer affirmative cyber coverage.

“AIG strives to be the market leader when it comes to offering cyber insurance coverage,” Shah said.

“It is our view that transparency is key to offering effective and efficient insurance products. The affirmative cyber initiative addresses the current lack of transparency when it comes to cyber risk coverage in traditional insurance products. It also enables more precise risk modelling.

“As other insurers face the same challenges regarding ‘silent cyber’, we expect that many will follow our lead at some point.” www.covernote.co.nz

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COVER STORY

CRACKDOWN ON FRAUD

The battle lines have been drawn in the insurance industry’s war against insurance fraud with the establishment of a new Insurance Fraud Bureau set up by the Insurance Council. But just how common is insurance fraud? And what kind of scams have people been getting away with?

By Angela Cuming

O

n the surface it seemed innocent enough. A woman on a family holiday in Fiji said she went to the beach and lost her iPhone and her ring. The iPhone had fallen out of her pocket, she told her insurer, and the ring must have slipped off her finger in the water.

The insurer asked for proof of ownership of the ring, and a photograph of what was claimed to be the woman’s hand wearing the ring was supplied. Only it turned out the photo was identical to one taken from an American wedding website.

The claim was denied.

That small but not insignificant bit of fakery is one of thousands of false claims insurers deal with each year, claims that cost companies time and money to deal with.

The Insurance Council estimates, based on overseas research, that as many as 10% of insurance claims could be fraudulent, causing losses of up to $614 million a year.

That’s led the Insurance Council to declare open season on fraudsters, setting up a new Insurance Fraud Bureau (IFB) to wage war on fake claims by bringing all of ICNZ’s members together to combat insurance fraud.

“We want to make people aware that they are cheating everybody else and it’s a cost on everybody,” says ICNZ chief executive Tim Grafton.

The newly-formed IFB’s network will cover over 95% of New 32

December 2019

Zealand’s general insurance sector. Grafton says its primary purpose will be to educate New Zealanders about insurance fraud and provide a central point of contact for all insurance fraud issues.

It will also gather hard data about the prevalence, cost and patterns of insurance fraud in New Zealand.

ICNZ’s Insurance Claims Register (ICR) manager Yvonne Wynward has been appointed manager of the IFB. She says the biggest challenge to face at present is trying to quantify how much fraud is being detected.

“The IFB over time will collect data from members to give a more accurate picture of detected fraud,” says Wynward.

Members of the public will also play their part in the fight against fraud.

The bureau has a freephone number and an email address for tip-offs, with people encouraged to pass on information if they suspect someone else is trying to lodge a false claim.

“If tips relate to large-scale fraud, terrorism or organsised crime they will be passed onto police,” says Wynward. “But most ICNZ members have their own in-house investigations teams who will gather evidence and undertake investigations before giving to the police for prosecution.”

Insurance fraud affects all policyholders, says Wynward, because the more fraud that is committed, the more it costs the insurer and the costs are passed onto the policy holder.

COVER STORY

“There is totally this misconception that fraud is a victimless crime,” she says. “If, for example, you arrange to have your vehicle stolen and set alight, the police are now involved, and at the taxpayers’ expense. The police are now looking for a thief and an arsonist.”

While all this is happening, Wynward says, the fraud investigators are looking into the claim.

“The more time that is spent and wasted by emergency services is an expense to every taxpayer,” she says. “The insurer is also absorbing the cost of the investigation, perhaps the prosecution and the loss of the individual’s premiums and this is ultimately absorbed by the policyholder.”

While news of the newly established IFB may be unwelcome to those who were planning to over-egg a future claim, the move has been met with enthusiasm by insurance companies, who have long been on the coal face of dealing with fraudsters.

“IAG supports an industry-wide approach to insurance fraud,” says IAG NZ fraud and investigations manager Mick Miners.

IAG New Zealand has seven fraud analysts and 16 mobile investigators who investigate about 5000 claims a year, Miners says.

“Any initiative that raises awareness and reduces fraudulent behaviour will help disadvantaged people by keeping insurance affordable,” he says.

Affordable is one of the key words when talking about the F-word, because with fraud comes the inevitable rise in premiums.

“Fraud is a major cost for insurance companies and that cost is passed on to customers in their premiums,” Miners says. “We have to allow for the cost of fraudulent behaviour in determining premiums.”

David Whyte, managing director at DCW Management, says fraud is a form of theft that causes harm to members of the insurance pool.

“There is – and should be – zero tolerance for this criminal activity,” Whyte says.

“Fraudulent claims can cause an undue drain on the collective pools of insurance funds that may not be entirely accounted for in retail product pricing due to the unpredictable nature of fraudulent activity,” he says.

“Actuaries will seek to forecast the impact of fraud in setting premiums for various classes of insurance business based on past experience and the likelihood of future occurrences, but this is a best-guess estimate and compensatory price adjustments may be required to preserve liquidity and solvency should fraud have a greater impact than anticipated.”

Whyte says he welcomes the establishment of the new IFB. “For the protection of the vast majority of consumers and for the preservation of claims pools, reserves, and expenses, establishing a body of this nature has considerable merit and I believe that if the industry deems it necessary due to credible evidence and research, that the new IFB should be applauded,” he says.

Whyte did caution, however, that care needed to be taken in explaining www.covernote.co.nz

33

COVER STORY

to the consumer the precise reason for its existence – namely to stop people committing theft.

“The purpose and raison d'etre of the new body needs to be comprehensively presented with maximum transparency around processes and procedures, and to emphasise that this measure is being undertaken for the benefit of honest consumers at the expense of those who would seek to steal from them,” Whyte says.

But what happens after an insurance cheat is caught out?

There’s the obvious, says Miners, like declining a claim and withdrawing cover.

“But what people may not be aware of is that it is unlikely they will be able to get insurance cover anywhere,” he says.

“For example, if you committed fraud when claiming on your stolen mobile phone as a teenager, you may not be able to take out a mortgage in later years as it is unlikely you’ll get insurance cover.”

Other long-term consequences include potential police prosecution and a criminal record, Miners adds.

Companies like IAG are increasingly using technology when it comes to discovering and investigating fraudulent insurance claims.

“Sophisticated software now looks at all claims for triggers such as claims made immediately after taking out a policy, or the unusual hour of an alleged incident,” says Miners. “And information held on a customer’s phone can also provide an insight into what is and isn’t a genuine claim.”

Online claims processes have “certainly” led to a rise in fraud, says Miners.

“People appear to be more comfortable being dishonest via a digital channel than in a person-to-person interaction,” he says.

“Consequently, we are constantly updating our analytics to combat these new trends.”

The message, then, is clear: think twice before you inflate your insurance claim.

“A little lie can have big consequences,” says Insurance and Financial Services Ombudsman, Karen Stevens.

“The long-term consequences of insurance fraud are hard-hitting.

Declined claims are the tip of the iceberg,” says Stevens.

“If your insurance policies are cancelled, and your name is listed on the Insurance Claims Register (ICR), this makes it difficult to get future insurance, which can be devastating, for example, if you’re trying to buy a house.

“The bottom line is, tell the truth,” says Stevens. “Your claim, and your evidence, will be checked.We’ve seen some creative, quite elaborate storytellers get caught out.”

One man claimed his van had accidentally caught fire, because a petrol can had been knocked over during a “sort of a romantic meeting” on a mattress in the back. He said he’d later attempted to light a cigarette outside the van and “there was a boom”.The insurer, however, smelt a rat and quickly gathered hard evidence to prove the claim was fraudulent: petrol was everywhere in the van; the fire service had been called 38 minutes after the fire began; and the man had been trying to sell the van.

There are varying degrees of dishonesty, and the law recognises a difference between a fraudulent claim and a false or dishonest statement in support of what would otherwise be a valid claim. “But the consequences for both fraud and dishonesty are more serious than most people think,” says Stevens. “When we investigate complaints involving dishonesty, false statement or fraud, we look at the policy, and whether the insurer has been able to provide evidence to the legal standard.”

The case of the van fire is an extreme example of fraud, but there are many different types of stunts and scams that people try to get away with.

Stevens says that of the fraudulent claims that come through her office, most of them will be to do with car, contents and travel claims. She says the areas of life and health insurance tend to see fewer instances of fraud 34

December 2019

– most likely due to the presence of doctors, who regularly review each claimant’s situation.

“Where you get more blatant fraud is with travel policies, where people claim for items they say have been lost, but they’ve got no proof,” Stevens said.

“We’ve had a couple of cases where we’ve asked for evidence of lost jewellery and they’ll provide internet wishlists, for example. We get contents claims where people say things have been stolen, but the receipts are not actual invoices.”

Insurers do not tend to pursue claimants for fraud in such circumstances, says Stevens, because they’ll simply decline or stop paying. However, when it comes to premiums, she says both “soft” and “hard” fraud have the potential to affect premiums for other policyholders, and so claimants should stop to think twice before attempting to put in a fraudulent claim.

“We had one person claiming for a new laptop after spilling coffee, but when a technical expert looked at it, he discovered it hadn’t been used for a year,” she explained.

“While some of that kind of thing is on a reasonably minor level, people should think first before trying to do something like that. That’s the flip side of the coin – from people being genuinely disappointed when claims aren’t paid, to people actively trying to mislead or deceive an organisation into paying something they’re not entitled to.

“On a common sense basis, if insurers have to pay a bunch of claims that aren’t genuine, that probably affects everyone else who pays premiums.”

One function of the new IFB may be to try and collect comprehensive information on the most common targets of insurance fraud, says Whyte, because identifying patterns at this stage is based on anecdotal rather than empirical evidence.

“Intuitively, travel insurance, house contents, and income protection insurance products spring to mind,” he says.

“From my UK days, I recall that approximately 8% of domestic household claims were deemed to be fraudulent.”

Had this been repeated following the Christchurch earthquakes, this would have produced over NZ$3 billion of fraudulent claims,Whyte says.

“However, I understand that technology and forensic accounting combined to confirm that there was no systemic or endemic incidence of fraud in the claims experiences of the insurers.”

Travel insurance has recorded several incidences of fraud when the value of lost or stolen items has been deliberately inflated or even invented in some cases, Whyte says, and small incidents of this nature can have a significant impact in aggregate. Meanwhile, one fraudulent claim on an individual income protection insurance can have a significant impact on a product portfolio, he adds.

Unlike domestic residential insurance, income protection insurance is non-cancellable, and the claims liability 'tail' can be severe, Whyte says.

“In Australia, reinsurers record income protection claims 'spikes' during economic recessions among certain classes of occupations, and professions undergoing structural changes have also recorded increased incidents of claims.”

While most claims due to psychological disorder are genuine - and physiological evidence is difficult to falsify without the collusion of a medical professional - there will have been an element of fraud likely contained in claims experience during periods of economic and/or financial stress in the community, Whyte says.

“Fraud can also occur at the point of commencement of insurance cover by deliberate non-disclosure or concealment of material facts, and while legislation is pending to bring New Zealand into line with international standards on the issue of non-disclosure, consumers should be aware that increased claims sensitivity will result in more expensive insurance,” he says.

Grafton says there are several things which may motivate a policyholder

COVER STORY

to make a fraudulent claim, and most of them come down to disgruntlement with the insurer.

Part of the IFB’s role will be to offer education on the impact of fraud, and to dispel its perception as a “victimless crime” which only slightly affects already-profitable insurers, he says.

“I have no doubt that there is an issue around a minority of people who feel they are entitled to exaggerate their claims,” Grafton says.

“The motivations can be varied – people may think they’ve been paying premiums for many years, and it’s about time they got some payback.They may have had a claim declined in the past, so they’ll try and put in another one.”

The IFB may also have the potential to be able to identify certain types of people more likely to commit insurance fraud, but Whyte says that may end up being a moot point.

“I'm not sure if there is a pattern relating to the 'types of people' to be honest,” he says.

“I've experienced white-collar clients 'gaming' their financial status in order to maximise payments under their income protection insurance, and I've experienced impoverished residents in a housing estate in the UK passing around the same fire-damaged fireside carpet which became the subject of multiple claims. Unfortunately for one of the claimants, a sharp-eyed claims officer recognised the carpet from another claim and, well, let's say no further payments were made!”

The industry – and customers – will now no doubt be waiting to see what happens to the price of premiums under the heavy weight of a rigorous system designed to flush out fraud before it costs insurers money.

Wynward says it is too early to tell what will happen, but to watch this space.

AT A GLANCE The IFB will take a lead role in:

• Educating the New Zealand public about insurance fraud

• Providing a central point of contact for general insurance fraud issues and allegations of insurance fraud

• Developing a centre of excellence for anti-fraud initiatives

• Researching national and international trends

• Developing strong multi-agency relationships

• Analysing and working with insurance fraud data in New Zealand to help find and reduce instances of insurance fraud Anyone wanting to report insurance fraud may do so by visiting www.ifb.org.nz, by calling 0508 372 835 or by emailing fraud@ifb.org.nz

“The IFB will expect that, after a few years of running the general public will have a greater awareness of general insurance fraud, equating to fewer fraudulent claims being submitted to insurers,” she says.

“It is also expected there will be an accurate quantitative measure of insurance fraud in New Zealand. Fraudulent claims do have an overall effect on premiums, but there are many other factors that insurers take into consideration when calculating premiums, so it is hard to say how premiums will be calculated in the future.”

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Offices right across the country

Claims adviser in every office

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35

OPINION

THE INSURERS OF THE NZ INTERNATIONAL CONVENTION CENTRE SHOULD BE HAPPY ABOUT THE FIRE CLAIM

By Crossley Gates

I

nsurance as a product transfers the risk of loss from the insured to the insurer. However, insurance as a business is about much more than that. It is primarily about balancing a key ratio. It must be - otherwise, for the reasons set out below, the business would no longer exist.

THE BALANCING ACT The risks that insurers take on must be risks that consumers and businesses feel a real exposure to. If the chance of a loss resulting from an insured risk is too remote, no one will want to pay money to transfer it. Every time a loss occurs as a result of an insured risk, the insurance product is validated. The need for it is reinforced. Sales are encouraged.

On the other hand, insurers don’t want the incidences of losses resulting from that risk to be too high. Otherwise, they won’t make a profit, or worse, they will become insolvent. Where a risk is so great or the size of the losses arising from it are so large that they can’t be successfully spread amongst the insurance/reinsurance world without risking insolvency, the risk is uninsurable.

36

December 2019

There are many uninsurable risks and there always will be – think of the common ones of war/nuclear/terrorism. A concern is that the effects of the climate crisis may be joining that list, which will have far-reaching consequences for businesses and consumers. However, addressing that concern is not the purpose of this newsletter.

POTENTIAL CONFLICT It is easy to see that to some extent there is a potential conflict between wanting to insure risks that have a realistic likelihood of losses occurring and not receiving too many claims. Getting the balance right is critical, and for this reason, it is the essence of insurance as a business.

That balance is reflected in the key ratio of premiums to claims – known in the industry as the loss ratio. Ignoring business expenses, if a product’s loss ratio is 100%, the insurer paid out the entire premium received in claims.

When you add expenses to the equation, the ratio is called the combined operating ratio (COR). If the COR is 100% the entire premium received equalled all the claims paid and all the expenses incurred – the insurer just broke even. Insurance is a business and insurers must achieve a COR

OPINION

under 100% in order to pay a dividend to their shareholders. This is no easy task.

PRICE/EXPENSES/RETENTION Insurance is intangible; you can’t feel the transference of the risk, so demonstrating its worth when there has been no need to claim is a challenge. This makes the product very price sensitive. Market forces can drive the premium down to levels that are unsustainable long-term for insurers. Insurers have to control expenses tightly to ensure this part of the COR remains competitive. Lastly, the impact of claims has to be carefully managed by deciding how much of a risk to take on in the first place (100%, or less, requiring other co-insurers to take up the balance) and how much to retain before transferring the balance of the risk off to a reinsurer. One of the factors behind AMI’s insolvency was that it tried to save on its reinsurance premiums (expenses) by purchasing too little reinsurance. Its retention was too high.

SALES AID The reason for setting all this out is to demonstrate that in a perverse way, insurers should welcome claims. They are a sales aid. Insurers need

claims to demonstrate the need for businesses and consumers to pay good money to transfer the risk to them in the first place.

The graphic fire at the New Zealand International Convention Centre has now reminded the owner of every construction site in New Zealand of what apparently can so easily go wrong, and the size of the loss that can result from it.

The fire has promoted the need for adequate construction insurance and liability insurance in a very public way. This is a good thing, as the industry needs this to survive.

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 STUDIES

Jewellery claims ...how complaints can add value for you and your clients...

J

ewellery is commonly lost, damaged or stolen. You can help your clients by encouraging them to take simple steps now to avoid problems later. The best time to take action, and to understand insurance policies, is before anything does go wrong.

Help educate your clients by encouraging them to:

Check their policy: Check for limits on specific items, and exclusions. Check for obligations such as keeping jewellery in a safe place, taking “reasonable care”, reporting incidents immediately, proving ownership and loss.

Specify special items of value: Complaints show us many people don’t realise that items over a specific value (e.g. $3000) must be specified on the policy schedule and, if they’re not specified, the maximum cover for individual items will apply.

Keep receipts and get valuations: Many people don’t realise if they make a claim, they will need proof of purchase or ownership. Valuations should be reviewed regularly.

Travel safe and wise: Your travelling clients will be grateful for the reminder to take extra care of jewellery, check their policy for specific requirements, don’t leave bags unattended in public places, and report any loss immediately.

Tell the truth and provide accurate evidence: The consequences for being dishonest are far more serious than most people realise. Evidence provided for jewellery claims will be checked.

38

December 2019

The following case studies about jewellery claims demonstrate that sharing lessons from complaints could help your clients avoid issues in future.

CASE STUDY: 00210697 (2018) Carol’s* house was broken into and a significant amount of her jewellery was stolen.When she made a claim, her only proof of ownership was photos of herself wearing some of the items.

Carol engaged a local jeweller to prepare an “Estimate After Loss” to calculate the value of the jewellery stolen in the burglary based on her description of the items. This report concluded the replacement value of the jewellery was $56,887.

The insurer also engaged a jewellery valuer to prepare a report based on Carol’s descriptions of the items, and the photographs Carol provided.

The insurer’s report concluded the replacement value of the jewellery was $24,513.

The insurer offered Carol a settlement of $24,513 for the jewellery portion of the claim. Carol requested a review. The insurer reviewed the first offer and increased the figure to $27,846. Carol wasn’t satisfied and made a complaint.

The IFSO Scheme case manager explained that, in situations where there is very little substantive proof of ownership or value, it is largely at the insurer’s discretion how it will settle the claim. It is common for insurers to decline to pay for items for which no proof of ownership has been provided.

Where photographic evidence has been provided, an insurer may opt to settle the claim, but for a significantly reduced amount, due to the difficulty of accurately valuing an item of jewellery from a photograph.

In certain circumstances, such as in this case, an insurer may be willing to pay what it believes to be the most likely value of the jewellery, based solely on the insured’s description of the lost items. However, it does not have any obligation to do so, because the insured has failed to discharge

IFSO CASE STUDIES

the onus of proving a prima facie claim.

The case manager believed the second settlement offer of $27,846 was a fair and reasonable settlement of the claim.

CASE STUDY: 00210229 (2019) Tim’s* contents insurance policy included cover for the market value of jewellery. Tim separately specified an engagement ring. When Tim’s partner lost the ring, he made a claim. The insurer accepted the claim and paid Tim the ring’s market value of $2,200.

Tim made a complaint on the basis that the policy schedule specified the sum insured for the engagement ring as $3,390.

Tim said he had been told by the underwriter that the ring would be insured for $3,390 for 10 years, and that the underwriter underlined this figure on a piece of paper for him. The underwriter disagreed.

Replacement value was only available under the policy for furniture and appliances under 10 years old.

Because there was conflicting oral evidence and no documentary evidence, the IFSO Scheme case manager was unable to uphold the complaint.

CASE STUDY: 00211088 (2019) In January 2019, Henry’s* house was broken into and a large amount of jewellery was stolen. Henry’s insurer accepted the claim and made a payment of $5,153.19 to Henry. A dispute arose as Henry believed the total “market value” of the jewellery was $3,792.85, which was higher than the insurer’s estimate.

The insurer had relied on a jeweller’s opinion to estimate the “market value” of the jewellery. Henry provided auction listings, which he said proved some of the items were worth significantly more.

The IFSO Scheme case manager acknowledged the subjective nature of “market value”. As there were many items, a minor increase for each item would have amounted to a significant increase in the claim settlement.

Therefore, the case manager asked both parties to consider a compromise.

Following these discussions, the insurer offered to settle the claim based on a further payment of $1,200; which amounted to an average increase of $25 per item. Henry accepted this amount.

CASE STUDY: 132922 (2015) After Paula’s* watch was stolen, she engaged a jeweller, who valued the watch based on an equivalent model and found its replacement value was $6,375. However, when Paula had set up her contents insurance policy, she didn’t have her watch valued and its estimated value was recorded as $2,900 (under the $3,000 limit for non-specified items). The insurer paid Paula the policy limit for non-specified items: $3,000 only. *Not real names.

Lessons from complaints to share with clients • Keep receipts and get valuations. Receipts prove ownership and valuations prove the value of the loss.

Insurers will ask for this evidence.

• Obtaining regular valuations is the only certain way of establishing replacement value.

• Photographs will not generally be sufficient evidence.

• A post-loss estimate based solely on the insured’s recollection of the items lost won’t generally be sufficient to prove value or a prima facie claim.

• If your client cannot provide sufficient proof, it is largely at the insurer’s discretion how, or if, it will settle the claim.

• As jewellery is very personal, it is often difficult to replace with like-for-like items.

• Policy limits for single items or all jewellery may limit the claim.

www.covernote.co.nz

39

FEATURE

When you need the best

W

hen your client has a cracked windscreen, it might be due to an accident or if it’s a broken rear window, it might have been an act of vandalism. Whatever the cause, you want to be confident that your client will be well looked after, and the repair will be done quickly - to the highest standard - using the latest technology and techniques.

The good news is, there’s a group of passionate people at the top of their game when it comes to vehicle glass repair.

Smith&Smith’s® goal is to return every single vehicle to the road safely.

Managing director Michelle van Gaalen says achieving that goal starts with helping their people be the best they can be. “By looking after our people, we are looking after our customers.”

That’s why every two years the company holds its Best of New Zealand competition, in which six leading Smith&Smith® technicians have the opportunity to showcase their vehicle glass repair and replacement expertise, along with their customer service skills. Having undertaken rigorous pre-comp testing and assessments, the finalists are selected from a pool of technicians across Smith&Smith’s® nationwide network. It’s a coveted competition, because the technician who wins, qualifies to compete in the international event ‘The Best of Belron’ held in Spain in 2020.

With so much at stake it’s not surprising that on the 31st October at the Hilton Hotel in Auckland, there were six very nervous but excited technicians awaiting the sound of the hooter to start their first heat. Adding to the intensity, was a room of

spectators made up of Smith&Smith’s® key clients, suppliers, employees, and the competitors’ supporters. The six finalists from around the country, including the first-ever female finalist, had to carry out a series of tests and challenges as judges closely assessed the quality of their work.

One of the challenges was a full windscreen replacement and calibration.

“Windscreens provide up to 30% of a vehicle’s structural strength, so ensuring the windscreen has been correctly replaced and fitted was a key part of the challenge,” Van Gaalen said, “Windscreens are no longer just for seeing through, but are a key interface with a vehicle’s Advanced Driver Assistance Systems (ADAS)”.

Which is why a critical part of the windscreen replacement test was ensuring the technicians had carried out the proper calibration of their vehicle’s ADAS – a task that Smith&Smith® only allows technicians fully trained in calibration to undertake.

Van Gaalen thinks that most motorists don’t need to know the ins and outs of windscreens, but notes that making sure windscreens are properly repaired or replaced and driver assistance systems are recalibrated is critical to ensuring the safety of drivers and their passengers. It’s also important for insurance purposes.

All the technicians competed to a high standard, but there could be only one winner. Hamish Bedwell from Dunedin was crowned The Best of New Zealand and wins the chance to compete in the international competition Best of Belron 2020 in Spain.

Bedwell said it was such a big relief when the final event finished and it felt like a huge weight had been lifted from his shoulders.

“I’m really proud to bring it [the Best of NZ title] back to the South Island, but I think I’m going to have to shout lunch on Monday.”

Bedwell says: “There was such a huge feeling of pride among the Smith&Smith® team to see six of our best and brightest shine so bright in a pressure-cooker environment. And we know this wasn’t just for show, but how they perform every day of the week.”

Call 0800 80 90 82 40

December 2019

ASK AN EXPERT

What’s grossly negligent?

QUESTION… Client got a flat tyre on his farm while fetching wood in his ute. Changed the tyre on his ute and went back home. He replaced the two front tyres of the ute, as he had a spare set in his garage. Client didn't realise that the tyres were a different size. After returning from picking up a second load of wood on the farm, he realised that there was oil coming out from the front of the vehicle. The transmission is damaged and quoted repair costs are $15,000.

The Insurer is considering declining the claim under the reasonable care and unsafe condition: "The insured must take all reasonable steps to protect the insured vehicle from loss and to avoid liability. Any insured vehicle while it is being driven in an unsafe condition which contributes to an accident. This includes any condition: (a) which is contrary to any recommendation by the manufacturer of the insured vehicle; or (b) as a result of which the insured vehicle is not fit to deal with any peril likely to be encountered during the course of its operation.

However, this exclusion only applies if insured or the person in charge of the insured vehicle was aware, or with reasonable diligence ought to have been aware, of the unsafe condition."

I think it is very difficult to decline a claim under the reasonable care condition and unsafe condition.

To decline a claim under this policy condition it is up to the insurer to prove the insured’s conduct was reckless, grossly careless, or grossly negligent. Proof of mere negligence or carelessness is not sufficient. This is because insurance, by its nature, protects the insured against his/her negligence and mere inadvertence.

New Zealand courts consider what a reasonable person would have done in the circumstances of each particular case. As such, it is recognised that an insured has breached his/her duty of reasonable care if he/she disregarded, or failed to recognise, a significant risk that would have been obvious to a reasonable person (who would not have taken such a risk).

Note that on the claim form the insured has put that he did not realise the tyres were a slightly different size, so the insurer cannot prove that the insured was aware of the risk and disregarded it, because he wasn’t even aware of the issue.

I think all we are looking at is negligence on the part of the insured which, as outlined above, is specifically what the policy is there to cover.

Has anyone had a similar claim or some advice about the above claim and the likelihood of overturning the Insurers decision to decline?

Do you have a question for our experts?

REPLY… CROSSLEY GATES The threshold for recklessness is very high because it is the intention of these policies to cover (mere) negligence. So recklessness requires something more than just negligence.

I believe the insured's error in this scenario is negligent but well below the high threshold for recklessness.

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

www.covernote.co.nz

41

ASK AN EXPERT

Unused payout QUESTION… If a retail client suffers a total loss and decides not to reinstate/ reopen their business but walk away, are they still entitled to make a claim for their stock which was insured under their material damage policy? They have no intention of repurchasing their stock but wish to know whether they would still be cash settled for the stock that was lost. The cause of the loss was a fire that destroyed all their stock.

REPLY… CROSSLEY GATES I cannot see why not. The insured property has been destroyed by an insured peril. The insured has lost the cost to it of buying all that stock. The decision not to carry on business further does not change this.

Carpet conundrum QUESTION…

Timing QUESTION… If cover has been changed from one provider to another at renewal and it has always been known that policies take effect and expire on 4pm on the day, what happens if a claim occurs right on 4pm? Who is considered to be the insurer, the out-going insurer or the new insurer?

REPLY… CROSSLEY GATES Possibly double insurance, subject to the double insurance clauses in both policies. However, the insured peril would have to occur exactly at 4 pm, not a second before and not a second after - an unlikely scenario?

42

December 2019

We all recall the change to personal lines policies a while ago where insurers decided to determine “carpets” were now insured under a house policy rather than under contents, as had been the case previously.

Where a person owns a unit in a residential body corporate, however, the building is insured by the body corporate (under an MD multi-unit or house policy) - but often the owner arranges to lay their own carpet, but this appears to be uninsured as carpets are excluded under most contents policies these days! Our body corporate manager states that this is not their problem and is over to the owner, as claims for carpets could affect the loss ratio and thus increase future premiums for all unit owners.

Can anyone give me their thoughts on how best to advise owners?

Without having done the exercise, are contents insurers generally prepared to delete the exclusion in such circumstances?

REPLY… CROSSLEY GATES The cover for carpets was moved from a contents policy to a house policy for a good reason.

Land law says that anything affixed to a structure on the land (a house) is part of that structure, and anything sitting there by its own weight alone is a chattel and not part of the structure.

Applying this law, any kind of fixed-down carpet that is not lying there by virtue of its own weight alone is part of the house at law.

Therefore, the cover belongs in the house policy along with all the other things affixed to the house. This applies equally in a body corporate situation. The carpet is not a chattel and the unit owner's contents policy will not cover it.

Rather the body corporate's principal insurance policy will. Yes, carpet claims will increase the loss ratio for the body corporate's insurance, but this is unavoidable when the carpets are part of the body corporate structure like other features of a unit that are affixed to it like wiring and plumbing etc.

ASK AN EXPERT

Is this damage?

QUESTION‌ A retirement home was built a couple of years ago, and during construction, it would seem that a concrete core that had been cut for drain/sewage was dropped into the system.

When the room was taken into use, a blockage of the grey water system occurred fairly quickly. An issue arose with sewage backing up and flowing through the shower and toilet. It was thought to be the resident putting paper towels into the toilet.

However, three weeks later, the issue arose again and on further investigation a piece of concrete core was discovered in the soil stack.

Over time it had likely moved through into the main soil stack.

As the client was proactive, resultant damage was avoided. However, reasonable costs were incurred to find the object in the system and remove, clean and reinstate the system.

Under the MD policy, the insurer agrees to cover the insured for all loss or damage to the property insured during the period of cover due to an event.

An event is defined as: Something that happens including continuous or repeated exposure to substantially the same conditions, or a series of things that happen resulting from, or attributable to one source or original cause, which results in loss or damage.

Loss or damage is defined as: Loss or damage is physical loss of or damage to the property insured, that is unintended or unforeseen by the insured.

My question is - is the sewage system damaged? The concrete being in the system was accidental, the system was not working as it should due to the concrete core - is that damage? The client has acted very quickly and averted any resultant damage.

The insurer is suggesting that the policy is not triggered as there has been no damage to the pipe and of course there is no resulting damage.

I have also argued that the cost of rectifying the issue should be covered under the Protection Costs clause which reads: This policy extends to cover the insured for any costs reasonably incurred directly resulting from fighting or controlling any event that involves or threatens to involve the property insured.

The insurer has denied under this clause also.

The clauses section under the policy states: The terms of these clauses attaching to this policy are deemed to be incorporated within the policy. If there is any conflict or inconsistency between the clause, and any other terms of the policy (other than the general exclusions), then the terms of the clause will prevail.

REPLY‌ CROSSLEY GATES The insurer is relying on a well-known insurance case in Australia with similar facts, which supports its position. The issue of what amounts to damage has been the subject of many court cases and is a complex area of insurance law.

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 43 www.covernote.co.nz

43

FSCL CASE STUDY

WHAT’S THE DIFFERENCE BETWEEN MANUFACTURE AND CONSTRUCTION? T

he insured company make “tilt panels” on construction sites.

Tilt panels are horizontal concrete slabs that will eventually become walls of a building. To make a tilt panel, the company pours concrete into a framework that is lying on a foundation slab. Once the concrete has dried, a crane lifts the panel off the slab and into a vertical position.

One crucial element of tilt panel construction is making sure that the panel comes away from the foundation slab, undamaged. The company normally achieves this by painting a release agent on to the slab before

“construction” or “installation” or “erection”. In interpreting this policy, we had to consider the normal (dictionary) meanings of the words. We also noted that dictionary definitions of “manufacture” supported the company’s view. Manufacturing is making something from raw materials.

The “something” that is manufactured is a discrete element that will be used/incorporated as part of an overall construction (such as the putting together of a building).

We considered that the manufacturing process was at an end (meaning the construction/installation/erection process began) once the tilt

it pours the concrete. Unfortunately, during a job in January 2017, light rain washed away or diluted the release agent. When it came time to lift eight tilt panels, they stuck to the slab. All eight were damaged; four were unusable. The slab was also damaged.

The company made a claim with its insurer for around $33,000.

THE INSURER’S VIEW The insurer declined the claim based on an exclusion clause that said the policy did not insure property in the course of construction or installation or erection.

THE COMPANY’S VIEW The company complained to FSCL. It said that demoulding the tilt panels from the slab and the framework is part of the manufacturing process, rather than the construction process. It also said that the tilt panels were at that stage not ready for installation/erection.

FSCL REVIEW We noted that the insurance policy did not define the words

panels were complete. In our view, the tilt panels were not complete until they had been demoulded and released. They could not be used in the construction, or installed or erected, until then. Until they were demoulded and released, they were still in the manufacturing phase.

OUTCOME We issued a notice of recommendation, upholding the company’s complaint. The insurer accepted our interpretation of the wording of the insurance policy. The insurer reassessed the insurance claim and agreed to pay.

44

December 2019

KEY INSIGHTS From time to time, we are called upon to interpret the wording of insurance policies. It is important that the wording is precise.

Important words should be defined, particularly if the insurer thinks they should have a slightly different meaning from the normal dictionary meaning.

FSCL CASE STUDY

MOTHER CAUGHT OUT BY DAUGHTER'S NON-DISCLOSURE

A

client, with the help of a broker, arranged insurance for herself and her daughter to drive a work vehicle. The woman was aware that her daughter had a couple of issues in the past and wrote on the insurance application form that she: • had been involved in a car accident two years earlier and • had a drunk in charge of a motor vehicle conviction about six

years before that.

She also answered “yes” to the question: “Ever had a Driver's Licence endorsed, suspended or cancelled?” but she answered “no” to the question: “Ever been convicted of a motoring offence?”

In addition, the daughter had been arrested while overseas with a small quantity of drugs in her possession. The client told the broker about the drug conviction but the broker said not to worry about it.

The broker did not ask any questions about the issues disclosed on the application form, and neither did the insurer.

About two years later, the daughter was involved in an accident, took the car to a panel beater, had the car repaired and did not mention it to her mother. A couple of months after that, the daughter was involved in another accident. This time the panel beater called her mother and she agreed to pay the $400 excess and picked up the car.

The broker then called the client and said the insurer had found out that her daughter had five convictions, including: • excess breath alcohol in 2009 • excess breath alcohol in 2010 • driving while licence suspended and careless driving causing

injury in 2015 • careless or inconsiderate vehicle operation in 2015.

The broker said that if the client had disclosed this information, the insurer would have applied a $4000 excess and increased her premium.

The woman asked the broker to put this in writing and waited for the letter to arrive.

Some months later, she was visited by a debt collection agent, wanting payment of $7200, being the two $4,000 excesses for each insurance claim, less the $400 excess already paid to have the car released.

The client was shocked. She did not know anything about the first accident. She felt her broker should have asked more questions when she first applied for the insurance. Unhappy with the broker’s advice, she asked the broker to contribute to the excess she was now having to pay.

The broker initially offered $2100, because he had failed to advise her to disclose her daughter’s overseas drug conviction, but later withdrew the offer. The client referred the complaint to FSCL. DISPUTE The broker felt his position was clear.The client had failed to disclose her daughter’s convictions and it was her fault the insurer had increased the excess.

The client acknowledged that her daughter’s criminal record was more extensive than she had been led to believe, but said that if the broker had asked more questions about the information, she would have gone to her daughter and asked for further details. She felt the broker’s dismissal of the overseas criminal conviction, which the broker agreed he had dismissed, indicated that the conviction history was not as important as the insurer clearly considered it to be.

REVIEW FSCL discussed the complaint with the client, and she agreed that she should have asked her daughter for more detail and answered “yes” to the question about a conviction for a motoring offence. However, she felt the broker should also contribute to the loss. She said that if she had known the excess was going to be so high, it might have influenced her decision about allowing her daughter to drive the vehicle.

FSCL then contacted the broker and asked whether he would be prepared to consider an early resolution to the complaint. We acknowledged that we were not yet in a position to issue a decision on the rights and wrongs of the situation, and that non-disclosure of criminal convictions is a serious matter, but asked whether, as a matter of expediency, he would be prepared to put an offer on the table.

RESOLUTION The broker offered, and the client accepted, $1200 in resolution of her complaint. www.covernote.co.nz

45

Are you compliant?

By Rod Severn, CEO, Professional IQ College.

A

s I sit here at a Compliance Symposium in Wellington, listening to industry experts discuss the merits of compliance, I realise how many areas of business this topic actually covers.

Sometimes we forget how far compliance reaches - privacy and data protection, staff, customer and membership data security, boardroom governance, human resources, tax, auditing and fraud, accountancy, employment law and much, much more.

Here at the Professional IQ College, we pride ourselves on delivering high quality Level 5 distance learning that enables brokers and advisers to meet the regulatory obligations of the new regime. But is it enough to meet compliance? Seemingly not!

Each of you collect personal and private data from your clients for your business activities. How many of you are aware of the Privacy Act and its requirements? Did you know there are 12 information privacy principles?

Principles 1 to 4 govern the collection of personal information.

Principle 5 governs the way it is stored.

Principle 6 gives individuals the right to access information about themselves.

Principle 7 gives individuals the right to correct information about themselves.

46

December 2019

Principles 8 to 11 place restrictions on how people and organisations can use or disclose personal information Finally, principle 12 governs how “unique identifiers” such as IRD numbers, bank accounts etc can be used.

Refer to www.privacy.org.nz for more detail. One cautionary tale - British Airways got fined £180m for failing to secure their loyalty programme!

How secure is your email service? When was the last time you changed your password? Best practice is to change it every 90 days, especially if you use the same password for more than one application. Like me, you probably have multiple passwords. At last count, I have over 60 individual passwords. If your phone was stolen, how easy would it be for someone to access the data you have stored on it? If it is someone else’s personal data on there and it is accessed without authority, you could be liable. When was the last time you backed up your telephone data? The damage to your brand’s reputation after a data breach could amount to a significant loss of money as well.

Do you accept credit cards payments? If so, do you have PCI DSS? The Payment Card Industry Data Security Standard is a set of security standards designed to ensure that ALL companies which accept, process,

Professional

Professional Development: Professional IQ College

store and transmit credit card information maintain a secure environment.

Refer www.pcisecuritystandards.org for more information.

Do you hire temporary staff, especially migrant workers? Are you aware of the minimum wage rate of $17.70 per hour? New visa rules just introduced put the emphasis on companies to apply for a licence to bring migrant workers into New Zealand. Compulsory accreditation is now required in advance. No accreditation? No visa.

Demonstrated compliance, record-keeping especially around payroll and minimum rates of pay, including holiday pay, working hours and adherence to visa conditions will all be high on the agenda of any visit by the Labour Inspectorate team.

And then there is education and training. As you would know, under the new forthcoming legislation, all Financial Advisers (and some Nominated Representatives) are required to meet the outcomes of Level 5.

For those of you who already have the old National Certificate, you are “grand-parented” straight through. However, it is worth noting, the FMA (at time of licensing) might ask what you have done to bridge the gap between the old certificate and the current New Zealand Certificate in Financial Services.

This is where the Professional IQ College’s bridging programme comes

College

in. It allows you to demonstrate your compliance by showing you have upgraded your knowledge to the latest competency versions. Please visit www.professionaliq.co.nz or contact us for more information.

The college has been steadily increasing its enrolment numbers all year.

However, as I have confirmed by speaking with many of you, I estimate only around 20% - 25% have actually started their Level 5 journey.

It makes no difference whether you complete Level 1 or Level 2 and there is certainly no need to repeat anything if you have only done Level 1. The FMA is only interested in you completing Level 5; the version is immaterial. It is something we advise you to do now and get out of the way.

You will have many distractions coming your way over the next couple of years - disclosure, licensing, FAP decisions, Culture and Conduct reviews, to name a few.

Getting your Level 5 compliance requirements out of the way early will let you focus on some of these bigger issues when you need the time to do so.

Compliance might seem somewhat tedious, but it is nothing compared with the consequences when something goes wrong!

Act from a position of strength and preparedness; after all, isn’t that the very crux of the financial services industry.Take your own advice, minimise the risks and attend to this today! 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

PIQ BOARD 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

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

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

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

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

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 Wang Student Liaison DDI: 09 306 1735 june@professionaliq.co.nz

Michael Collins Student Support Assistant enroll@professionaliq.co.nz

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

IBANZ

Sylvia Heywood Academic Manager Professional IQ College DDI: 09 306 1737 sylvia@professionaliq.co.nz

Physical address: Unit 4D, 2B William Pickering Drive, Rosedale, Auckland 0632

Karen Scard Administration Manager DDI: 09 306 1738 karen@ibanz.co.nz

Mailing address: PO Box 302504, North Harbour, Auckland 0751 Toll free: 0800 306 173

Rod Severn CEO Professional IQ College DDI: 09 306 1736 Mob: 021 749 202 rod@professionaliq.co.nz 48

December 2019

Website: www.ibanz.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 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 Gary Young Chief Executive, IBANZ Auckland DDI: 09 306 1734 gary@ibanz.co.nz

STAFF Zeeshan Ahmad Student Liaison DDI: 09 306 1739 zeeshan@professionaliq.co.nz

David Crawford Chair 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

WANT YOUR VERY OWN COPY OF

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 TO ADVERTISE...

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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: MARCH 2020

WE CAN’T MAK

E EXCUSES

December 2019

CRACKDOWN

ON FRAUD

The battle lines have been draw with the estab n in the insur lishment of a new Insurance ance industry’s war against insurance fraud Fraud Bureau set up by the Insurance Coun cil.

2019 in review - Covernote aske the year that’s d insurers abou been and wha t t might lie ahea d.

After the even t insurance- a new option to reduce litig ation risk?

www.ibanz.co.nz

CONTACTS: IBANZ CORPORATE COMPANY LIST IBANZ CORPORATE COMPANY LIST

Abbott Group

Christchurch

ILG Insurance Brokers

North Shore City

Adams Trimmer Insurance 1992 Ltd

Whangarei

Ingerson Insurances Ltd

Wellington

Addex Ltd

Auckland

Insurance Advisernet NZ Ltd

Auckland

Advance Insurance Services Ltd

Paeroa

Insurance Brokers Alliance Ltd

Invercargill

Advice First Limited

Wellington

Insurance People (Fire & General) Limited

Auckland

Affiliated Insurance Brokers Ltd

Wellington

Malcolm Wrigley Insurance Services

Auckland

AIB Group Insurance Ltd

Lower Hutt

JRI Limited

New Plymouth

AIM Associates Ltd

Auckland

Luxor Insurance Brokers Ltd

Auckland

Albany Insurance Services Ltd

Albany Village

Malcolm Flowers Insurances Ltd

Taupo

Amicus Brokers Ltd

Christchurch

Marsh Ltd

Auckland

Andrew Scragg & Associates

Manukau

Matt Jensen Insurance Brokers Ltd

Taupo

Aon New Zealand

Auckland

McDonald Everest Insurance Brokers Ltd

New Plymouth

Apex General Ltd

Auckland

Montage General Insurance Ltd

Auckland

Ascot Insurance Brokers Ltd

Whangarei

Multisure Ltd

Auckland

Atlas Insurance Brokers Ltd

Christchurch

Nelson Marlborough Insurance Brokers Ltd (NIB)

Nelson

Austinsure Ltd

North Shore City

Neville Newcomb Insurance Brokers Ltd

Auckland

Avon Insurance Brokers

Christchurch

Northco Insurance Brokers Ltd

Masterton

Baileys Insurance Brokers Ltd

Auckland

Northcrest Insurance Brokers Ltd

Auckland

Bay Insurance Brokers Ltd

Tauranga

O'Connor Warren Insurance Brokers

Tauranga

Brave Day General Ltd

Auckland

OFS Insurance Brokers Ltd

Dunedin

Bridges Insurance Services Limited

Hamilton

Omni Fire & General Ltd

Auckland

Broker Direct Services Ltd

Christchurch

Paramount Insurance Agencies Ltd

Auckland

BrokerWeb Risk Services Limited

Auckland

Partridge Advisory Limited

Auckland

Builtin New Zealand Ltd

Tauranga

Paterson & Co NZ Ltd

Auckland

Cambridge Insurance Brokers Ltd

Cambridge

Penberthy Insurance Ltd

Auckland

Capital Risk Solutions Limited

Wellington

Peter C Cranshaw Insurance Broker Ltd

Levin

Card Marketing International Ltd

Wellington

PIC Insurance Brokers Ltd

Manukau

Cartwright General Insurance Limited

Ashburton

Primesure Brokers Ltd

Auckland

CBA Insurances Limited

Tauranga

Property and Commercial Insurance Brokers

Feilding

Certus Insurance Brokers NZ Ltd

Auckland

Protekt Insurance Brokers 2008 Ltd

Auckland

Coast Insurance

Whangaparaoa

Provincial Insurance Brokers Limited

Masterton

Coastal Insurance Brokers Ltd

Papamoa

PSC Connect NZ Limited

Auckland

Commercial & Rural Insurance Brokers Ltd

Alexandra

River City Insurance Brokers 2000 Ltd

Wanganui

Crombie Lockwood (NZ) Ltd

Auckland

RMA General Ltd

Warkworth

Dawson Ins. Brokers (Whakatane) Ltd

Whakatane

Rothbury Group Ltd

Auckland

Dawson Insurance Brokers (Rotorua) Ltd

Rotorua

Runacres Insurance Ltd

Christchurch

Edward Ruys & Co Ltd

Hamilton

Seneca Insurance Brokers Ltd

Auckland

Emerre & Hathaway Insurances Limited

Gisborne

Sit & Blake Limited

Auckland

Frank Risk Management

Cambridge

South Pacific Insurance Brokers Ltd

Auckland

FundAGroup Insurance Brokers Limited

Auckland

Sweeney Townsend & Associates Ltd

Rotorua

Glenn Stone Insurance Limited

Waitakere

Thames Valley Insurance Ltd

Thames

Grayson & Associates Ltd

Auckland

The Advisers 1 Limited

New Plymouth

Gregan & Company Ltd

Papakura

Thorner General Insurances Ltd

Upper Hutt

GYB Insurance Brokers Ltd

Lower Hutt

Towes Insurance Brokers Ltd

Te Aroha

Harden & Hart Insurances Ltd

Auckland

Trevor Strong Ins Ltd

Auckland

Hazlett Insurance Brokers Ltd

Christchurch

Vercoe Insurance Brokers Ltd

Morrinsville

Honan Insurance Group (NZ) Ltd

Auckland

Vision Insurance (S.I.) Ltd

Ashburton

Hood Insurance Brokers NZ Ltd

Auckland

Waikato Insurance Brokers Limited

Hamilton

Hurford Parker Insurance Brokers Ltd

Hastings

Wallace McLean Ltd

Auckland

Hutchison Rodway Ltd

Auckland

Wanganui Insurance Brokers Ltd

Wanganui

ICIB Limited

Auckland

Willis Towers Watson

Auckland

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