CoverNote September 2020 issue

September 2020

CoFi heralds a new era for insurers After Covid, what next?

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visit www.covernote.co.nz and keep up-to-date with live news and articles from IBANZ, its members and the industry.

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IBANZ enquiries should be made to: Melanie Gorham, Chief Executive, IBANZ. Email: mel@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.

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Melanie Gorham CEO, IBANZ

Is this the new normal?

W

elcome to another edition of Covernote, this time written within the restrictions of level 3.

It seems many made the most of freedoms over the last couple of months. Being able to leave the confines of home and head back to the office or out to see clients was appreciated.

I welcomed the opportunity to meet in person with a number of members from Auckland and Wellington. Discussions held via the computer or over the phone fill a need and help us keep in touch but there continues to be a firm place for face-to-face meetings, in my view.

It has been an incredibly busy quarter for members who continue to help clients navigate the difficulties and challenges presented by the pandemic, including the recent increase in restrictions felt by all of us.

It is fair to say not being in level 4 is widely appreciated, although being at a higher alert level brings with it a large amount of concern and economic uncertainty on top of what was already present. Impacts are being felt by most, even at levels 2 & 3, with a large number of businesses in Auckland again unable to operate. Clearly, continued support from the government will be needed for some time yet.

There has been progress made on various pieces of legislation before the industry.

The Financial Markets (Conduct of Institutions) Amendment Bill has been released from the select committee phase. It is positive to see that members will no longer be required to comply with insurers’ conduct regimes. This was key priority in our submission as members already have their own conduct regime to follow. Another point accepted from our submission was the need to slow down the implementation of this legislation to ensure all stakeholders' views could be heard and taken into consideration.

Disclosure regulations applicable to the new Financial Advice regime have been finalised and released, coming into effect on March 15, 2021. With the window for submissions to the FMA now closed, we hope to see the outcome on feedback about FAP license types and conditions later this month or early October.

I would caution against any expectation that changes in Covid levels (or prolonged periods at current levels) will see a delay to the March 15, 2021 start date for the new regime.

It is clear there is a need for greater clarity around disclosure regulations to help members understand what is required of them. Concerns continue about the level of disclosure, cost of compliance and impact on the client and competition.

IBANZ will provide a series of free presentations supporting our membership throughout New Zealand (in person if Covid allows) to help provide practical information about the new regime including license types, disclosure, conduct standards and the need for evidence.

Supporting you and advocating on your behalf is our priority.

Keep safe.

Melanie Gorham, CEO, IBANZ

Features 3. IAG’s Craig Olsen to become ICNZ president 4. Vero launches risk profiler tool 5. Suncorp first to adopt renewable energy project 10. Lloyd’s warns intangible assets at risk world

18. Insurers can help world recover from Covid 20. Suncorp offers support to customers 22. Vero survey shows small businesses are keen for insurance advice following Covid-19 30. Another professional insurance organisation for New Zealand 32. ­­­Vero survey finds up to one in three SMEs considering changes to their business insurance

12. COVER STORY: CoFi heralds a new era for insurers

Regulars 1. Welcome to CoverNote 38. Ask an Expert

33. IAG investigating expanding vehicle repair facility plan

Opinions 24. Financial advice disclosure - issues for insurance brokers 28. Insurance Council calls for fire funding

42. Professional Development: Professional IQ College 44. IBANZ Contacts

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COVERNOTE? September 2020

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HOT OFF THE PRESS!

CoFi heral ds a new era for ins urers After Co vid, what next? www.ibanz.c o.nz

visit ww w.cove and kee rnote.c p news and up-to-date wit o.nz it's mem articles fro h live m IBANZ, bers and the indu stry.

Feature

IAG’s Craig Olsen to become ICNZ president

I

AG chief executive Craig Olsen is taking over from Paul Smeaton as president of the Insurance Council.Smeaton has returned to Australia to take a senior role with Suncorp.

“I want to acknowledge Paul’s valuable contribution to ICNZ over the past five years including as Vice-President for two years, and most recently as President,” council vice-president Craig Olsen said.

“I look forward to continuing to work with ICNZ and our members to advance the vital role that the general insurance sector has in protecting New Zealanders in their everyday lives and businesses.”

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Feature

Vero launches risk profiler tool A

new risk profiler tool developed by Vero has put risk assessment at the top of the to-do list for small and medium sized enterprise owners (SMEs) and their insurance brokers.

Recent research shows 71% of SMEs want their broker to help them assess, and then suggest ways to mitigate risk within their business. In total, 41% of SMEs say they never, or infrequently assess risk.

Chris Brophy, executive manager business at Vero, says the risk profiler was developed based on clear demand from time-poor SMEs. “SMEs don’t always have the time to fully consider every risk while they are busy running a business, so they need their brokers’ support and guidance in this area. We’ve made it easier by creating a tool that brokers can use to guide their SME customers through a thorough risk conversation.”

Brophy said that the tool does the background work for brokers by giving them data and insights into a range of industries.

“Feedback from brokers who have tested the tool say there is nothing else like it in the market.”

“While we’re there for customers when things go wrong, minimising risk means we can help avoid other impacts of a claim that cause inconvenience and business disruption,” he said.

The risk profiler is free to use and includes downloadable resources and checklists for brokers to give to their customers. While use of the risk profiler is optional, SME customer feedback shows they value the information and suggestions about keeping safe.

Categories covered are: accommodation; building owner; community; engineering, garages & motor; hospitality and entertainment; manufacturing; medical; offices; retail; services, tradies and warehouses and storage.

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September 2020

Feature

Suncorp first to adopt renewable energy project S

uncorp New Zealand is the first New Zealand insurer to adopt Meridian Energy’s 100% Certified Renewable Energy product.

As of July 1, nearly 100% of Suncorp New Zealand’s electricity will be certified under the scheme, which verifies that the electricity it consumes from the national grid can be accounted for within Meridian Energy’s renewable energy production.

The move follows Suncorp Group’s announcement that the business has joined internationally recognised names such as Ikea, Starbucks and Nestle as a member of RE100, a global initiative

by The Climate Group in partnership with CDP of more than 240 businesses who share a common goal of transitioning to 100% renewable electricity.

“Suncorp’s investment in this certification means our New Zealand business can now report our Scope 2 electricity emissions as zero,” said Catherine Dixon, executive general manager people experience at Suncorp New Zealand.

“The NZECS certification confirms our support of renewable energy generation and our commitment to sustainable growth.”

Suncorp’s 2020-22 Environmental Performance Plan sets out its strategy to transition to a low-emissions and resource-efficient organisation.

Dixon said:“We’ve made great strides as a business in reducing our environmental impact, and this certification is an important step towards meeting our greenhouse gas emission reduction targets of 51% absolute reduction by 2030, aiming for net-zero emissions by 2050.”

Sam Kimmins, head of RE100 at The Climate Group, said:“Congratulations to Suncorp New Zealand on becoming the first insurer in the country to be purchasing 100% renewables, meeting their RE100 target in New Zealand. Working to achieve 100% renewable electricity is becoming the de-facto expectation for any major company wishing to be considered a sustainability leader. It’s crucial that other businesses in New Zealand follow Suncorp’s lead and commit to renewable energy goals to increase the growing demand for complete decarbonisation.”

Meridian Energy’s Certified Renewable Energy Product offers renewable energy certificates which match businesses’ electricity consumption with renewable energy generation. It enables Suncorp to support the electricity generation that matches its values and encourages the development of sustainable energy generation in New Zealand.

“Meridian’s certified renewable energy gives our business customers the ability to demonstrate their commitment to New Zealand’s low-carbon future,” said Meridian's chief customer officer, Lisa Hannifin.

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Cover Story

AFTER COVID, WHAT NEXT? The pandemic has changed the way we distribute insurance.

Now it’s for the industry to work out whether that’s permanent.

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September 2020

Cover Story

T

he Covid-19 crisis has profoundly affected the insurance world.

Physical distancing and other lockdown measures have already shifted activities once considered critical to conduct in person to online. This change will affect insurance distribution both in the short term as social distancing becomes the new normal, and in the longer term as our relationship with technology rapidly evolves.

One immediate and obvious effect of Covid-19 on the insurance industry has come from people working from home.

Dr Michael Naylor, a senior lecturer in finance and insurance with Massey University’s School of Economics and Finance, said business – including insurers – has been forced to get used to the idea of staff working remotely and measuring their productivity by their output rather than their physical presence.

“While remote working has been talked about since about 2005, managers have been very reluctant to undertake the experiments required to evaluate its practicality but now they have,” said Naylor.

“Even though working from home full-time will only suit a sub-section of staff, managers are now for more comfortable with the concept of monitoring staff, and conducting meetings, remotely and while this change has significant implications for insurers as a business.”

For Insurance Council of New Zealand chief executive Tim Grafton, one of the great successes from the Covid-19 crisis was how seamlessly the insurance sector switched to remote working arrangements without a degradation in customer service.

“Like other sectors, we can expect remote working arrangements to be used increasingly in future,” Grafton said.

“Just as underwriters have responded to the new normal, distributors like brokers will also be making their own decisions as to how to best service their customers.” www.covernote.co.nz

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Cover Story

Now, insurers are focused on the next set of challenges, including how to reimagine distribution in a more remote world.

“The more important change to come from the Covid-19 pandemic has been an acceleration towards the digitalization of all information,” said Dr Massey.

Indeed, customers in New Zealand are already seeing the effects of what a rapid shift to digital distribution means.

In July insurance giant IAG announced it will close all 53 of its AMI stores and its remaining State store, with the loss of 65 branch manager jobs.

IAG customer and consumer general manager, Kevin Hughes, said 350 jobs would be transferred to customer service and other departments.

The Australian insurer said Covid-19 was a factor in the decision to close the branches.

“Covid-19 has accelerated many trends within the insurance industry and in the broader operating environment,” Mr Hughes said.

The company had also acted on the feedback from its customers and how they interacted with the brand, he said.

"We've seen a decline in visits to our retail stores as customers increasingly look to engage with us over the phone, via email and through our online platforms – so we will be strengthening our digital channels to meet changing customer needs," Mr Hughes said.

The decision to close the stores had not been made lightly, he said, noting that the "the specialist Customer Care Team we temporarily established as part of the response to Covid-19 will also be made a permanent service and will support our vulnerable customers, as well as those who may be facing financial hardship."

It is highly likely that store closures will become more commonplace as the Covid-19 pandemic wears on, said Naylor.

“During the crisis customers have become used to being unable to physically connect with many companies via stores and are more at home with internet access,” he said.

“This has accelerated an existing trend, leading to a significant shift in how people shop.

“This may lead to most insurer stores closing, but if handled correctly should not harm customer experience.”

Mel Gorham, chief executive of the Insurance Brokers Association of New Zealand (IBANZ), told Covernote more insurance companies may follow suit and close their physical stores.

“It’s certainly possible as customers' needs and demands evolve,” she said.

“The lockdown generally proved that concerns over our sector’s ability to conduct business and connect with client routinely and remotely were manageable. And unlike business continuity scenarios, the lockdown included our clients and so provided a far more meaningful test of resilience, response and planning.”

The physical closure of stores was not without its drawbacks, Ms Gorham acknowledged, and she said care had to be taken to make sure all clients were looked after in the race towards digital-only.

“There will be a sector of New Zealand for which digital remains an issue, due to any number of barriers, including vulnerabilities and unreliable internet,” Gorham said.

“Whilst not having a physical location to visit may not be an issue for many, a digital-only approach will not be a complete solution and viable alternatives will be required to ensure clients are not isolated or overlooked.”

It was important to note that dependency on digital services needed “careful attention” through business continuity planning, said Ms Gorham, so that timely access continues.

“This is especially important for when clients need it most – during 8

September 2020

individual claims and catastrophes,” she said.

“Solutions such as pop-up stores, proximity locations and increased phone communications will need to be tested for ongoing stability, adapting as people’s needs and expectations change.”

The ICNZ said it would not comment specifically on the closures as it was an operational matter for IAG. Speaking generally, Grafton said a quickened shift towards digital-only makes sense, likening it to the way a move to online banking dealt with the lunchtime queues at banks.

“It’s been apparent for many years across the financial sector that in increasing number of transactions can be conducted online in a way that is convenient, efficient and at least cost to customer,” he said.

“Today all insurance companies offer online platforms for purchasing and making claims, with the ability to talk to someone available if desired.”

It would be hard to imagine what, if anything, would trigger a resurgence in demand to go into a store to make a transaction, Grafton said.

“Whether that will result in (further) store closures will be a judgement for individual insurers to make, but there are relatively few stores today,” he said.

Mr Grafton echoed Ms Gorham’s concerns that that care must be taken to make sure “digitally vulnerable” customers are not left behind.

“In a post-Covid world we would expect and hope that distribution shifts to channels that work best for the customer,” Grafton said.

Grafton said, Covid or no Covid, we were in a digital-rich world that was constantly innovating in response to consumer needs. “And that’s the outcome we want to see,” he said But vulnerable customers needed to be supported too, said Grafton, using the example that free phone lines remain a standard offering to assist people where physical contact is not available.

Just as the role physical stores play in the distribution of insurance is now being examined through a post-Covid-19 lens, so too is the role of insurance brokers.

Digital communication is playing a more significant role as a substitute for face-to-face contact, said Gorham, with many brokers needing to consider efficiencies.

“Lost time or opportunity through travel impacts availability, service and cost,” said Gorham.

“Consideration will have to be given to when conversations are best had in person to strike the right balance. A conservative approach with limited travel seems to be being adopted by many brokers given ongoing concerns with protecting the health of employees as the threat of Covid-19 remains.”

If New Zealand follows overseas trends, another flow-on effect of the pandemic may be growing Kiwi customer demand for self-service tools to aid with the ease of digital delivery of insurance products.

That could happen, said Grafton, adding that it was important to keep in mind that at the heart of everything that drives change should be the customer.

“For some companies, their business model may be built around faceto-face advice and they would no doubt see that as not just meeting customer needs but also a competitive strategy,” Grafton said.

“Inevitably, there will be those who prefer self-service, but many people will still want advice and guidance, so will need to speak with a broker.

“Almost all the business insurance offered in New Zealand is intermediated and I wouldn’t expect that to change, though the way in which intermediaries interact with their customers will inevitably change.”

But in their rush towards digitalization, New Zealand insurers are

Cover Story

THE MORE IMPORTANT CHANGE TO COME FROM THE COVID-19 PANDEMIC HAS BEEN AN ACCELERATION TOWARDS THE DIGITALIZATION OF ALL INFORMATION.

making two profound mistakes, said Naylor.

One is that they are setting up their primary customer contact as a call centre rather than the website, he said.

The second, he said, is that they are reducing staff as administrative activities are computerized, rather than reallocating those staff to roles which analyse the river of client data to create greater customer insights and increase value added sales.

“These two are connected, as unless client and agent information is collected in a digital format per transaction, costs cannot be reduced enough to allow mass-customization to take place, and it cannot be analysed by AI systems,” said Naylor.

Research shows that customers in general do not like call centres, said Dr Naylor, as wait times are high and information needs to be repeated and cost tasks could be handled by websites, apps, or chatbots.

“While some NZ insurers are making genuine trials with new ideas, their internal software still tends to be out-of-date and doesn’t integrate all aspects of the customer experience.”

Still, Naylor is of the firm belief that the Covid-19 pandemic has accelerated the industry’s inevitable shift to the adoption of new technologies, lest they risk flatlining.

You only have to look at the 2020 the US stock market, he said, which has seen the value of tech-driven companies rise steeply at the expense of companies with no strong technology base, thus providing AI-based firms with a large capital cost advantage.

“The fastest transforming sector will be auto-insurance, as driver-assist software sharply reduces premiums, and companies like Tesla get closer to full auto-driving,” Naylor said.

“And it’s important to note that based on the rich stream of sensor and video data from its cars, Tesla Insurance is offering significantly reduced premiums.”

An interesting impact of the Covid-19 crisis was a significant increase of customer interest in drive-as-you-use insurance due to customer irritation at paying for insurance while the car sat unused, said Naylor.

“While this product is still small, it will grow fast as customers get used to the idea and cars increasingly come equipped with the sensors and

net links which enable an insurer to remotely download driving data to reconstruct events prior to a crash,” he said.

A similar shift is happening in house insurance, said Naylor, where investment in the collection and analysis of data relating to sub-soil conditions and house structure is moving insurers towards highly stratified premiums.

“Household products with net-linked clips mean that products can be traced after a theft, and sensors linked to water pipes or power lines, alert customers to leaks or fire danger,” said Naylor.

Another important enabler in distribution is data. Insurance companies typically have massive amounts of data locked away in filing cabinets and legacy systems, the value of such data effectively trapped, Naylor said.

“This is especially the case in the health insurance sector, because in New Zealand most health data is still not collected in a digital format and is not integrated across medical health providers, hospitals and insurers into a national database that insurers can mine for insights,” said Naylor.

And while the health insurance sector was changing overseas, similar change here may be slower as significant investment and effort is required, Naylor said.

“Though the effort here could lead to revolutionary insights about the links between nutrition, activity, and health outcomes,” he said.

But with all the talk of technology saving the industry in a post-Covid world, can there still be room for brokers?

Yes, said Gorham, who said that brokers are needed now more than ever before.

“With the uncertainty currently facing the world, many of us have never had a greater dependency on receiving sound and timely advice to help ensure we spend our money wisely,” Gorham said.

“Brokers provide advice across a range of products and insurers and they fill an important role helping clients understand risks; what is insurable, and what isn’t.

“This knowledge can make a significant difference in these challenging times.” www.covernote.co.nz

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Feature

Lloyd’s warns intangible assets at risk I

ntangible assets are an increasing proportion of companies’ balance sheets, already accounting for as much as 85% of the total business value across industries according to estimates. With the acceleration of digital business models, amplified by Covid-19, this value could now increase much further, becoming a major blind-spot for firms not factoring intangible assets into their risk models.

Lloyd’s, the world’s leading specialist insurance and reinsurance market, has published a report in collaboration with KPMG urging businesses to pay attention to the new risk landscape that has evolved under Covid-19.

Protecting intangible assets: Preparing for a new reality looks at the increasing value of intangible assets, and the role of risk managers and the insurance industry in protecting them.

It said the pandemic has disrupted global supply chains and moved the world towards de-globalisation. It has changed working arrangements, businesses’ ability to trade, and consumer behaviours. It has also created a new social contract between businesses and society and has accelerated underlying market trends such as the shift to remote workforces and digital transactions.

The new report looks at how Covid-19 has increased companies’ exposure to new risks, many of which implicate the intangible assets held by businesses.

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With unprecedented scrutiny on firms’ behaviour, reputational issues were just one of many posing a threat to firms’ resilience during the pandemic, it warned. New ways of working were also presenting their own unique challenges, amplifying the complexity of managing intellectual property and conduct risk amongst a remote workforce. For businesses to stay resilient, operationally and financially, awareness of what intangible assets are and how they can be protected is critical and must form a considerable part of their risk management strategy.

The report looked at eight intangible assets: Intellectual property, proprietary software and databases, written processes and procedures, organisational culture, rules, norms, relationships with customers, reputational and brand, relationships with distributors, partners and human capital.

The report said the fundamental shift towards a new world dominated by intangible assets started decades ago, long before any detailed discussions about looming pandemic risks.

Step-by-step, the importance of intangible assets grew – from around 17% of S&P asset value in 1975, to 32% in 1985, to 68% another decade later in 1985, and ultimately exceeding 80% in the last 10-15 years.

“This has been closely linked to the changes in the economic landscape, with technology-driven service companies becoming

Feature increasingly prominent, while industries famous for their holdings of property, machinery, and other tangible assets, have slowly given way.

“Restrictions enforced for public health purposes have accelerated progression towards a new reality. An increasing number of executives have started questioning the return to normal even after Covid-19 disappears. “ It said that meant there was now a world where most of the workforce and business data (including potential trade secrets) was scattered across thousands of living rooms, kitchens, and bedrooms, while expensive office buildings are kept empty.

WHILST A RANGE OF INSURANCE PRODUCTS ALREADY EXIST THAT CAN HELP ORGANISATIONS MANAGE THEIR RISKS RELATED TO REPUTATION, HUMAN CAPITAL, AND IP, IT IS IMPORTANT THAT INSURERS, RISK OWNERS, AND RISK MANAGERS WORK TOGETHER TO FURTHER DEVELOP THESE PRODUCTS. “Not only does it become more difficult to manage intellectual property in such an environment, but additionally the traditional ways of managing teams and culture have to be rethought. Similarly, as the new post-Covid-19 world drives anxiety levels to new highs, businesses are also more prone to making reputational mistakes that can leave lasting impact in the way their customers, employees, distribution partners, and other stakeholders perceive the character of their business.

“This is particularly important as various activist events keep pushing the corporate environment from traditional shareholder capitalism to stakeholder capitalism. The recent ‘Black Lives Matter’ protests have demonstrated the power of social activism and the need for businesses to embrace the changing social norms.

“We could well see activist movements growing in the next few years to address some of the well-known global challenges, ranging from climate change to income inequality. Risk owners in businesses across all industries will have to be alive to these changes to make sure they have the right tools to keep enhancing their corporate value. They will have

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to rethink the optimal ways of using risk management practices to build internal resilience and become proficient at safeguarding their existing and new intangible assets.”

The Lloyd’s market is developing products to help organisations mitigate their exposure to risk, and the report outlines a range of examples of products already available in the market in response to the risks posed to reputation, human capital and intellectual property. It also highlights the vital role the insurance community has to play in helping organisations manage these challenges so that they were better prepared to protect their assets.

It said the insurance community would need to help organisations face the challenges, collaborating with subject matter experts, data and analytics providers, and insurance capital.

“Once organisational risk management practices become more strategically entrenched in intangible asset management, insurance can play a role as a risk transfer mechanism. As such, insurance can help drive additional commercial benefits that could offset some of the costs of traditional risk management.

“Whilst a range of insurance products already exist that can help organisations manage their risks related to reputation, human capital, and IP, it is important that insurers, risk owners, and risk managers work together to further develop these products. Additional co-operation is required between risk owners, risk managers, and insurers, to better understand the nature of intangible assets (e.g. reputation, human capital, and IP), the new threats they are facing, and what new solutions could be developed to make businesses more resilient.”

Trevor Maynard, head of Innovation at Lloyd’s said the industry needed to realise the world had changed and to adapt to how it looked now.

“Covid-19 has changed the risk landscape, exposing companies to new risks and encouraging companies to think about how they now operate.

Whilst a range of insurance products already exist to help organisations manage their risks related to reputation, human capital, and intellectual property, it is important that at Lloyd’s we work together with the market to innovate and create new products to help customers mitigate risks and protect themselves from future threats.”

Paul Merey, a partner at KPMG said many businesses were not prepared for the new reality.

“The key drivers of corporate value are completely different now to in the past, and this shift has only been amplified by Covid-19. Whilst physical assets are still a focus, recognition of what intangible assets are and how much they represent a firm’s value may come as a hard awakening for some organisations. In order to remain resilient and competitive, organisations across all industries must be proactive in finding new ways to enhance their business practices to protect these assets, and this will require a new way of thinking and acting.”

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Cover Story

CoFi heralds a new era for insurers The Conduct of Financial Institutions Bill is set to change the way insurers do business. What will it mean for the insurer-broker relationship?

I

n September last year, consumer affairs minister Kris Faafoi unveiled plans for a new conduct regime for the financial services sector. The reforms, launched off the back of Australia’s damaging Royal Commission into financial services and the Reserve Bank and Financial Markets Authority’s review of New Zealand’s life insurers, have quickly gathered speed.

The Conduct of Financial Institutions Bill (CoFi) will force insurers to have a conduct regime in place to guard against unfair behaviour towards consumers. It has been introduced to address concerns around customer treatment and will introduce a “fair conduct principle”, requiring institutions to treat customers fairly and act in their best interests.

The fair conduct principle will come into effect when financial institutions provide or design a service or product to the consumer, or deal with a customer concerning existing products. Insurers will need to demonstrate their robust processes to the regulator.

Laws face a long journey through the parliamentary process, yet CoFi has been before the Finance and Expenditure Select Committee, with submitters making their voices heard about the new regime.

There were initial fears that the legislation could capture intermediaries,

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forcing brokers to comply with different suppliers’ conduct programmes, as well as the looming Financial Services Legislation Amendment Act (FSLAA), which is due to come into effect from next March.

CoFi was reported back to Parliament on August 7, allaying many fears for the broking industry.

Advisers successfully lobbied to exclude financial advisers from the scope of fair conduct programmes, and the amended bill will only capture financial institutions. However, financial institutions will be tasked with training and supervising intermediaries to ensure they support the institution’s compliance with the fair conduct principle.

What will the fair conduct principle for insurers look like?

Insurers will have to “pay regard to customers’ interests”, “act ethically, transparently, and in good faith”, “assist consumers to make informed decisions”, and ensure that the service or product “meets the requirements and objectives of likely consumers”. Financial institutions cannot subject consumers “to unfair pressure or tactics or undue influence”.

While CoFi initially gave the government far-reaching powers to regulate remuneration structures between insurers and advisers, the amended bill has some safeguards in place. The select committee’s report

Cover Story

says the law should have some restraint on the government’s ability to ban incentives.

A minister will have to consider “certain matters” (such as the impact on advisers and whether primary legislation is more appropriate) before recommending further regulation on incentives.There are fears that even under this revised wording, regulators still have the power to tinker with remuneration.

The August 7 report confirmed that the regulation of broker incentives was “not the policy intent of the bill”: “We recognise that if the government had intended a total ban on all incentives, it would have been more appropriate to do this through primary legislation.”

The commencement of the bill has been delayed until the third anniversary of the date of its Royal Assent. The additional time will be welcome news to mortgage advisers, who must contend with their own wide-ranging reforms under the FSLAA changes, set to come into full effect from March 2021.

Brokers appear to have avoided a worst-case scenario and will not be forced to comply directly with insurers’ conduct regimes, or face easy interference over remuneration. But the new laws, which will plug

into the Financial Markets Misconduct Act, will usher in a new era for insurers, and by proxy, impact the day-to-day dealings brokers have with suppliers.

INSURER IMPACT Insurers are the main target of the new regulation, and there are key questions on how it will change the general insurance sector. What kind of behaviour is the regulator looking to stamp out? How will insurers demonstrate their processes? How will the insurer-broker relationship change? What does it mean for customers?

Dentons lawyer David Ireland believes insurers will face more scrutiny around how they pay intermediaries, particularly how much they remunerate brokers up-front for bringing in business from another provider.

Ireland adds: “In the insurance space, one of the constant issues the FMA focuses on is replacement business. And the incentives that are paid to intermediaries to replace insurance cover [from another provider]. If you do that constantly, it is churning the customer’s cover, and often contrary to the best interests of the consumer.”

The regulator will also look out for “no service” charges to the www.covernote.co.nz

13

Cover Story

customer — people being charged for products they are not receiving.

“That’s the sort of conduct obligation the new regime will be looking at imposing on banks and insurers,” Ireland said. “The regulator is not so much saying ‘you’ve been bad and we need to rein you in’. They want insurers to have good conduct programmes and systems in place so that directors of financial institutions can have assurance that good words and rhetoric flowing from the top is being implemented at the coalface.”

The increased focus from regulators is likely to make insurers pay closer attention to their customer processes and dealings with brokers.

The regulator has an “extensive toolkit”, to enforce against insurers under the new regime, Ireland says.

“They can take action that is appropriate to the level of noncompliance and risk of consumer harm they have identified.That extends for the potential to push for fines of seven figures at the extreme end.

But the most significant power the FMA has is the power of the media release. It’s all about the reputation of these providers. No institution wants to be in breach, because the consumer will not be impressed.”

“The biggest threat the regulator will have is to remove an insurer’s conduct license,” Ireland adds. “If they pull that away, they are out of business. It’s an existential regime for everyone that’s in scope, and they will have to get it right. The institutions will need to put comprehensive programmes and systems in place to make sure that they are treating customers fairly.”

That in turn, could make things more difficult for brokers, Ireland adds. “It makes it harder for anyone the providers do business with.

There’s a whole lot of red tape, checks and balances that will need to be navigated. It’s quite an amount of resource that a financial institution will need to have onboard to monitor that programme, and make sure everything is being followed.”

“That all comes at a cost, and the consumers could end up having to pay for that,” he adds. “That’s why this reform has to be right-sized for the problem.”

Insurers are busy getting to grips with the potential changes. Vero is optimistic about the new regime.

Helen McNeil, chief risk officer at Vero, says regulators want to stamp out confusion and any surprises customers might face when they take out insurance products.

“Kris Faafoi wants to make sure the intermediated insurance market ensures the best quality advice so the customer gets the product they need.”

“Our approach has been not to fret too much, as we are already working on our own conduct uplift programme,” she adds.

McNeil says Vero is hard at work improving its conduct processes ahead of the laws, “turning the business inside-out looking for any areas of unintended risk” for customers, “or anything that might lead to unexpected outcomes”.

The new regime will prompt insurers to make documentation and communication clearer for customers, she adds.

“A key part is making insurance easier to understand, and doing a lot of work around communication. We have also done work around how we respond to feedback and customer complaints. We want to be able to take feedback and respond and turn that into good outcomes,” she adds.

“What we are doing here will be aligned with whatever principlesbased regulatory programme that comes along. We’re doing that because that’s where we’re heading, and that’s the right thing to do,” McNeil says.

McNeil argues the new regime could even make brokers’ work easier, with clearer documentation to work with.

“The more easy-to-understand we can make our policy documents, we can save the adviser from having to translate, and they can just talk about the value, and pros and cons, 14

September 2020

because the information is clearer. It will be a great advantage, and brokers can feel more confident with customers.They will know insurers have strong processes and procedures.”

McNeil says Vero will not have to change the way it pays brokers, as the insurer already pays “commission arrangements carefully, to make sure they carefully remunerate advisers for their cost and their time”.

She adds: “The value-add advisers bring to our customers is one they need to be fairly remunerated for. We do that and regularly review our arrangements to make sure people have access to the advice they need.”

McNeil doesn’t expect CoFi to radically change the way Vero or the wider sector deals with intermediaries.

“We’re very fortunate. The advisers we work with are totally aligned.

They want to provide good customer service and outcomes. These are our mutual customers. Anything we can do to maintain that is a real positive outcome for intermediaries as well. We are all heading in the right direction. I haven’t had anyone we work with saying it’s a bad thing for the industry. If it’s done appropriately, it can only be a good thing.

However, McNeil says it is important that the new regulation is not “unwieldy”, and interacts with other new legislation, like FSLAA and insurance contract law review, without getting in the way.

She expects insurers’ programmes to converge to similar best-practice principles.

“Broadly speaking, there will be some fundamentals that will be obvious,” she says. “After a while, I’d like to see two-way dialogue, with advisers telling insurers about how others are doing it. We might get to a market best-in-breed approach.”

Mel Gorham, chief executive of IBANZ, welcomed the recent changes to the CoFi bill as we look ahead to the next stage of its development.

“We’re pleased to see that a number of aspects we submitted on have been taken into account,” she said. “The removal of the duty for intermediaries to comply with other fair conduct programmes was a priority for IBANZ, and a sensible outcome as members’ conduct will be regulated when the new financial advice regime comes into force March 15 2021.”

Gorham said the bill’s increased focus “on the conduct of financial institutions should, coupled with the new financial advice regime, help bring about better outcomes for consumers, particularly against a backdrop of continued, meaningful consultation. The greater clarity regarding the fair conduct principle and treating consumers fairly is also welcomed.”

THE ROAD AHEAD CoFi’s commencement has been pushed back for another year, giving insurers and brokers more time to adjust, but its journey through Parliament is likely to continue.

Labour, the leader of the coalition government, is known to be keen to push the legislation through, and is currently polling ahead of its rivals ahead of the October general election.

However, National is said to be against the bill. A National win could see CoFi tossed to the scrapheap, or at least heavily watered down.

Other unknowns, such as Covid-19, could slow down the progress of the bill when Parliament returns. It is unclear how the delayed election, and resumption of Parliament, will affect the timeline.

Ireland predicts the bill will go to the “bottom of the pile” when the next government forms, “to resurface later on, depending on the reform agenda of the next government.”

While Gorham is positive about the changes to the bill, she knows there is plenty of consultation and debate to come.

“Undertaking the further consultation referred to by MBIE in a transparent, measured way will help minimise the chance of unintended consequences,” she adds.

Feature

www.covernote.co.nz

15

HUMANS of NZI’s own home brewing ironman What started as a school project on insurance has transformed into a long-standing insurance career for Chris Hunter, who joined NZI during lockdown as Specialist Corporate Underwriter in the Property team.

I’ve got an inquisitive mind and I didn’t understand what insurance meant back then. That fuelled a big interest for me, as the more I read about it, I wanted to learn more."

Chris has been in the insurance industry for more than 30 years and has come full circle – returning to the IAG fold after previously working for State Insurance around 20 years ago. He has also worked in New Zealand and in Australia, in both the insurance and broker world.

Chris says his love for learning and experiencing new things has continued throughout his career.

In fact, it even led to a full year of training for an ironman race!

“I had to learn how to swim and that was terrifying because I was afraid of the ocean. As a birthday present, my wife hired someone to teach me to swim and he used to take me outside the shark cages in Sydney so I could get used to swimming in the sea. By the end of that time I could swim five kilometres. I love swimming now, but I certainly wasn’t a good swimmer then.”

Training consisted of three to four hours of daily exercise. Chris would swim in the morning, run at lunch time and would do a cycle track of 25 kilometres in the evening. He even participated in swimming races in the weekend.

“It was a drastic lifestyle change; it was like an addiction. As you start doing it, you feel you can always improve and do better. I ended up doing nine races, and each time you go through what you’ve done and where you can do something differently next time.”

Chris returned to New Zealand from Australia four years ago, and since then he’s swum from the North Shore to the city underneath the Harbour Bridge a couple of times, and he enjoys sea kayaking, which he does almost every weekend. He has kayaked from Auckland to most of the Hauraki Gulf islands, his favourite being the Beehive Island, and even did a four-day camping trip overnight on different beaches from Auckland to the top of the Coromandel – clocking up more than 180 kilometres!

But Chris’ learning path doesn’t stop here. He is also known by another of his hobbies – making home brew beer.

16

September 2020

“I started with three other dads in the neighbourhood and we’ve been doing this for five years and we haven’t had many bad ones since then.

You get experienced and we bought better gear over time.

“Our little garage is growing in size and we make our beer from grain, which is a more traditional beer-making style. We boil the grain and make it from scratch. We always try new recipes, as half of the fun is experimenting.

“We get right into it and have even made t-shirts and a label. When the British and Irish Lions were over here, we tried to make an English brown ale as well as our own take on Guinness. Suffice to say we enjoyed the fruits of our labour!

“One of the guys wanted us to go commercial about two years ago, but the wives wouldn’t let us take a second mortgage on the house to do it commercially, so at the moment it remains a hobby.”

For Chris, a busy dad of two, insurance still gives him the thrill of learning.

“There’s plenty of variety, every risk is different. I’ve always enjoyed the corporate end, and I’m happy to be back.”

Feature

INSURERS CAN HELP WORLD RECOVER FROM COVID L

loyd’s, the world’s insurance and reinsurance market, says there are a number of ways the insurance industry could fast-track global economic and societal recovery from the far-reaching impacts of Covid-19.

These include three open source frameworks, that help build future resilience through innovative partnerships and products together with a Centre of Excellence to better understand, model and provide insurance for systemic catastrophic events.

Following interviews with executives and experts across key global industries, the proposals seek to address short, medium and long-term challenges customers face as they begin to recover and reopen. The proposals include solutions for the reopening of businesses against the threat of further waves of Covid-19, building greater resilience across global supply chains as well as the digital economy, and preparation and protection for the next systemic catastrophic event.

As the Covid-19 pandemic continues to devastate economies and communities, with impacts requiring resources that can only be accessed by governments, there remains an urgent need to protect society as it recovers and prepares for an uncertain future, Lloyd’s said.

ReStart, a potential non-damage business interruption solution (loss of revenue without a physical damage trigger) for future waves of 18

September 2020

Covid-19 being developed by the Lloyd’s market, specifically focuses on supporting SMEs. The solution is focused on giving certainty of non-damage business interruption coverage initially to UK SMEs by pooling limited capacity across a number of Lloyd’s market participants. The product would support SMEs reopening, offering a range of limits that ensure it is affordable for customers, without requiring any government support.

Recover Re sets out a proposed “after the event” insurance product framework, that could provide immediate relief and cover for nondamage business interruption over the long-term, including the current Covid-19 pandemic. If implemented, this could be an efficient way to inject commercial and government funds into the economy, providing relief to customers with limited borrowing capacity. This framework could be implemented in any country where the government has the resources and industry commitment to support it.

Black Swan Re is a reinsurance framework for government and industry partnership that could better protect customers from the devastating and long-term impacts of systemic catastrophic events – from another pandemic, or global supply chain disruption, to the interruption of critical infrastructure or utilities. The framework

Feature

THE PURPOSE OF INSURANCE IS TO HELP BUSINESSES AND COMMUNITIES MANAGE THE RISKS THEY FACE, ENABLE THEM TO RECOVER QUICKLY FROM DISASTERS BY PAYING CLAIMS, AND PROVIDE THE SECURITY THAT ALLOWS THEM TO INNOVATE, DEVELOP AND DRIVE ECONOMIC GROWTH.

would provide reinsurance for commercial non-damage business interruption cover for black swan events through industry pooled capital, backed by a government guarantee to pay out if ever the pool had insufficient funds.

Alongside developing and sharing these frameworks, Lloyd’s is developing a Centre of Excellence to build resource and capability to better understand, model and create products that better protect customers against systemic risks, including pandemics. This will include new technical capabilities and services to support insurers, and academic partnerships to develop a better understanding of systemic risks and customers' emerging needs from the insurance industry.

To kickstart the creation of the Centre of Excellence, Lloyd’s Innovation Lab is already working with insurtechs that can provide some of these capabilities, including exploring the application of an epidemic tracker to better evaluate and underwrite pandemic risk, as well as solutions to help close the insurance gap for systemic risks. In parallel, Lloyd’s Product Innovation Facility is focusing on innovating products to respond to an accelerated shift towards intangible-driven business models in response to Covid-19.

“The purpose of insurance is to help businesses and communities manage the risks they face, enable them to recover quickly from disasters

by paying claims, and provide the security that allows them to innovate, develop and drive economic growth,” Lloyd’s chairman Bruce CarnegieBrown said.

“Covid-19 has demonstrated that there is much more we can do to support our customers by providing protection for the changing risks they face. Some of these risks are of a scale that require partnership with governments globally, and this report identifies ways in which the insurance industry could work with governments to share risk and create a braver, more resilient world.”

Lloyd’s confirmed in May that the market will pay out in the range of US$3 billion to US$4.3 billion to its global customers as a result of the far-reaching impacts of Covid-19. In addition to managing wide-ranging pay outs across sectors and geographies, the experts, entrepreneurs and innovators drawn together by the Lloyd’s market have already started creating new policies to support the immediate health response as well as the longer-term exit strategy. This includes the search for diagnostics, treatments and vaccinations, where one Lloyd’s syndicate is insuring more than 100 individual clinical trials taking place around the world investigating all stages of Covid-19. Lloyd’s is also actively working on an insurance solution to support the safe transportation of a Covid-19 vaccine (when developed) to emerging markets. www.covernote.co.nz

19

Feature

Suncorp offers support to customers

S

uncorp New Zealand reported a $2 million profit drop in the year to June.

The New Zealand arm of the insurance company announced a net profit after tax (NPAT) of $259 million, down from $261 million a year earlier.

The result was driven by underlying premium growth, offset by higher natural hazard claims following periods of benign weather conditions, Covid-19 customer support, customer remediation provisions and increased life insurance claims.

Parent company Suncorp Group Limited announced a NPAT of A$913 million.

Suncorp New Zealand acting chief executive Jimmy Higgins said the result reflected a strong performance across the entire business.

The New Zealand general insurance business, which includes Vero Insurance and AA Insurance (a joint venture between Vero and the New Zealand Automobile Association) delivered profit after tax of $219 million, up 0.9% on the previous corresponding period.

Vero said that was driven by disciplined portfolio management, earned premium growth including solid unit growth, and favourable claims experience and was partially offset by increased natural hazard costs and customer remediation provisions.

Natural hazard costs were up $25 million on the prior financial period, when the country experienced relatively benign weather conditions. A significant hailstorm in Timaru in November contributed $20 million to the net natural hazard cost incurred for the year.

During FY20, a total of $18 million in customer remediation provisions was recognised against General Insurance premium income,

20

September 2020

largely relating to issues with customer discounts in prior periods.

Suncorp New Zealand announced up to $30 million worth of customer support options in response to Covid-19 related impacts, ranging from premium waivers and discounts for customers experiencing financial hardship, through to premium rebates.

Included in this amount, AA Insurance is returning $19.5 million in rebates to customers in recognition of the significantly lower risk environment during the most restrictive period of lockdown. AA Insurance has also created a $2 million fund for customers in genuine financial hardship.

Vero has announced up to $10 million in hardship funds for both business customers and individuals, primarily through premium waivers and assistance, to help customers experiencing financial hardship due to Covid-19 to keep key insurances in place. The support provided to Vero customers has averaged more than $400 for individuals and $2,500 for business customers.

During the lockdown Suncorp surveyed New Zealanders and found that 60% preferred company savings to be passed back to those most in need, while 21% wanted to receive refunds themselves.

Higgins said: “In situations where customers have an intermediary to support them, it’s possible to offer more tailored options to help ensure those who are most affected keep their insurance cover in place and don’t expose themselves to unnecessary risk.”

Suncorp New Zealand also donated $100,000 to domestic violence prevention charity Shine during the lockdown to help keep children in temporary housing connected with their schools through the provision of digital devices and internet services.

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Feature

Vero survey shows small businesses are keen for insurance advice following Covid-19 N

ew research released by Vero Insurance this week shows nearly two thirds of New Zealand’s small and medium enterprise owners and decision makers (SMEs) want insurance advice following the Covid-19 crisis.

Most wanted advice on how their policy might respond at times like this. SMEs also wanted to know what other types of insurance would benefit their business (18%), and how to defer or adjust insurance premium payments (17%).

The survey shows 85% of SMEs have experienced a decline in revenue following Covid-19 with 53% reporting their revenues have shrunk by half or more.

Vero Executive General Manager Mark Wilkshire says, “There’s never been a better time for SMEs to use a professional insurance broker to get the right advice and support across a range of topics, including financial support options that might be available to them.”

The report shows that 57% of SMEs currently buy their insurance

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September 2020

through a broker most or all of the time, while only 29% buy all their insurance directly.

Mr Wilkshire says Vero’s SME Index is designed to provide brokers with up-to-date insights about small business, enabling them to offer more value to their customers.

“We’re in an unprecedented situation and many SMEs are looking for assistance, but a third don’t access the advice and support that a broker could provide,” says Wilkshire. “We’d like to see more SMEs taking advantage of that expertise to help them with decision-making around their business insurance.”

Another survey previously released by Vero showed that around 30% of SMEs were considering making changes to their business insurance.

Along with insurance advice, Wilkshire says the SME Index also highlights risk advice as a growing area of focus from small businesses.

“Covid-19 has changed the risk landscape significantly. 79% of New Zealand businesses report that they are making changes to their businesses

Feature

Impact of COVID-19 pandemic on SME revenues

12%

3%

11%

21%

53%

No impact

Increased

Declined by 1 - 24%

Declined by 25% - 49%

Declined by 50% or more

Business changes made as a result of the COVID-19 pandemic Applied for the NZ Govt. wage subsidy to pay their employees

44%

Reduced costs

33%

Moved to working from home / remote working

28%

Closed the business temporarily

24%

Reduced staff hours

17%

Created or refreshed their businesses online presence (i.e. website, online store)

15%

Changed the business focus to align with customer needs

12%

Decreased marketing activity

10%

Increased marketing activity

6%

Stood staff down

5%

Made staff redundant

1%

as a result of the pandemic.

“Changes like temporarily closing your premises, remote work and adjusting staff levels all have an impact on the risk profile of a busines,s and there is considerable scope for SMEs to connect with insurance brokers for support with risk analysis and insurance decision-making.”

Wilkshire said that Vero will soon be releasing a suite of risk management tools to help brokers and SMEs work together to understand a business’ risk profile.

“SMEs are really looking for support, not just on keeping a tight rein on the value and cost of their insurance, but on understanding what changes they could make to minimise the risk to their businesses, outside of insurance.”

Wilkshire says that Vero has made $10 million of hardship fund available that its SME customers can access to help them through the Covid crisis, and encouraged Vero customers to reach out to their brokers if they needed financial assistance.

SURVEY FINDINGS: • 64% of SMEs wanted insurance advice in regard to the

current market.

• More than half of the businesses surveyed said their

revenue had declined by 50% or more following Covid-19.

• 79% of SMEs reported making changes to their business

as a result of the pandemic.

• 80% of SMEs think that it is important for brokers to assess their risk profile and recommend insurance

cover accordingly.

• 1 in 4 direct insurance buyers say that understanding the

risks facing their business is difficult.

• 28% of SMEs are considering making changes to their insurance as a result of the pandemic, and 50% of these

would like advice. www.covernote.co.nz

23

Opinion

FINANCIAL ADVICE DISCLOSURE

ISSUES FOR INSURANCE BROKERS

By Crossley Gates

O

n June 22, the Governor-General made by Order in Council the Financial Markets Conduct (Regulated Financial Advice Disclosure) Amendment Regulations 2020.

They require financial advisers (including insurance brokers/advisers) to disclose certain information when providing regulated financial advice to retail clients.

The regulations require disclosure of information in four separate circumstances: Circumstance 1: Information disclosed on the financial adviser’s internet site at all times, Circumstance 2: Information disclosed when the financial adviser knows the nature and scope of the advice sought and reasonably expects to give the advice,

24

September 2020

Circumstance 3: Information disclosed when the adviser gives the advice, Circumstance 4: Information relating to a complaint received.

Note that the disclosure required at Circumstance 3 can be given earlier and at the same time as the disclosure at Circumstance 2.

All information must: • Be presented in a clear, concise, and effective manner, and • If it is presented with other information, be given

prominence, and • If it is presented in writing, be in a format, font, and type size that

is easily readable, and • Be made available or given free of charge.

The information to be disclosed in Circumstances 1 to 3 above

Opinion

includes information about the following three matters: Fees, expenses, or other amounts payable, conflict of interest, commission or other incentive.

We expect three matters will be of greatest interest to the insurance industry: Fees, expenses or other amounts payable.

In relation to Circumstance 1, if the client may or will have to pay any fees, expenses or other amounts to the Financial Advice Provider (FAP) or to another person connected with the giving of the advice, the FAP must give a brief explanation of when, or in what circumstances, those amounts may or will become payable.

In relation to Circumstance 2, if the client may or will have to pay any fees, expenses or other amounts to the FAP, financial adviser (FA), or another person connected with the giving of the advice, the FA must:

• Give a brief explanation of when, or in what circumstances, the amounts may or will become payable, and • Disclose the amount payable, or if not known at this point, give a brief explanation of how the amount will be determined and if

practicable, an estimate, and • Give a brief explanation of the terms of payment, if known at

this point.

In relation to Circumstance 3, this requires the same disclosure as in Circumstance 2 above (except most references to ‘brief ’ are removed), but only to the extent the client does not already know it after receiving the disclosure required by Circumstance 2.

We note the regulations separate out these monetary payments from commission or other incentive payments. We suspect this was a

www.covernote.co.nz

25

Opinion

deliberate policy decision by the government to stop financial advisers bundling fees and commissions together into one lump sum. They must be stated separately.

The regulations do not specially define the words “fees, expenses or other amounts payable”, so they will have their ordinary dictionary meanings.

CONFLICT OF INTEREST AND COMMISSION OR OTHER INCENTIVE. We deal with these together because they overlap. Both are specially defined as follows: A conflict of interest, in relation to advice, means any interest of [the person giving the advice], [the FAP], or another person connected with the giving of the advice that a reasonable client would expect to, or to be likely to, materially influence the advice given by [that person giving the advice].

A commission or other incentive is a commission, benefit, or other incentive (whether monetary or non-monetary and whether direct or indirect)— (a) that is given to [the person giving the advice], [the FAP], or another person connected with the giving of the advice as a consequence of [the person] giving the advice or the client acting on the advice (for example, by acquiring a financial advice product); and (b) that a reasonable client would expect to, or to be likely to, materially influence the advice given by [that person giving the advice].

Both definitions only apply if in relation to the advice given, the reasonable client would expect to be, or be likely to be, materially influenced by the conflicting interest or the payment of the commission.

How do you determine the expectations of a reasonable client?

Effectively, the judge does, based on common sense and his or her own previous experience as a practising lawyer.

How do you determine whether the influence exerted is material?

The regulations do not specifically define materially, so its ordinary dictionary meaning applies, which is: “to an important degree; considerably”.

The word considerably is defined as: to a noteworthy or marked extent; much; noticeably; substantially; amply.

This gives some guidance on the degree of influence required but it is hard to know where to draw any particular line. As we will see below, the examples in the regulations may give a hint.

In theory, the definitions are independent of each other. In other words, it is technically possible to have a commission or other incentive (as defined) that does not amount to a conflict of interest (as defined) because the materiality test applies to one, but not the other.

However, as we will see, the language used in the regulations seems to imply that if the test of material influence applies to one, it will likely apply to the other one too.

In relation to Circumstance 1, the following must be disclosed: Conflicts of interest and commissions or other incentives (g) if any conflict of interest (other than a commission or other

incentive) currently exists or is likely to arise in the future in relation to advice given to [the FAP’s] clients, (i) a brief description of the nature of each conflict of interest; and

(ii) a brief explanation of the steps that have been or will be taken to manage each conflict of interest: (h) if any commission or other incentive will or may be given in

relation to advice given to [the FAP’s] clients,— 26

September 2020

(i) a brief explanation of when, or in what circumstances, they will or may be given; and

(ii) a brief explanation of the steps that have been or will be taken to manage the conflicts of interest: What is interesting about this drafting is the wording implies that a commission is a conflict of interest, and that all commissions create a conflict of interest.

In relation to Circumstance 2, the equivalent of (h) above is expanded as follows: (b) if any commission or other incentive will or may be given in

relation to the advice the client is seeking or given, for each

commission or other incentive, a brief explanation or description

of the following, (i) when, or the circumstances in which it will or may be given;

(ii) who it would be given by and to whom:

(iii) its amount or value (or how that would be determined);

(iv) the steps that have been or will be taken to manage the conflicts of interest An example is stated as says: EXAMPLE Connor phones Ari, an insurance adviser, to ask about insurance on his home loan.

Ari’s explanation might be: “We receive commissions from the relevant insurance company if you take out insurance following our advice. The commissions are between 7% and 12% of the first year’s premiums of your policy—the amount depends on which insurance company and which insurance policy you choose. However, we follow an advice process that ensures our recommendations are made on the basis of your goals and circumstances.”

The example gives a clear signal that a commission as low as 7% is caught by both definitions.

The example gives some guidance about the steps required by disclosure (iv) above. The example refers to following an “advice process”. We speculate this envisages a compulsory internal instruction to all relevant staff that they must ignore the level of commission offered by one product provider over another when making a recommendation to a client.

In relation to Circumstance 3, this requires similar disclosure to that required in Circumstance 2 above, but only to the extent the client does not already know it after receiving the disclosure required by Circumstance 2.

WE DRAW THE FOLLOWING PROVISIONAL CONCLUSIONS: Brokers must disclose any fees separately from commissions.

The regulations catch a commission of 7%. Does this mean they catch any commission at any level? In other words, there is no upper safe harbour figure?

The steps required to manage receipt of a commission appear to be an instruction to staff to ignore the level of it provided by product providers when making a recommendation to a client.

Crossley Gates is a partner at Keegan Alexander.

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

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need

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Visit insuranceadvisernet.co.nz to read more about our work and find your local broker

Opinion

Insurance Council calls for fire funding T

he Insurance Council of New Zealand (ICNZ) is calling on political parties to back volunteer and paid firefighters by funding them appropriately for their services, much like the police are funded.

It follows the publication of the summary of the submissions for the Fire and Emergency New Zealand (FENZ) funding review, announced by the Minister of Internal Affairs, Hon Tracy Martin, in March 2019.

“ICNZ supports a strong fire service that is integrated appropriately with other emergency services and properly funded,” says Tim Grafton, chief executive of the insurance Council.

“We have never considered that funding FENZ through a levy on insurance is appropriate, and we’re pleased with the overwhelming support from the submissions for future funding to be supported by general taxation. It’s now time this was implemented.”

FENZ is funded with a levy on all contracts of insurance. Residential insurance has a levy rate of 10.6c per $100 insured to a maximum of $106, contents insurance levies are calculated at that rate to a maximum of $21.20. Motor vehicles pay $8.45.

While the council believes that the best option would be full taxpayer funding, it also supports a mixed model that includes a greater contribution from the Crown, via general taxation, combined with direct levies on property based on value or size, and motor vehicles through existing vehicle licensing methods.

“Unlike other services that help keep our communities safe, like police, FENZ is funded by a levy imposed only on people who take out insurance to protect their homes, contents, motor vehicles and other property.

“This is a grossly unfair model that doesn’t accurately reflect the nature and breadth of FENZ’s work and penalises people who try to do the right thing to protect their assets.”

The report also identified significant shortcomings of the current funding model, including a lack of universality because not every property was insured, a reducing connection between FENZ’s activities and property insurance as FENZ’s mandate had extended to include responses to non-fire emergencies like medical emergencies and natural disasters, the insured value not necessarily relating to risk that FENZ would support, the costs and complexities for insurers and brokers to collect the levy via insurance, and the distortionary effects of the levy on insurance – making insurance more expensive for consumers and creating barriers for new insurers to enter the market.

“We now have an opportunity for the first time in many years to get this right. Hopefully, all parties will support change to a fairer, more transparent and less costly system,” concludes Mr Grafton.

28

September 2020

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Another professional insurance organisation for New Zealand A

new insurance organisation hopes to fill a gap in the market for underwriting agents.

The New Zealand Underwriting Agencies Council has been set up to cater for what it says are underwriting agents’ unique issues and needs, which are not addressed by other professional bodies.

As of April 2020, approximately 40 underwriting agents represent 10% (around $700-million) of the Fire and General insurance premiums in New Zealand. These underwriting agents have had no local representation as a collective organisation.

For the past five years, UAC Australia has been open to New Zealand members because both these markets had many features in common.

But over time there has been a considerable divide between the two regulatory environments.This led to discussions between UAC Australia’s executive director, William Legge, and a new steering committee in New Zealand to set up a standalone New Zealand organisation.

30

September 2020

“The New Zealand Underwriting Agencies Council Inc (NZUAC) has been registered as an incorporated entity, has drafted a constitution, and is in the process of contacting underwriting agents to become founding members and be represented by the organisation,” said John Baker, chair of Star Insurance Specialists and NZUAC steering committee chair.

NZUAC’s inaugural meeting is planned for September 2020.

“As the New Zealand insurance market becomes more regulated, the delivery of insurance solutions becomes more fragmented. New Zealand needs a professional and united front to represent the interests of New Zealand’s 40-plus underwriting agencies,” Baker said.

One of NZUAC’s roles will be to amplify the combined voice of underwriting agents in New Zealand to lobby legislators and protect their interests against the various government regulations that intend to affect the industry.

Feature

The local steering committee includes: John Baker (Star Insurance Specialists), Morgan Balderstone (Able Insurance), George Dmitriev (Insurance Underwriters NZ), Phil Hibbert (Protecta Insurance), Andrew McFetridge (Rosser Underwriting), Lyndon Turner (NM Group NZ) and David Walton (NZ Underwriting Agents).

Their first task is to get the remainder of New Zealand’s underwriting agents onboard as founding members.

As a professional, representative industry body, NZUAC represents and promotes its members’ interests within the wider insurance industry and to the government and regulators to ensure there is an understanding by them as to what and how underwriting agents fit into the insurance landscape, and how they help to create competitive and innovative insurance solutions.

“As an organisation we’ll monitor, and where necessary, develop

positions on insurance regulation, as well as engage in matters that affect the wellbeing of the underwriting agency industry,” Baker said.

The NZUAC’s ultimate objective is to actively improve and protect the underwriting agency industry through a united front.

This includes representing underwriting agencies in discussions and/ or negotiations with legislative or government bodies, promoting underwriting agencies as an economically efficient means of insurance distribution,promoting the views,interests,and arguments of underwriting agencies to all relevant bodies, organisations, groups, interests, and/or media, setting guidelines to assist members in ensuring the stability, security, and reputation of their individual businesses, encouraging members’ professional development through training and education programmes and liaising with other professional associations in New Zealand and overseas and spark dialogue in the community. www.covernote.co.nz

31

Feature

­­­ Vero survey finds up to one in three SMEs considering changes to their business insurance A

bout a third of New Zealand small businesses are thinking about changing their business insurance, research from insurer Vero shows.

Vero has surveyed more than 600 New Zealand small-to-medium enterprises (SMEs) across the Covid-19 pandemic to understand the economic impact of the virus on their businesses and their current and planned insurance purchasing behaviour.

Research reveals around 30% of the SMEs surveyed were currently considering changes to their business insurance. In the current environment, 20% were looking to increase their cover and 10 per cent were thinking about decreasing cover.

“71% of the SMEs surveyed say they’ve taken a revenue hit postCovid,” said Mark Wilkshire, executive general manager customer experience.

“We found business owners are twice as likely to be impacted by financial vulnerability compared to householders. 39% of business owners say they are now struggling to make ends meet, compared to 21% pre-Covid.”

Vero has implemented comprehensive support options to help its SME customers, including Suncorp New Zealand’s $2 million hardship fund, established to assist Vero and Asteron Life customers experiencing financial pressure as a result of 32

September 2020

Covid-19 maintain their insurance cover.

“Our concern is that some business owners may not be connecting with that support. Our hardship fund is there to help our customers retain their insurance cover, while Vero’s other support options can help our SME customers as they recover from Covid,” Wilkshire said.

Vero’s support options for its SME customers include payment assistance options for SME customers when their policies renew, flexible payment terms and adjusting excesses on business insurance policies.

Vero’s SME customers can access this assistance by reaching out to their insurance broker.

“Our 2019 Vero SME Index findings showed brokers providing tailored risk management advice add substantial value to SMEs. That advice is independent, impartial and can help businesses face the future with confidence,” he said.

Vero will be using the findings to work with brokers and advisers to help them offer a compelling proposition to SMEs, but there is also a role for business owners to play by asking themselves where expert advice could help.

“Having insurance is vital in building a financially resilient business.

Cancelling a policy might cut some costs in the short term, but it can come back to bite you. If you’re looking to the future, have a chat with your broker. They’ll be able to give you impartial advice.”

Feature

IAG investigating expanding vehicle repair facility plan

I

AG has completed a review of its trial vehicle repair facility, Repairhub, which opened in East Tamaki, Auckland in November 2019.

IAG executive general manager claims Dean MacGregor said the trial had been a success and IAG would now investigate expanding the concept to other metropolitan locations.

“Repairhub is a concept which is based on rapid motor vehicle repairs that are non-structural. It is designed to put our customers first, by improving their repair process experience.

“Our research indicated our customers wanted high-quality repairs, more communication and a better overall customer experience, and we are pleased to say that our test-and-learn facility in East Tamaki is more than delivering this for them.

“We have seen significant improvements in the amount of time taken for a repair to be completed – with the average repair time taking only 2.9 days.

“With more than 2,000 repairs completed and an average customer net promoter score of 9.3 out of 10, we are proud to have created a world-class experience for our customers,” he said.

The team at Repairhub were specialists in their field, with access to high-quality equipment and parts, he said. Repairhub used refined,

lean collision repair processes with premium equipment and technology, ensuring safe, quality repairs.

“Repairhub uses a customer hub to keep customers fully informed.

We also use streamlined processes to get cars back on the road quicker.

“From the moment a customer lodges a claim to when they pick up their repaired vehicle, Repairhub has the customer’s needs at the heart of its operation.

“The customer remains our first priority and we are committed to offering them the best service possible, whether that’s their preferred repairer, a member of our repair network, or Repairhub.”

IAG has more than 300 approved repairers nationwide and IAG plays a role in supporting upcoming talent through its trades scholarships programme.

The IAG Trades Scholarships programme has been running for 18 years. Each year, IAG pays the tuition fees, and provides mentoring to a number of apprentices across New Zealand. Since 2002, more than 500 people have participated in the programme.

“IAG takes its responsibilities as an industry leader seriously. We continue to have a strong relationship with the industry and industry bodies, and we look forward to working closely with them into the future,” says MacGregor said. www.covernote.co.nz

33

FSCL Case Study

Disclosing a ‘benign’ lump I

n July, a woman discovered a lump in her breast She went for a scan in August and, in September, was told that it was benign, but that it should probably be removed. She scheduled the operation for November.

In October, she and her partner booked flights to travel to Australia in February for a friend’s wedding She became very busy at work, so went to her specialist and rescheduled the operation for January.

Following the surgery in January, she was diagnosed with breast cancer and required immediate treatment. The follow-up treatment was scheduled for the same time as the planned trip and she and her partner cancelled the flights.

The woman and her partner were relying on complimentary credit card travel insurance for the trip. When they cancelled the trip, they submitted a claim, but the insurer declined it on the grounds that the loss was caused by a pre-existing medical condition.

DISPUTE The woman said this was very unfair. Although she knew about the lump, she had no idea how serious it was. She submitted a statement from her surgeon confirming that the cancer diagnosis came as a complete shock that neither he nor the woman were expecting.

The insurer responded, referring to the policy wording which referred to any “sickness, injury or condition which has occurred or which you have been aware of, or for which treatment, medication or medical attention has been sought…”.

Although the woman did not know she had cancer, she knew that she had a sickness which required treatment, which she had not disclosed. The insurer maintained its decision to decline the claim.

REVIEW FSCL agreed the insurer was entitled to decline the claim. It explained that the phrase “pre-existing medical condition” took on a special meaning within the context of the insurance policy. A pre-existing medical condition is defined to include any sickness, which was defined as any illness or disease, including symptoms.

FSCL said that, although the woman did not know she had cancer, she knew she had symptoms that could indicate cancer and, at the very least, required a surgical procedure.

The pathologist’s report following the biopsy diagnosed a fibroadenoma and an atypical lobular hyperplasia (B3).

The surgeon’s notes from the appointment in October, when the woman delayed the surgery, indicated that although he did not know she had cancer, he knew enough to be concerned.

34

September 2020

FSCL Case Study

Theft from a vehicle T

wo friends were travelling overseas in a small hatchback car when they parked outside a service station to use the bathroom.

They left all their luggage in the back of the car, two daypacks in the back seat, and one man left his wallet and phone in the front seat of the car. He was certain that he locked the car with a remote locking device on the key fob.

Only a few minutes later, the pair returned to discover their daypacks and the man’s phone and wallet had been stolen. They asked the service station staff, but nobody had seen anything and the staff said the CCTV cameras were not working.

The service station manager telephoned the local police station for the men but the police said they had to report the theft in person. They could not follow the directions to the nearest police station, so continued with their journey and reported the theft the same day at the next police station they were able to find.

They lodged a claim with their travel insurer for the stolen items, worth $8000. When the insurer declined their claim, they referred their complaint to FSCL. DISPUTE The insurer declined the claim saying that money was only covered by the policy if it was stolen from the man’s person, from a locked safe, or from a room where he was present.With respect to the items stolen from the car, the insurer said the loss would only be covered if the items had been stored in a locked compartment and forced entry was gained or, if no locked compartment was available, the items were unable to be seen from outside the locked vehicle.

The pair said the insurer’s decision was unfair. They agreed it was not safe to leave luggage in a car for any extended period but said they had been away from the car for less than five minutes.

They also said they had placed most of their items in the luggage

compartment, but the daypacks would not fit, and they had no option but to leave their daypacks on the back seat. The man was certain he had locked the car and suggested that the thieves may have used a transmitter and amplifier to locate the signal from the key fob, amplify that signal, and unlock the car. They submitted that the thieves effectively gained access by force.

REVIEW FSCL said whenever it reviewed a complaint about a declined insurance claim, the starting point was the policy. In this case, the insurer accepted that the insuring clause was met and that there was cover for the accidental loss of personal luggage. However, before accepting the claim, the insurer was entitled to consider whether any exclusion clauses apply.

Under the policy, the insurer did not agree to provide cover for items stolen from a car, unless those items were stored in a locked luggage compartment and forced entry was gained. However, the policy went on to say that if there was no locked luggage compartment there will be cover if the items were unable to be seen from outside the vehicle.

Perhaps if the items had been placed under the seats of the car, stored in the glove box, or if the car had tinted windows so the bags on the back seat could not be seen, there might have been cover.

We explained to the pair that, from the circumstances as they described them, their bags, phones and wallet were able to be seen from outside the car, allowing Allianz to decline the claim.

Although the men had submitted that a transmitter and amplifier were used to gain access to the car, and this might be possible, it was equally likely that they simply forgot to lock the car. However, given FSCL’s finding that the stolen items were able to be seen from outside the car, it was not necessary to decide how the thieves broke into the car.

FSCL suggested the pair discontinue their complaint. www.covernote.co.nz

35

IFSO Case Study

Covid-19 puts end to trip I

n October 2019, a couple arranged cover for a trip between March 13 and April 1, 2020, including a cruise to parts of South America, together with the Falkland Islands and Antarctica.

On March 13, 2020, they left on the trip.

Unfortunately, on March 14, 2020, while they were in Buenos Aires, they were notified that the cruise had been cancelled. It was confirmed that this was due to port closures related to Covid-19.

As a result, they incurred additional costs, including new flights to return to New Zealand. The pair made a claim for the additional costs.

The insurer declined the claim, based on a policy exclusion for claims directly or indirectly related to a pandemic.

They made a complaint that the insurer did not notify them about the application of the pandemic exclusion, until after they had left on the trip.

Therefore, they did not believe the insurer should be able to rely on the exclusion.

THE CASE MANAGER’S ASSESSMENT The exclusion applied to any claim directly or indirectly arising from a pandemic.

The pair accepted that the exclusion applied to the claim, because the cruise was cancelled due to port restrictions arising from Covid-19.

However, the couple believed that the insurer should be prevented from relying on the exclusion, because it did not inform them about it,

36

September 2020

before they left on the trip.

Generally, it is up to an insured person to read and understand the terms and conditions of the policy. If the insured is not satisfied, or does not accept the terms provided, it is his/her right to seek insurance elsewhere. The exclusion is a common term in insurance policies in the industry. Therefore, it was not of such a nature that the insurer was required to bring it to their attention.

On March 11, 2020, the World Health Organisation declared Covid-19 (also known as Coronavirus) a pandemic. This was before the couple left on the trip. The insurer did notify its customers about the exclusion on March 20, 2020. While this was too late for the couple, it was reasonable for the insurer to have some time to internally consider how it would approach the declaration by the WHO, given the broad application of the exclusion.

In addition, given that the WHO declared a pandemic on March 11, 2020, the exclusion applied from that time, regardless of whether the insurer had notified them.

In most cases, the IFSO Scheme can only consider whether an insurer has correctly applied the terms and conditions of the policy to the claim.

Generally, the IFSO Scheme has no power to require the insurer to make any payments outside the terms of the policy, on a goodwill basis. In these circumstances, there were no grounds to require the insurer to make a payment to the couple.

IFSO Case Study

Recovery of excess A

man held insurance on his vehicle. In November 2018, he discovered that the vehicle was “coated in a lime-type, concrete residue”.

The vehicle had been parked in the carpark in his apartment building.

The man tried to remove the substance himself, but this did not work.

He made a claim for the damage. The insurer accepted the claim, subject to the policy excess of $400.

The insurer said that it would try to seek recovery from either the body corporate or the unit owner (“the third parties”). However, the insurer later said that, as the third parties did not accept liability, it was not able to recover the claim costs and refund the excess to its client.

He made a complaint on the basis that the insurer had said it would pursue the third parties and hold them liable for the claim. However, he did not believe that the insurer made sufficient efforts to do so.

THE CASE MANAGER’S ASSESSMENT Under the policy, the insurer was not required to seek recovery from the third parties. However, in March 2019, prior to arranging for the repairs of the vehicle and paying the excess, he sought advice from the insurer.

Having listened to the telephone call in March 2019, the case manager

was concerned that the insurer had not adequately explained how it might seek recovery, or whether it would make a commercial decision to cease recovery action. Instead, it indicated that it would “fight for” the client.

He relied on this information and made a claim, rather than dealing with the third parties directly.

The insurer then proceeded to send two emails to the third parties’ insurer, which was a related company.

No further action was taken after the third parties’ insurer declined liability, as the insurer did not believe it could show the third parties were negligent.

As a member of the Insurance Council of New Zealand (“ICNZ”), the insurer agreed to be bound by the Fair Insurance Code.

The code “sets minimum service standards for insurance companies”.

Paragraphs nine and 26 of the code require insurers to be transparent and act fairly. Transparency does require the deliberate concealment element that dishonesty would require. Following discussions with the case manager, the insurer agreed that it could have been clearer in its communication with the client and agreed to refund the policy excess of $400. www.covernote.co.nz

37

e client d th h l u

Insured twice

e av

Sho

Ask an Expert

g o o g l e d?

QUESTION… We have a client (a builder) who lifted up a granite benchtop by a few inches from one end to allow for some adjustments to be made to the cabinetry it was sitting on. It then cracked right through the centre and has to be replaced.

The insurer has declined his contract works insurance claim, calling this faulty workmanship, saying that workmanship may include "carrying out their work with reasonable care and skill". We disagree on the basis that even a builder could not be expected to reasonably know that this action, lifting it just a few inches at one end, could cause the benchtop to crack as it did. Any reasonable person, even a construction professional, would not expect something to crack like that in that scenario.

He clearly didn't!

Certainly, if the benchtop supplier did this they could be accused of faulty workmanship (because they would know better), but not someone who doesn't have their level of knowledge or skill. The assessor suggested that the "insured did not have the required knowledge and skill" to complete this task with all reasonable care. Surely, if he didn't have the knowledge it can't be faulty workmanship and must be accidental. For argument’s sake, if he did have the required knowledge and skill but still did it that way, it would seem to definitely be faulty workmanship, so they can't have it both ways.

The insurer has argued that our client should have googled how to correctly lift the benchtop prior to performing this action and since they didn't seek to obtain the "required knowledge and skill" this is faulty workmanship.

In summary, is it faulty workmanship if you know something is incorrect and do it anyway? If you don't know something is incorrect and do it, then that must be accidental? Finally, can the failure to research the correct methodology be "faulty workmanship" if in a scenario such as this the action being performed may seem as minor as a small lift of a few inches?

REPLY… CROSSLEY GATES The leading New Zealand authority on the application of the words “faulty workmanship” in a policy exclusion is Tevcorp Holdings Limited v QBE [2000] NZHC 001095. The High Court held that in relation to workmanship, “faulty” is the equivalent of 'negligent'.

So was the builder negligent? The test for negligence is not a google search but rather whether the standard of care the builder exercised fell below the standard of care of a reasonably competent builder in the same situation. In order to prove this in court, an expert builder would be called to give evidence of what a reasonably competent builder would have done in the circumstances.

38

September 2020

QUESTION… We have a MVI policy that has just entered its third year, and the customer has paid in full on three invoices. My customer has realised they are insured elsewhere also since inception and requesting to stay with the other insurance company.

Am I obligated to refund 100% with the other insurer keeping 100% of their premiums, or should this be 50% of premium return?

The third-year policy has only just started so my suggested offer will be for a 50% rebate/refund on year one and two and a full refund on year three.

I would appreciate any advice.

REPLY… CROSSLEY GATES You are not personally “obliged” to refund anything. You may not have meant it that way, but assuming you had no knowledge of your client's insurance elsewhere, it is important for you to understand that as a professional adviser, you have done nothing wrong.

Through no fault of your own, your client has ended up double insured. You can, of course, approach the insurer you placed the business with, on behalf of your client, to see if they will entertain a full or partial refund. However, they may not be legally obliged to do so. Depending on the double insurance clauses in the two policies covering the same vehicle, that insurer may have remained exposed to 50% or even all of the risk, despite the second policy.

I suggest you explain the position to your client, take instructions and then approach the insurer about a refund if requested.

Ask an Expert

What’s the third-party liability?

QUESTION… An insured person was driving vehicle to a mountain in early morning. An oncoming runner caused them to pull out slightly on the road and they hit black ice – the vehicle fishtailed and went through a fence on the roadside and ended upside down.

The vehicle claim has been settled but there is an issue with the fence that was damaged. Insurer initially declined third-party claim on the grounds that black ice was an “unforeseeable event” unless there were signs or notices warning of danger.

They then made a “good faith settlement offer” to the thirdparty.

The issue is the third-party is now threatening our client saying they have to pay for the balance of damage that the insurer is not paying and are becoming very aggressive.

Insurer claims black ice is an unforeseeable event similar to a medical event so there is no legal liability on the driver.

I would have thought driving on roads in an area known to be frosty/icy would not require signs on every corner and liability for the third-party damage would rest with the driver of the vehicle. Any thoughts please?

REPLY… CROSSLEY GATES I assume the settlement offer by the insurer was accepted. Hopefully the insurer made it on a full and final basis. If so, the third-party can’t claim anything further from the insured.

Service and repair obligations QUESTION… We recently had a claim declined under service and repair due to our clients’ terms and conditions. The insurer has paid previous service and repair claims for this client and they have said the policy would respond here as well but for the terms and conditions. These haven't change in 15 years, so I believe a precedent has been set in paying the previous claims, or am I missing something?

REPLY… CROSSLEY GATES Accepting a claim under a liability policy (sparking cover for defence costs) and making a claim payment to a third party to satisfy the alleged liability are two different things.

It sounds like your client's terms and conditions contain an exclusion of liability clause that applies in the circumstances. If it is sufficiently widely worded, it will exclude all liability at law. If the underwriter has previously paid a claim to a third party in these circumstances, it may have done so in error. This does not stop it correcting that error now in relation to this claim.

You refer to the claim being declined. You may be referring to the underwriter's refusal to pay the third party. If not, the underwriter should not decline the claim (despite the defence) if the nature of the liability alleged is covered. The claim should be accepted, triggering cover for defence costs, and liability to the third party denied. Then if the third party sues, the insured has the benefit of the defence costs cover to defend it, presumably successfully.

In my experience, this is how cover under a liabilty policy is meant to work, even when the alleged liability appears to have a complete defence. Sometimes third parties sue even in the face of a complete defence. www.covernote.co.nz

39

Ask an Expert

What’s the impact of a road closure?

QUESTION…

When should policy wordings be issued?

QUESTION… Once policy wordings have been issued to a client at (or before) the inception of the policies, is there a generally accepted frequency of how often they need to be re-issued?

Is there a requirement at every renewal, even if the wording has not changed?

Or is there only a requirement if the wording changes?

Just trying to establish a "best practice" in this area so any comments would be welcomed.

REPLY… CROSSLEY GATES There is no legal requirement to forward another copy of the policy wording at, or after, each renewal.

There is a requirement to do this if the wording changes and/or point out the changes in a communication with the insured. Otherwise, giving the impression the same wording applies or even worse, forwarding the old wording is likely to be misleading or deceptive under the Fair Trading Act.

Do you have a question for our experts?

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

40

September 2020

We have a client with the following clause on their B.I. policy CLOSURE OF TRANSPORT ROUTES, PORTS OR AIRPORTS: You are insured for business interruption resulting directly from: 1. property damage, or 2. an order by a lawful authority, that results in closure of any transport route, port or airport anywhere in New Zealand. The deferment period is the first 24 hours There was a major roadworks project on the roads around their premises for 14 weeks, including six weeks of road closure on two of the three roads going to the business. The third road was down to one lane, controlled by a stop/go person. Client can show very significant reduction in turnover for the period.

Insurer has declined claim, stating that the work plan for the roadworks included a slip lane that allowed access to the client premises, and as there was still access, the road isn't closed, so there is no claim.

They have also stated that the main road was the one that wasn't closed, and that this is the transport route, not the other two roads that were closed.

We have pointed out this isn't how the policy is worded. The wording states closure of any transport route, not all transport routes, and makes no reference to whether or not prospective customers can still access the site. Transport routes are not defined under the policy wording and using standard dictionary definitions, all roads are transport routes.

Insurer is adamant that there is no claim and hasn't addressed/ responded to the points we raised.

What are your thoughts?

REPLY… CROSSLEY GATES As you say, the clause refers to business interruption resulting directly from closure of ANY transport route. It is not a prerequisite of cover that there is no access to the premises at all. So long as the downturn in trade corresponds with the closure, I would have thought the claim appears to be as strong one.

The way the world communicates is changing. discover covernote live and keep up-to-date with live news and articles from IBANZ, its members and the industry

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41

Professional

Professional Development: Professional IQ College

College

Pastoral Care in Education WHAT IS EDUCATION? ducation is the process of facilitating learning, or the acquisition of knowledge, skills, values, beliefs, and habits.

Methods can include teaching, training, storytelling, discussion, directed research and life experiences. Education frequently takes place under the guidance of educators, however learners can also educate themselves. Education can take place in formal or informal settings and any experience that has a formative effect on the way one thinks, feels, or acts may be considered educational.

STUDYING AT PROFESSIONAL IQ At Professional IQ we provide educational learning opportunities to our learners to empower them with up-to-date information and knowledge required in the Financial Services industry in New Zealand today.

WHAT IS PASTORAL CARE? Pastoral care is a service that provides help, support and guidance to students as well as providing information. From the Ministry of Education website: The general duty of pastoral care under the Code sets out requirements for providers to assist students to experience a safe, inclusive learning environment and to access the advice and assistance they need to maintain their own wellbeing.

WHAT DO WE DO? The overarching philosophy of the Student Liaison team at Professional IQ, is that our students are people, not numbers. Our goal is to help students to achieve educational aspirations by crossing the finish line to complete their programme as painlessly as possible!

We come from a holistic view recognizing that the student is a whole person – physically, mentally and emotionally. Every student is unique and at different stages in their life journey – some need a little support, others need more.

Life tends to throw us curve balls (for example Covid-19); these can impact on students, that often follow on to impact on their studies.When this happens, we listen and work together to gain an understanding to find a solution; one size does not fit all, we tailor things to suit the individual on a case-by-case basis.

Every student is assigned a Student Liaison as a key point of contact from the beginning of their journey, and that person stays with them through to the end. We are there to guide students, keep them on track, answer any queries and provide support. We are culturally sensitive and

see our work with our students as a partnership, as we are on this journey together.

Our Student Liaison team has increased in the past few months from two to four to reflect our commitment to support our students.We come from a diverse range of backgrounds and ethnicities and we are passionate about education and supporting our students and we love what we do!

Professional IQ College is offering IBANZ member company employees the opportunity to apply for the KWT Scholarship for 2020/2021. Scholarship applications will be open from 7th September, 2020 and will be awarded for the Level 5, General Insurance full programme.

Applications must be received at Professional IQ College by 9th October 2020.

If you have at least one year’s minimum work experience as a risk adviser (insurance broker), are able to take up the Scholarship within 12

months of announcement of the winner, and are a citizen or permanent resident of New Zealand, then you should consider applying.

The Scholarship covers the enrolment fee to undertake the Financial Services Industry Programme leading to the New Zealand Certificate in Financial Services Level 5.

The award will take into account your commitment to the study plan and your likely ability to complete the programme.

The successful applicant will be announced by the 23rd October 2020.

For an application form and the terms and conditions please visit the Professional IQ College website - www.professionaliq.co.nz or for further information contact Professional IQ College on +64 9 306 1731

E

42

September 2020

DATE

TITLE

PRESENTER

WHERE

TIME

COURSE DESCRIPTION

September 1

Get More Value and Better Use of Gmail & Google Calendar

Debbie MayoSmith

Webinar & Auckland

10.3011.30

Do you use Gmail or Google Calendar on your computer or Smartphone? Then don’t miss this webinar with Queen of Productivity Debbie Mayo-Smith. You will learn clever ideas on how to free-up time and build more business working with both apps.

9

Uncovering Your Core Values and Why you Need To

Lorraine Hamilton

Webinar & Auckland

10.3011.30

Values aren’t just for companies. Without knowing what it is most important to you, it can make it really difficult to make decisions.

10

Creating an elevator pitch and bio that intrigues & connects

Natalie Cutler-Welsh

Webinar & Auckland

10.3011.30

During this session we will look at the elements of an elevator pitch and bio that intrigues and connects.

15

Secret Diamonds of Google to Grow Business

Debbie MayoSmith

Webinar & Auckland

10.3011.30

If you are looking for easy ways to find new business; put website information online without I.T. knowledge; smart prospect marketing; easy forms and free business advertising – then you cannot miss this fabulous webinar showing you the Free and Easy – FREASY Secret Diamonds of Google.

16

Reading and using body language in business

Kieran T. Bird

Webinar & Auckland

10.3011.30

This webinar takes a light-hearted yet potent look at the basics of reading body language, and deception in particular, as well as using it to increase your authority with others.

17

Turning prospects Into Clients and Building a Great Clientele

Clifton Warren

Webinar & Auckland

10.3011.30

A qualified prospect will become a client if they trust you and like you and believe you will do a better than their current advisor.

22

Health - Interpreting Contract Terms

Karen Stevens

Webinar & Auckland

11.0012.00

Insurance & Financial Services Ombudsman, Karen Stevens, will take you through several health insurance complaints and explain how the IFSO Scheme interprets policy wording.

23

How to have the best brain health

Shelley Gawith

Webinar & Auckland

10.3011.30

Our brains are our most important tools when it comes to our jobs. Do you notice at times you loose focus and concentration? Or do you just want your brain to work faster, to retain information better, to have better focus at work? Corporate clients can't believe the difference in their productivity.

24

Business Interruption – Claim example – and how well would your client’s cover have performed?

Mark Anderson

Webinar & Auckland

10.3011.30

We will discuss a Business Interruption calculation of loss as a worked example.

October 1

Oh no! I have a complaint.

Trevor Slater

Webinar & Auckland

10.3011.30

In this webinar Trevor will describe how to deal with a complaint to increase chances of an early resolution, how to use complaints to better your business and what research tells us about handling high-need clients.

6

Asking the Right Questions

Lorraine Hamilton

Webinar & Auckland

10.3011.30

Have you ever really thought about the power of questions? What about the types of questions there are, when to use them and why? How do you feel when you ask a question? How do other people feel when you ask them questions?

7

Goal setting & Goal getting

Natalie Cutler-Welsh

Webinar & Auckland

10.3011.30

During this session Natalie will share a template used for creating goals and mapping out a plan to achieve them regardless of what opportunities or challenges come your way.

8

Take Control – Learn How Easy It is To Create/Maintain Your Own Company Website

Debbie MayoSmith

Webinar & Auckland

10.3011.30

Having even a simple, well designed website can give you an edge and help ensure you are discoverable on the web by search engines such as Google

13

Expanding Client Relationships

Clifton Warren

Webinar & Auckland

10.3011.30

During this webinar you will learn how to always work towards 100% wallet share of your desired clients to dramatically grow your business.

14

Negotiate with Confidence

Kieran T. Bird

Webinar & Auckland

10.3011.30

More details to come.

15

Fair Insurance Code webinar

Karen Stevens

Webinar & Auckland

11.0012.00

There is a new Fair Insurance Code – released by the ICNZ on 1 April 2020. It replaces the 2016 Code, so what’s changed?

22

Business Interruption – Insurance of Wages

Mark Anderson

Webinar & Auckland

10.3011.30

Different ways to insure wages (including Dual Wages) – and what is best for your clients?

28

How to improve your memory and focus

Shelley Gawith

Webinar & Auckland

10.3011.30

The biggest increase in health conditions are seen in brain conditions. We are seeing more people world wide being diagnosed with dementia and Alzheimer's. It's too late to change this once you have diagnosed but we can make sure you never get diagnosed with it. Want to be able to do your job better and in a shorter amount of time.

29

Creative marketing Post Covid: How To Improve Profits.

Promotion. Productivity

Debbie MayoSmith

Webinar & Auckland

10.3011.30

Quick ideas and tweaks to help you improve your sales and marketing in a period of economic downturn. Use clever, resourceful and free strategies.

November 3

The Art of Masterful Coaching

Lorraine Hamilton

Webinar & Auckland

10.3011.30

In this insightful session Leadership Coach and CEO of Coach School Lorraine Hamilton PCC introduces three core coaching concepts that you can apply in your relationships at work and home straight away.

5

Online Security – How To Protect Yourself & Your Business

Debbie MayoSmith

Webinar & Auckland

10.3011.30

A cyber-attack costs a company $200,000 on average with 42% of attacks are aimed at small businesses. Unfortunately, small businesses are particularly susceptible to hacks and breaches, simply because they are small and often unprepared.

11

Owning and Dominating Your Niche Markets

Clifton Warren

Webinar & Auckland

10.3011.30

During this webinar you will learn how to identify the markets you want to focus on and develop a well-thought-out niche marketing action plan to obtain referrals and appointments with prospects.

17

Risk - Income Protection Claims

Karen Stevens

Webinar & Auckland

11.0012.00

Insurance & Financial Services Ombudsman, Karen Stevens, will take you through several Income Protection (“IP”) insurance complaints and explain the IFSO Scheme’s approach.

18

Sleep

Shelley Gawith

Webinar & Auckland

10.3011.30

No one wants to learn about sleep, I know!! You might be rolling your eyes about this topic, because what more is there to know. Sleep is the key to your hormone health and also weight loss. There is so much to know about your sleep.

26

Effective Communication More Memorable & Persuasive

Debbie MayoSmith

Webinar & Auckland

10.3011.30

Essential secrets for connecting and applying it to conversations, written (proposals, emails, reports) and presented communications.

43

Contacts: IBANZ Corporate Company List PIQ BOARD

IBANZ BOARD Roger Abel (Vice President) Rothbury Group Limited PO Box 1596 Shortland Street Auckland 1140 Mob: 021 952 230 roger.abel@rothbury.co.nz Tony Bridgman (President) Executive Director Marsh Ltd PO Box 2221 Auckland 1140 Tel: 09 928 3015 Mob: 021 873 399 tony.j.bridgman@marsh.com Craig Buckle National Manager, Corporate Risk Solutions Willis New Zealand Ltd PO Box 369 Auckland 1140 Tel: 09 356 9347 Fax: 03 358 3343 craig.buckle@ willistowerswatson.com David Crawford Director NZ Insurance Advisernet NZ Ltd PO Box 37670 Market Road Auckland 1151 Tel: 09 926 2062 Mob: 021 905 537 dcrawford@ianz.co.nz

Allan Daly Managing Director Avon Insurance Brokers PO Box 3923 Christchurch Mail Centre Christchurch 8140 Tel: 03 3710301 Mob: 0275 358128 allan@avoninsurance.co.nzz Duane Duggan (Immediate Past President) Head of Insurance Legal Crombie Lockwood (NZ) Ltd PO Box 91747 Victoria Street West Auckland Tel: 09 3574805 Mob: 021 833 286 duane.duggan@ crombielockwood.co.nz Ramesh Mavani (Secondment) Manager Insurance People (Fire & General) Limited PO Box 47218 Ponsonby Auckland 1144 Tel: 09 360 5616 Mob: 021 078 3465 ramesh.mavani@ insurancepeople.co.nz Jo Mason (Vice President) Chief Executive Officer NZ Brokers Management Ltd

PO Box 334012 Sunnynook North Shore City Auckland 0743 Tel: 09 869 2785 jom@nzbrokers.co.nz Angus McCullough General Manager Marketing & Chief Officer Aon New Zealand PO Box 1184 Shortland Street Auckland 1140 Tel: 09 3629059 angus.mccullough@aon.com William O’Brien Manager Montage General Insurance PO Box 8307 Symonds Street Auckland 1150 Tel: 09 373 0700 Mob: 021 737572 william@mont.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

STAFF

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 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 Auckland Mob: 027 543 0650 gary@ibanz.co.nz

IBANZ

Mel Gorham Chief Executive IBANZ DDI: 09 306 1734 Mob: 021 0852 5568 mel@ibanz.co.nz

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

Robyn Gosden Finance & Office Manager DDI: 09 306 1733 Mob: 027 275 2477 robyn@ibanz.co.nz

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

Lisa Herbison Student Liaison DDI: 09 600 5712 lisa@professionaliq.co.nz

Marianne Taljaard Student Liaison Manager DDI: 09 306 1731 marianne@professionaliq.co.nz June Wang Student Liaison DDI: 09 306 1735 june@professionaliq.co.nz

Physical address: Unit 4D, 2B William Pickering Drive, Rosedale, Auckland 0632 Mailing address: PO Box 302504, North Harbour, Auckland 0751 Toll free: 0800 306 173 Website: www.ibanz.co.nz

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

September 2020

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...

Contact Robert Johnson on: e-Mail: robert@benefitz.co.nz Phone: 09-477 4702 Mobile: 0274-970-712 44

September 2020

CoFi heralds

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, Auckland.

a new era for

After Covid, wh

at next?

www.ibanz.co.nz

visit www.cov ernote.co and keep up-t o-date with .nz news and artic live les from IBANZ it's members , and the indus try.

insurers

Contacts: IBANZ Corporate Company List IBANZ CORPORATE COMPANY LIST Abbott Group

Christchurch

Insurance Design Limited

Warkworth

Adams Trimmer Insurance 1992 Ltd

Whangarei

Insurance People (Fire & General) Limited

Auckland

Advance Insurance Services Ltd

Paeroa

JRI Limited

New Plymouth

Affiliated Insurance Brokers Ltd

Wellington

Luxor Insurance Brokers Ltd

Auckland

AIB Group Insurance Ltd

Lower Hutt

Malcolm Flowers Insurances Ltd

Taupo

AIM Associates Ltd

Auckland

Marsh Ltd

Auckland

Albany Insurance Services Ltd

Albany Village

Matt Jensen Insurance Brokers Ltd

Taupo

Amicus Brokers Ltd

Christchurch

McDonald Everest Insurance Brokers Ltd

New Plymouth

Andrew Scragg & Associates

Manukau

Montage General Insurance Ltd

Auckland

Aon New Zealand

Auckland

Multisure Ltd

Auckland

Apex General Ltd

Auckland

Moneybox GI Limited

Wellington

Atlas Insurance Brokers Ltd

Christchurch

JJV Holdings Ltd

Auckland

Austinsure Ltd

North Shore City

National Credit Insurance (Brokers) NZ Ltd

Auckland

Avon Insurance Brokers

Christchurch

Nelson Marlborough Insurance Brokers Ltd (NIB)

Nelson

Baileys Insurance Brokers Ltd

Auckland

Neville Newcomb Insurance Brokers Ltd

Auckland

Bay Insurance Brokers Ltd

Tauranga

Northco Insurance Brokers Ltd

Masterton

Bridges Insurance Services Limited

Hamilton

Northcrest Insurance Brokers Ltd

Auckland

Broker Direct Services Ltd

Christchurch

O'Connor Warren Insurance Brokers

Tauranga

BrokerWeb Risk Services Limited

Auckland

OFS Insurance Brokers Ltd

Dunedin

Builtin New Zealand Ltd

Tauranga

Omni Fire & General Ltd

Auckland

Cambridge Insurance Brokers Ltd

Cambridge

Paramount Insurance Agencies Ltd

Auckland

Capital Risk Solutions Limited

Wellington

Partridge Advisory Limited

Auckland

Card Marketing International Ltd

Wellington

Paterson & Co NZ Ltd

Auckland

Cartwrights Ltd

Ashburton

Penberthy Insurance Ltd

Auckland

Builtin Insurance Brokers Limited

Tauranga

Peter C Cranshaw Insurance Broker Ltd

Levin

Certus Insurance Brokers NZ Ltd

Auckland

PIC Insurance Brokers Ltd

Manukau

Coast Insurance

Whangaparaoa

Primesure Brokers Ltd

Auckland

Coastal Insurance Brokers Ltd

Papamoa

Property and Commercial Insurance Brokers

Feilding

Commercial & Rural Insurance Brokers Ltd

Alexandra

Protekt Insurance Brokers 2008 Ltd

Auckland

Crombie Lockwood (NZ) Ltd

Auckland

Provincial Insurance Brokers Limited

Masterton

Dawson Insurance Brokers (Rotorua) Ltd

Rotorua

PSC Connect NZ Limited

Auckland

Edward Ruys & Co Ltd

Hamilton

River City Insurance Brokers 2000 Ltd

Wanganui

Emerre & Hathaway Insurances Limited

Gisborne

RMA General Ltd

Warkworth

Frank Risk Management

Cambridge

Rothbury Group Ltd

Auckland

FundAGroup Insurance Brokers Limited

Auckland

Runacres Insurance Ltd

Christchurch

Grayson & Associates Ltd

Auckland

Seneca Insurance Brokers Ltd

Auckland

Gregan & Company Ltd

Papakura

Sit & Blake Limited

Auckland

GSI Insurance Brokers

Waitakere

South Pacific Insurance Brokers Ltd

Auckland

GYB Insurance Brokers Ltd

Lower Hutt

Sweeney Townsend & Associates Ltd

Rotorua

Hazlett Insurance Brokers Ltd

Christchurch

Thames Valley Insurance Ltd

Thames

Honan Insurance Group (NZ) Ltd

Auckland

The Advisers 1 Limited

New Plymouth

Hood Insurance Brokers NZ Ltd

Auckland

Thorner General Insurances Ltd

Upper Hutt

Hurford Parker Insurance Brokers Ltd

Hastings

Towes Insurance Brokers Ltd

Te Aroha

Hutchison Rodway Ltd

Auckland

Trevor Strong Ins Ltd

Auckland

ICIB Limited

Auckland

Vercoe Insurance Brokers Ltd

Morrinsville

ILG Insurance Brokers

North Shore City

Vision Insurance (S.I.) Ltd

Ashburton

Ingerson Insurances Ltd

Wellington

Wallace McLean Ltd

Auckland

Insurance Advisernet NZ Ltd

Auckland

Wanganui Insurance Brokers Ltd

Wanganui

Insurance Brokers Alliance Ltd

Invercargill

Willis Towers Watson

Auckland

www.covernote.co.nz

45

The world may have changed.

Our appetite hasn’t.

While the world is still working out how to operate in this post Covid-19 environment, our passion for helping NZ business hasn’t changed. And being New Zealand’s only locally based specialist liability insurer means we are Kiwi at our core. We understand how Kiwi’s operate, and we have the ability to make quick decisions in the best interests of New Zealand businesses. You can count on us to be ready to help.

Because for VL, it’s business as usual.

veroliability.co.nz

New Zealand’s leading liability insurer