CoverNote June 2021 issue by Benefitz

June 2021

FSLAA so far: how has the industry changed?

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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.

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New Zealand’s leading liability insurer

Welcome

Welcome to the winter edition W

hether as a client or working within the insurance industry, many of you will now have seen or felt some impact from the new financial advice regime (FSLAA). It is nearly three months since it was introduced, and reactions to the changes are included in this edition of CoverNote.

There has been a significant commitment from Financial Advice Providers and their teams to understand the new legislation, their obligations and make any necessary changes. The regime is expected to improve transparency and clients’ understanding of the financial advice they receive, provide clarity on duties owed, and raise professionalism standards among those who give regulated financial advice. After a significant hiatus, the Department of Internal Affairs (DIA) has recently announced the outcome of the Fire and Emergency New Zealand (FENZ) funding review. Numbers published by FENZ in November 2020 showed the broad benefit it provides. Of the 83,359 total incidents attended only 28% were attributed to actual fires. Despite this, DIA confirmed that payment of FENZ Levies ($595M of $626M or 95% of total revenue) will remain solely with those who purchase insurance. Currently only those who insure property against the risk of fire pay the levy, this may be extended. The DIA has ruled out a fairer approach that would spread funding across all who stand to benefit from the significant good FENZ delivers. In view of what the DIA refers to as “inherent drawbacks in using an insurancebased funding model”, they advise they will engage with stakeholders “to ensure Fire and Emergency is funded in a way that is as fair as possible”. The government's appetite for consultation seems almost limitless. Since our last edition, we have submitted on two consultation papers and are currently working on numbers three and four. Insurers fulfil a key role within our country. Our

submission on the Insurance Prudential Supervision Act 2010 noted that the risk of insurer failure must be balanced with suitable supervision. Ongoing stability depends on delivering a workable compliance regime that does not deter well operated insurers from providing capacity in New Zealand. Our submission on the Approved Disputes Resolution Scheme Rules accepted the argument that an increase in the maximum cap. allowing for inflation, was warranted. We stressed the need for the schemes to publish draft findings for all parties to review and comment on prior to final decisions being made and supported complainants being able to bring a matter to schemes within six years of (reasonably) becoming aware of them. As I write, we are in the midst of reviewing the two Conduct of Financial Institutions Bill discussion documents, due in June. This Bill will have a significant impact on the conduct of banks and insurers towards consumers. It also contains aspects which could heavily impact intermediaries. With the spotlight on protecting consumers, key areas of our focus include;

• the government trusting the integrity of its recently introduced financial advice regime by removing conduct and oversight requirements on FSLAA regulated intermediaries,

• balancing perceived issues, regulation, and outcomes to avoid uncertainty and unfair burden,

• ensuring that the powers regarding commission are true to the intention, which is to ban incentives based on value or volume targets, and

• adequately capturing EQC and its conduct, particularly during claims. Not to do so would be a glaring omission given the well documented, poor consumer outcomes that have occurred.

It seems this year is destined to flash by in a sea of change. Stay safe.

Melanie Gorham CEO, IBANZ

CoverNote is the official publication of IBANZ and is distributed FREE on a quarterly basis (March, June, September, December) to members throughout New Zealand and associated companies. Additional copies are available at a cost of $7.50 per copy, or 12 month (4 issue) subscriptions at $30.00, inclusive of postage and packaging. The articles or opinions featured within this magazine are not necessarily the opinions of the publishers or IBANZ, and they do not accept responsibility for the content of articles featured within the publication. No part of this publication may be reproduced without the written permission of the publisher. The publishers do not accept responsibility for loss or damage to unsolicited photographs or manuscripts. IBANZ enquiries should be made to: 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. Website: www.ibanz.co.nz

Advertising/Editorial: Robert Johnson, Benefitz Telephone 09 477 4702, Mobile 027 4970 712, Email: robert@benefitz.co.nz Design/Production: Craig Burkett, Benefitz Imaging: CTP by Benefitz Produced for IBANZ by: Benefitz, 5-11 Parkway Drive, Mairangi Bay, Auckland 0632. PO Box 33-1630 Takapuna. Telephone 09 477 4700, Fax 09 477 4799 Advertising Deadlines: Bookings 10th of the month prior to publication, material 15th of the month prior to publication.

Features 3. Cyber losses - which insurance policy applies? 14. Changes to class actions and litigation funding: Good news for insurers? 16. Why take the chance, why not just do it? 18. Managing bushfires in New Zealand 24. Time for employers to consider mental health 30. Brokerslink appoints regional managers 30. RBNZ creates insurance enforcement department 31. Delta Insurance eyes global growth 31. PSC taps Allianz for chief executive 32. ICNZ criticises FENZ funding review

Profile 10. Delta Q&A with Dinesh Murali

Opinion 26. Update on the remedies for fraudulent claims in NZ

6. COVER STORY FSLAA so far: how has the industry changed?

Regulars 41. Professional Development: Professional IQ 20. Humans of NZI College 38. Ask an Expert 44. IBANZ Contacts 1. Welcome to CoverNote

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FSLAA so the indu far: how has stry chan ged? www.iban z.co.nz

Feature

Cyber losses - which insurance policy applies? Andrew Horne and Nick Frith, Minter Ellison Rudd Watts

n Christmas Day last year, the Reserve Bank of New Zealand suffered a cyber attack. The attack involved a malicious actor gaining access to a third party file sharing application named Accellion FTA, which the Reserve Bank used to store and share clients’ sensitive information. That person downloaded information from the application, some of which was personal and sensitive, such as personal email addresses, dates of birth and credit information. The Reserve Bank responded to the breach by patching and securing the application, identifying the organisations and individuals affected and offering them advice and support from a third party specialist. The Reserve Bank also appointed KPMG to conduct a review of its systems and processes. The attack itself was fairly typical of ‘data breach’ incidents in which a malicious third party gains

access to confidential data held on a firm’s systems. A victim of such an attack may suffer loss and damage in a number of ways. The Reserve Bank, for instance, will have incurred the costs of dealing with the attack and the investigation that followed. It may have incurred liabilities to persons who suffered loss as a result of their information being stolen. A commercial firm in its position might also suffer a loss of profits as the data loss hampers its ability to conduct business and its reputation is damaged. It might also become subject to regulatory action and incur defence costs and fines or penalties. Insurance policies

Insurance policies deal with the different types of loss that may arise from a cyber event, whether malicious or otherwise, in complex and diverse ways. Different policies may respond to different types of loss arising from the same event. Some types of loss may fall through

the cracks and not be covered by any policy, and others may be expressly excluded. In some circumstances, there may be double insurance as more than one policy provides cover, in which case terms providing for double insurance may limit cover. What does Cyber insurance cover?

Policies described as providing Cyber insurance may not provide cover as broad as their name might suggest, as they do not ordinarily provide cover for all forms of loss resulting from a cyber event. Typically, Cyber policies will provide cover for internal and external costs that a firm or organisation is obliged to incur to deal with a cyber event. These will often include:

• the cost of expert help to manage, cure and investigate the event and its consequences to understand what happened, what data is www.covernote.co.nz

Feature

affected, and what remediation action is necessary

• the cost of urgent legal support to understand and comply with legal obligations arising out of the event, such as notifying regulators, notifying persons whose data has been compromised, and dealing with claims and complaints • public relations costs • data restoration from backups • ransom or extortion costs

Cyber policies may also include cover for the following costs and liabilities:

• liabilities and losses resulting from computer crime, such as misdirected payments – this cover is often expensive and sub-limited (i.e. with a lower cover limit than the main policy limit)

• business interruption losses and expenses resulting from system downtime caused by the event, response, and investigation • defence costs, penalties, and fines resulting from the event and any consequential regulatory breaches

• contractual penalties imposed by credit card issuers • digital media claims, such as

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• losses from natural disasters

claims arising from defamation, misuse of intellectual property

However, some Cyber policies do not include cover for the following:

• losses, whether of the insured’s own funds or those of a third party, resulting from a misdirected payment – such as where the insured is tricked by a forged email into transferring funds to a fraudster’s account (cover is sometimes available for this loss by way of an endorsement but it is usually expensive and sub-limited, as insurers are aware that losses of this nature are common and are often expensive)

• damage to the insured’s own computer system from normal material damage risks such as fire, flood etc – unless included in a policy endorsement

• loss caused by a person who was authorised to access the system – an important limitation

• benefits, such as future discounts, provided to the insured’s customers to apologise for the event and provide limited compensation

• losses resulting from a system failure that is not caused by a third party

• fines and penalties that do not result from a breach of data protection laws

What other policies may provide relevant cover? Professional Indemnity insurance

Professional services firms and some other service providing entities will normally hold Professional Indemnity insurance to cover them for liabilities they incur from breaches of their professional duties. These policies may provide cover for liabilities arising from a cyber event if the event constitutes a breach of a professional duty. The following are examples of breaches that may result from a negligent failure to keep a cyber system properly protected or otherwise breach a professional duty:

• breach of confidence, such as when sensitive client information is disclosed or published, resulting in losses to clients

• conduct by the firm’s employees using social media or another cyber platform, such as breach of confidence or brand damage

• misdirected funds, such as when a professional service

employees who steal client data

• theft by employees who access the firm’s systems to learn of transactions and use forged emails to arrange fraudulent bank transfers or otherwise steal the firm’s or its customers’ assets (often excluded or sub-limited)

• intentional damage to the firm’s or its customers’ data

• ransom demands relating to the firm’s or its customers’ data

Statutory Liability insurance

provider actions a payment request from a fraudster who has gained access to the professional service provider’s email system (this type of loss is increasingly excluded from cover or limited) • loss of important client data

• breach of privacy from a cyber event (which may be from a policy extension) • liabilities resulting from breach of intellectual property rights caused by a cyber event (which may be from a policy extension)

• transmission of a virus or other malicious code resulting from a cyber event

This cover is often important because Professional Indemnity policies typically have higher coverage limits than specialist Cyber policies or other forms of insurance. Fidelity and Crime insurance

Some firms and organisations have specialist Fidelity and/or Crime cover which offer protection from costs and liabilities arising from criminal actions by employees or third parties respectively. This may include cover for the following cyber-related losses: • criminal cyber breaches by

Many firms and organisations hold insurance against fines and penalties imposed as a result of criminal or regulatory breaches, including breaches that result from cyber events. These may include: • fines imposed for privacy breaches

• fines or penalties under applicable industry regulatory schemes, such as financial services regulation, resulting from a failure to deliver regulated services or a breach of client confidentiality • defence costs for the above

Directors and Officers insurance

It is possible to imagine circumstances in which a cyber event results in a claim against a company’s directors for breach of their duties to the company. Such a claim could be made, for instance, where the directors had not paid sufficient heed to the risk of loss arising from a cyber event and allowed it to occur, resulting in loss – possibly catastrophic – to the company and its shareholders. What important exclusions exist? Many insurance policy suites do not provide cover for important cyber-related risks. These include the following:

• Some policies do not cover losses from broad cyber attacks that do not target a specific firm or organisation or its cyber systems provider, such as a broad attack upon commonly used applications

or software • Some policies do not cover the insured firm or organisation’s own lost revenue or profits, although they may offer this as an optional extension

• Many policies exclude cover for losses arising from misdirected payments arranged through cyber fraud, or provide only very limited cover What are some examples?

A fraudster obtains access to a firm’s email system through a ‘phishing’ email to which an employee unwittingly falls victim. The fraudster learns that a major transaction is about to take place and uses the employee’s emails or a similar email address to arrange for the payment of client funds to be made to the fraudster’s account. The following policies may provide some cover (subject to exclusions, which are increasingly common for this type of fraud): Cyber, Professional Indemnity, Crime.

A cyber criminal ‘hacks’ into a poorly defended system and obtains access to sensitive client data which is then published on the ‘dark web’. The data includes sensitive client information that results in clients suffering financial loss and personal information that embarrasses individuals. The following policies may provide cover: Cyber, Professional Indemnity, Crime, Statutory Liability. What do we recommend?

Organisations should consider, with their insurance brokers or legal advisers, how their policy suites will respond to cyber risks and whether there are any material gaps in cover. It may be helpful to consider some of the examples outlined above and assess whether they would be covered, which policies may provide the most appropriate cover and whether any exclusions or sub-limits on cover may apply. Extensions to cover may then be sought where appropriate. www.covernote.co.nz

Cover Story

FSLAA so far: how has the industry changed? More than two months into the new regulatory regime, how have brokers coped with the seismic changes? By Angela Cuming

he Financial Services Legislation Amendment Act 2019 (FSLAA) came into effect on 15 March, marking a major change for insurance brokers and the wider financial advice sector. The changes were designed to improve financial advice across New Zealand by making it easier for customers to understand and access. Under the new regime, brokers providing advice to retail clients will need to hold a Financial Advice Provider (FAP) license, or be an authorised body under another FAP license. It's a reasonably significant change for the industry. Nick Summerfield, financial services partner for Anthony Harper, says there have been “a few small teething issues” with the new regime. “For example, some advisers not being properly linked to a FAP on the FSP register,” he says, “and despite really clear messaging from FMA, the Financial Services Council, and others I think there is still a degree of confusion in some quarters about the competency safe harbour. “However, my sense is the vast majority of the industry has really embraced the change and is well prepared to move forward,” Summerfield says.

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“I have seen some really neat examples of FAPs (and advisers) taking advantage of the flexibility of the new disclosure rules to improve how they communicate with clients.” A Financial Advice Provider (FAP) must: • Meet the new standards of competence, knowledge and skill included in the Code of Professional Conduct for Financial Advice Services; and

• Meet the duty to ensure the client understands the nature and scope of the advice at all times; and

• Give priority to the client’s interests where there’s a conflict of interest by ensuring the financial advice is not materially influenced; and

• Exercise care, diligence, and skill of a prudent financial adviser at all times; and

• Comply with the new regulations regarding the disclosure requirements and the duty to ensure those disclosures are not misleading, deceptive or incomplete. Under the new regime all FAPs should hold a transitional licence and be able to create and maintain

records and have an internal complaints procedure. By now, all FAPs should have updated disclosure documents to include all the necessary information required by the FSLAA, and it is a requirement for the FAP’s website to include the Financial Advice Provider Disclosures. All FAPs can now apply for a full licence under the regime and all licence holders will be required to hold a full licence in two-year’s time to be able to continue to provide financial advice or engage others to give regulated financial advice on their behalf. For Crombie Lockwood, the

new regime has been a welcome evolution for the broker, says chief broking officer Mark Jones. “The changes are designed to raise the performance and the professionalism of the insurance sector, and that’s not a bad thing,” says Jones. “It’s no secret the insurance industry has struggled with consumer trust and a general degree of scepticism and we are optimistic the new legislation will help by increasing transparency and delivering greater reassurance to clients.” Jones acknowledges there was some initial hesitancy around what www.covernote.co.nz

Cover Story

FSLAA would mean for the business but says concerns were quickly alleviated and the benefits soon realised. “We’ve long been advocates for a ‘client-first’ experience because we believe high standards of conduct are part of doing good business,” he says. “Strong processes, accountability and heightened competency are fundamental to success and that’s what underpins this new regime.” While implementing new ways of working requires extra effort and there’s going to be greater scrutiny, says Jones, the reassurance and confidence the new approach gives to clients outweighs any of those challenges. By now FAPs will have implemented the changes required by the FSLAA, and it appears to be business as usual under the new regime. “The new financial advice regime has changed the profile of our regulatory obligations but hasn’t changed our commitment to our clients,” says Rodney Knight general manager - risk & compliance at Rothbury Insurance Brokers. “We first considered how our existing business operations support the principles and requirements set out in the Code of Professional Conduct for Financial Advice Service,” says Knight. “This helps everyone understand why particular activities are important and how they are linked to providing a high level of service and it also gives our team assurance that they are meeting all of their new obligations as part of ‘business as usual’.” By documenting these links, says Knight, the company can demonstrate how we meet the aims of the Code in practice. “To ensure we comply with the new disclosure regulations, we changed some key communication templates to incorporate information in the way the 8

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regulations require,” says Knight.

what we focus attention on.”

“We also published our terms of business on our website to increase transparency for clients and introduced ‘behind the scenes’ activities to achieve consistency wherever appropriate, while continuing to tailor our advice service to individual client needs.”

The switch to the new regime was “far from painful” for insurer Pinnacle Life, says spokeswoman Jane Barron.

The greatest concern our brokers have expressed is that changes in process and communications

“We had a plan, we stuck to it… (and) the change gave us the impetus to examine our operations

“We were well aware of the requirements of the new regime, having obtained our transitional license in early 2020,” she says.

The changes are designed to raise the performance and the professionalism of the insurance sector, and that’s not a bad thing.

to meet regulatory requirements might impact how quickly we can respond to clients, says Knight. “Any significant regulatory change can be expected to affect the time things take to get done,” he says, “and sometimes our people need to take extra time to help busy clients understand the new disclosure information or find the insurance package details they are looking for in the new format”. “Our team takes pride in their ability to respond quickly and professionally to meet client needs so this was the most important thing on their minds”. As Rothbury Insurance Brokers settles into the new regime, the company is very focused on ways to improve and speed up our processes, says Knight, while continuing to meet the compliance requirements. “We are listening to clients and using their feedback to prioritise

and make changes where required to ensure we continue to deliver good customer outcomes.” Summerfield is cautiously optimistic about how the new regime will play out long term. “In terms of future challenges, there are two I would call out,” he says. “The first is full licensing, although anecdotal feedback I've seen from the few people who have already obtained their full licence is that it's not as difficult as they expected. “The second is the pending conduct regime. That won't directly affect advisers but could have a significant indirect impact as insurers they deal with implement fair conduct programmes. “It's too soon to quantify the exact impact as MBIE is currently consulting on changes to the Bill which would alter the efforts FAPs need to go to in overseeing advisers.”

COVER STORY Cover Story Cover Story

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Profile

Dinesh Murali Dinesh Murali is the chief executive and managing director of Kiwi underwriter Delta Insurance NZ. Covernote spoke to Dinesh about his career so far, his views on the broker channel, and expectations for the market in H2.

Tell us about your career so far and how long you’ve been in the insurance market? I’ve been in the insurance business – wholly in New Zealand - for around 15 years. I actually got into the game by accident: I was keen for a career in the financial area as a fund manager or something similar but couldn’t get a start and ended up working as an underwriting assistant. When I first applied for the job, I didn’t really know what underwriting was, but I loved the whole concept of it once I got into it and it’s been a great journey since. I find the industry really vibrant, challenging and rewarding, and the people involved – colleagues, partners, and clients – make it a pleasure to come to work each day. It’s a huge honour too, to now be at the helm of Delta’s NZ operations. What are the main challenges in the NZ insurance sector in 2021? Unquestionably, COVID-19 has recoloured the global insurance industry and society in general and NZ is no different. The regulatory changes in March this year have also challenged the industry to work harder to get the best outcomes for our customers and refine the system to be more transparent, reliable, and strong – which is a great thing. COVID-19 did see some international insurers pulling out of some sectors of the

NZ market and rates hardening as capacity shrank, particularly in some financial lines products such as D&O and professional indemnity, but it also challenged the industry to respond to the risks raised, including the alarming jump in cyber-risks and claims. We definitely haven’t seen the end of surprises from COVID-19. There are potentially other risks, apparently, longer term around political instability and conflict emerging from the mayhem it has caused, consequential commercial disruption, disruption to supply chains, and increased risk of reputational damage. I think there will also be an expectation that the insurance sector will provide solutions for other emerging risks such as severe droughts, which will be a challenge, but we can expect to see parametric solutions to these risks becoming more common. What we’re seeing from our capacity partners and Lloyd’s is a major focus on accumulation and a greater understanding of the impact of a major catastrophic event such as a massive cyberbreach leading to some sort of global outage. What are you seeing in the D&O market right now? There are definitely still challenges around capacity for D&O cover and rates have hardened, with an air of uncertainty around how the next few months will pan out as COVID-19 third wave seems to be rearing its head again in Europe and to a devastating degree in India, with significant impacts on the travel and tourism sector. I

see D&O challenges for publicly listed companies, especially if they are dual-listed and on the ASX. We can expect to see more scrutiny on D&O being offered for companies involved or investing in unsustainable practices, nonrenewables and other areas that affect the environment and climate change in general. Concerns around cyber-security risk and Environmental Social Governance (ESG) will also feature, with a lot of scrutiny on company boards “doing the right thing” - something that resonates with me and is core to our values at Delta. In essence compliance and governance can’t just be a tick-box exercise any more. How is Covid impacting your various business lines? As noted, COVID-19 definitely had an impact on our D&O portfolio and the impact will be ongoing. It’s also affected the employment practices and employment disputes space with a lot of restructuring resulting from economic downturn in 2020. In that environment, it’s important again that companies going through restructuring and redundancies create the right process and manage the issues up-front rather than simply fall back on insurance – ensuring the right risk management is in place. COVID-19 definitely led to an increase in cyber-insurance claims – our Singapore office saw a five-fold jump in cyber-claims in the last 12 months - and we believe the COVID crisis will also lead to new opportunities and product innovation.

How have commercial clients adapted to the pandemic and have you noticed any new trends? With the arrival of COVID-19, business continuity planning (BCP) proved to be more vital than ever, and we saw an increase in development of business continuity and contingency plans, but not as widely as we’d like. Generally, NZ businesses have been nimble and resilient and have changed the way they operate, quickly adopting new ways to keep operating - especially with the help of technology. This has opened a massive opportunity for the tech sector, and we have seen a spur of activities including mergers and acquisitions and increased investment in that space which is one of the core sectors we operate in. Working from home is the most notable trend, and while this proved a vital BCP methodology it does create a whole new risk for businesses with questions around work-life balance, related stress issues and more importantly keep the business’s culture intact. I believe this is going to be the biggest challenge for businesses in adapting to a working-from-home culture. Are you withdrawing from, or expanding, certain lines this year? We certainly won’t be withdrawing any products – our portfolio still stacks up for our clients’ needs and the times - and we’ve always had a long-term focus. And we definitely have plans to explore some new product lines arising from the business environment now and as we see www.covernote.co.nz

Profile

it developing in the next 12-18 months and beyond, as the risks facing businesses become more intangible. We are also in the process of launching a insurance response to pandemics and diseases, but with the exception of COVID. What drove the 25% growth in NZ last year? A combination of more demand and higher premium rates as the capacity shrank and rates hardened. I think we also benefited from being highly involved in sectors that went well despite the pandemic, such as manufacturing and technology, but more notably cyber issues also contributed: our cyber book grew 40% overall last year. You’re expanding your suite of cyber-insurance products. How big a threat is this to NZ companies and individuals? Cyber-insurance was a bit of a “nice-to” a couple of years ago, but COVID-19 changed things dramatically. There was so much more business and personal vulnerability with the rigours of lockdown and working from home and cyber-criminals ramped up their attacks massively. We might be geographically distant and

spared the worst of COVID-19 in health terms but that makes no difference to cyber-attacks. Our cyber-insurance products have been very popular –challenge is the risks are evolving so quickly so we’re having to constantly review and reword our policies and keep up to speed. How important is the broker channel to your business and the wider NZ insurance market? Our broker community is vital to having a strong supportive insurance industry in NZ, even more so with the new regulations that are coming in. We see our broker network as a critical part of the insurance chain, providing crucial advice and the important human touch and point of trust with clients. We have one of the more diverse risk environments in the world – with earthquakes, floods, and increasing cyber-risks – and our brokers understand the needs of Kiwis well. They are a highly professional arm of the insurance business and we see them taking a greater role in risk management, adding value though holistic risk management solutions. What are the main opportunities for the broker market this year? The regulatory changes are

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seen by some as a bit of a roadblock but we see them as a huge opportunity to add value and make the customer even more central to the risk conversation. Brokers and risk advisers who believe in this will see this as a great opportunity. What is Delta excited for in the year ahead? We are definitely excited by the scope out there for innovation, Embrace Change is Delta’s mantra – indeed our version vision is to embrace change to make the world a safer place. That’s about new products and we have a few in development, but it’s also about risk management approaches. We’re also excited about developments we have underway to focus more on our Environmental, Social and Governance (ESG) responsibilities to society. The core of that for us is “doing the right thing”, which is a rigorous taskmaster but absolutely our given. We’re excited too about the opportunities to work with our brokers to bring customers more to the centre of our focus and enhance the risk management we’re jointly doing. And we’re very excited about the opportunities out there for Delta to grow internationally, stemming from the success we’ve had in Asia and beyond.

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Feature

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Feature

Changes to class actions and litigation funding: Good news for insurers?

Andrew Horne and Nick Frith, Minter Ellison Rudd Watts

lass actions, which under our current rules, are representative actions, are now firmly part of the New Zealand legal landscape. They are also of significant interest to insurers, both in terms of their own potential exposure (e.g. Ross v Southern Response) and perhaps more importantly, from a liability insurance perspective (e.g. D&O and product liability claims). We predict that 2021 will see the courts continuing to focus on managing class actions cautiously

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while the Law Commission presses ahead with its recommendations for a statutory class action regime, having come to a preliminary view that New Zealand should develop one, and for the potential regulation of litigation funders, which are viewed as necessary for the majority of class actions. Law Commission Issues Paper

The Law Commission spent 2020 progressing its Class Actions and Litigation Funding project. Having initiated conversations

with key stakeholders, the Law Commission decided on a review from first principles, primarily because: It is evident from [the Law Commission’s] initial conversations and research that there is no broad consensus on the desirability of a class actions regime or litigation funding, nor on the extent to which, or how, they should be regulated. The Law Commission’s work culminated in a 376-page Issues

considers that class actions provide valuable access to justice and that any disadvantages in the current system, which it considers inadequate, may be managed in a statutory regime. The goal of any regime is to “provide greater certainty, predictability and transparency of the law”. A well-developed statutory regime, with suitable protections in place for both plaintiffs and defendants, should assist access to justice. It would provide clarity on the requirements for class actions, while potentially reducing the cost associated with the work that is currently necessary to settle procedural rules and resolve issues relating to the class approach in each case. Published submissions are supportive of the introduction of a statutory class actions regime. A well-tailored regime could benefit all those involved in group litigation, including insurers, because it could, among other things: • Reduce or dissuade unwieldy and unmeritorious claims by requiring a certification step to ensure that class membership and common issues are clearly defined, thereby reducing the costs associated with preliminary steps. Paper to: ‘… facilitate consultation and feedback on whether the potential benefits of class actions and litigation funding can be realised in a way that outweighs any risks and concerns.’ The Issues Paper is evenly divided between class actions and litigation funding. Class actions

The key to the Issues Paper is the Law Commission’s preliminary view that New Zealand should have a statutory class actions regime. The Law Commission

• Reduce the prospect of a multiplicity of claims on the same or similar issues (e.g. the CBL litigation).

• Give courts better oversight and control of case management to ensure efficiency in proceedings.

• Involve a more appropriate costs regime which would better reflect the significant cost of complex group litigation. Insured defendants would benefit from the security offered by the prospect of greater costs awards where they are successful.

Litigation funding

The Law Commission’s preliminary view is that litigation funding is desirable in principle and should be expressly permitted, provided that certain identified concerns can be managed. Those concerns include funder control of litigation, managing conflicts of interest, level of funder profits, capital adequacy of funders and funder regulation. Again, submitters appear to support the continued existence of litigation funders, subject to at least some degree of regulation. Sophisticated funders generally provide a service to class members who are unable or unwilling to fund proceedings. Less sophisticated funders may not treat plaintiffs fairly or may have conflicts of interest that are not professionally managed. Funder regulation should not concern professional funders and it should provide greater protection not only for prospective plaintiffs but also for defendants and their insurers. Professional funders already choose cases carefully, so the risk of an increase in meritless claims through an increase in funder activity or prevalence may be low, although some have expressed concerns that funders may use the threat presented by their resources and their willingness to pursue cases to pressure defendants into unmerited settlements. Against that, an increase in regulation, including in respect of an obligation to provide full security for costs (which could be on a higher scale than the present High Court Rules) would provide defendants and their insurers with greater costs certainty. Any funder regulation must maintain the balance between protecting litigants’ and the public’s interests and ensuring access to justice with discouraging unmeritorious claims and ensure that defendants are also treated fairly. www.covernote.co.nz

Feature

Why take the chance, why not just do it? When is a broker obliged to clarify terms with the underwriter? Andrew Horne and Nick Frith, Minter Ellison Rudd Watts it sought, on which none of the 12 underwriters’ defences succeeded. Against the remaining two underwriters, Ark and Advent, the Bank was unsuccessful on the basis that certain of Edge’s statements during the underwriting process gave rise to an estoppel, the result of which was that the Bank could not rely upon the TPC against those two.

he English High Court repeated the question “Why take the chance, why not just do it?” when assessing whether an insurance broker, Edge, was obliged to clarify unusual policy terms with underwriters in order to protect its client (Bank) from a coverage dispute. The judgment runs to over 1,000 paragraphs and the evidence and submissions were extensive, even though they were largely conducted via Zoom because of COVID-19. The short answer to the second question is that, in certain circumstances, a broker is obliged to raise unusual proposed terms proactively with underwriters to avoid the risk of a later dispute as to whether cover exists as the broker (and client) expected. If that duty is breached, the broker may be liable not only for the loss suffered due to the unavailability of indemnity (if the underwriters succeed), but also for the client’s costs of suing the underwriters (sometimes even where the underwriters lose). The focus of this article is upon brokers’ duties where underwriters dispute cover. The facts

Edge placed a marine cargo policy for the Bank which was 16

June 2021

underwritten by 14 underwriters. It contained an unusual “Transaction Premium Clause” (TPC) which the Bank asserted provided cover for losses suffered as a result of a customer’s payment default on cargo transactions in the absence of physical loss or damage to cargo. The Bank suffered significant losses totalling some £5 million. The underwriters declined cover under the policy. The main issue was whether the policy provided the cover sought and/or whether the underwriters had other coverage defences. There were disputes over the proper interpretation of the policy, claims for rectification and/ or estoppel, misrepresentation and non-disclosure by the Bank. The Bank sued Edge to the extent that its claims against the underwriters failed and for its costs of having to sue the underwriters. Its primary claim was that Edge ought to have taken further steps to ensure that the cover it sought was clear, unambiguous and did not subject the Bank to an unnecessary risk of coverage disputes with underwriters. Fortunately for Edge, the Bank was largely successful against the underwriters. The Bank succeeded against 12 of the 14 underwriters on its policy interpretation argument, that the TPC provided the cover

Brokers’ duties restated

The scope of brokers’ duties was not in dispute: … Edge owed duties of reasonable skill and care to the Bank: to procure the insurance cover required by the Bank; and to procure cover that clearly and indisputably met the Bank’s requirements, and so did not expose it to an unnecessary risk of litigation. The extent of cover, if any, provided by the TPC was clearly in dispute as the Bank had been required to sue its underwriters in pursuit of indemnity. Indeed, two of the underwriters succeeded in their defences. Edge’s defences and the Court’s findings

Edge’s primary grounds of defence, and the Court’s findings in respect of them, were as follows. Any claim ought to lie against the Bank’s lawyers and not Edge, as they were relied upon to secure the relevant cover by preparing draft clauses for inclusion in the policy wording. The Court disposed of this argument shortly. Edge had admitted that it was under a contractual duty to arrange cover that “clearly and indisputably” met the Bank’s requirements.

While principles of reliance were potentially relevant in tortious claims against brokers, here the Court was dealing with an admitted contractual obligation for which Edge was well paid. In those circumstances, the Bank’s alleged lack of reliance on Edge did not assist. Edge had no duty to highlight and explain the Bank’s subjective understanding of the policy terms to underwriters – it was their responsibility to read and understand the slip and the cover sought – and the broker’s duty was limited to answering questions honestly. In the fact-specific circumstances of this case, Edge was found to have been under a duty to raise the TPC with underwriters and seek confirmation that the underwriters knew and understood what cover they were being asked to provide. The facts leading to this conclusion were unusual: • The cover sought by the Bank under the TPC (effectively trade credit risk) was of particular importance to it, yet it had no precedent in the marine market, it was usually placed in the established trade credit market.

• Underwriters were being asked to accept significant additional risk under a clause that was long and tightly drafted, making it difficult to understand on a first read.

• The fact that Edge was approaching the “wrong market” for cover under the TPC meant that it was under a particular duty to discuss with underwriters the cover that was being sought.

Despite the above, Edge did not involve its specialist trade credit risk brokers to advise the Bank that TPC cover was not available in the marine market, to allow it to make an informed decision as to whether to pursue that market or go to the traditional trade credit risk market. The TPC’s careful drafting and

apparent clarity did not assist Edge: … the careful drafting of a clause, in circumstances where that clause is unusual and indeed unprecedented in the market in which the cover was being placed, could not reasonably be relied upon by the broker as providing protection against the unnecessary risk of litigation. This is because the door can, and does in a case such as the present, remain open for the very arguments that the underwriters have advanced in the present case. In the above context the Court repeatedly asked the rhetorical question put by the Bank’s broking expert witness when discussing whether a broker was obliged to proactively raise policy terms with the underwriter: “why take the chance, why not just do it?”

If the TPC did provide the cover that the Bank sought then Edge could not be liable at all (including for the Bank’s litigation costs) because the underwriters’ arguments were “spurious”. A broker will not be liable for the consequences of an underwriter raising “spurious” coverage defences. However, the Court in this case found that underwriters had not done this. This was so even though the Court agreed with Edge that the underwriters’ “arguments pay little or no regard to the actual wording of the TPC. However, to the extent that they were based upon the factual matrix and context and the commercial consequences of the Bank’s construction, they did in my view have sufficient strength as not to warrant being described as spurious.” The Court found that:

Edge breached its duties to the Bank, regardless of whether the TPC provided the cover that was sought, because it exposed the Bank to an unnecessary risk of litigation. Edge was liable for the Bank’s loss based on its inability to recover from Ark and Advent. While the Court reinforced the principle that causation and loss in broker

negligence cases are generally to be addressed on a “loss of a chance” basis, Edge was liable for 100 per cent of what Ark and Advent would have paid because they would have been liable but for the estoppel given Edge’s statements, and the relevant slip was oversubscribed so would have been filled if Ark and Advent had refused to insure based on Edge’s statements. Quantum was left over for a later hearing. The Court considered, but reserved for later determination, that Edge was liable for the Bank’s costs liability to Ark and Advent (which both succeeded) and for its irrecoverable costs of suing them. The Court did not make a finding on the Bank’s claim for its irrecoverable costs in suing the remaining 12 underwriters, primarily because the claim had not been quantified. However, while Edge argued it should only be liable for the Bank’s costs of dealing with the policy interpretation issue (and not for other grounds of defence), the Court said that it was “…not at all clear why Edge should not pay for all consequences of the Bank having become embroiled in litigation, even though the underwriters’ defences were ultimately not confined to issues of construction but where those issues remained of prime importance.” Lessons for brokers

This case reinforces the need for brokers to pay careful attention to the nature of their clients’ risks and the clarity of the cover being sought to underwriters. While the findings are fact-specific, the case is a reminder that it is important for brokers to consider not only whether the cover they are seeking is clear but also whether it will be clear to underwriters if it is out of the ordinary for the underwriters they are approaching. If so, brokers should consider whether they need to explain the cover sought and obtain the underwriter’s express confirmation that it is understood. Doing otherwise could leave the broker exposed to claims if the underwriter later declines cover. www.covernote.co.nz

Feature

Managing bushfires in New Zealand

By Mark Taylor Chartered Loss Adjuster, Major & Complex Loss (MCL) Global Property Team, Sedgwick NZ

ushfires are a foreign disaster for New Zealand. Although there have been wildfires in the past, none have been as intense as the recent cases in Australia. The climate in New Zealand is different, and the land isn’t expansive and arid. Towns in New Zealand are often surrounded by farmland rather than bush, making it unlikely for wildfires to spread on the scale and intensity we see in Australia. Very few bushfires in New Zealand cause substantial damage to residential property. However, some affect forested areas that are privately-owned, causing losses for the owners of those assets. In the past five years, there have been two large bushfires that have damaged residential properties. The first was the Port Hill fire near Christchurch, that lasted between February and April 2017. The area was predominantly covered with bush and affected about a dozen residential properties. The second took place in October

June 2021

2020 and destroyed almost half of Lake Ohau village. The incident, which was described as one of the biggest wildfires in New Zealand, started in the surrounding bush. Unlike the Port Hill fires, the Ohau fire spread to the village area due to strong winds and destroyed 50 homes in the village. It was the most destructive bushfire in relation to residential property in New Zealand’s history, and the insurance cost exceeded the 2017 Port Hill fires and the 2019 Tasman District fires.

Challenges in managing domestic claims The claims we managed were predominantly domestic losses for damage to residential houses. Few commercial claims were filed.

An essential part of our work as loss adjusters is to coordinate with origin and cause investigators with whom insurers have a good relationship and who, in turn, maintain a good relationship with the fire service. We all share a collaborative approach to investigations, allowing the

required joint inspections with the various parties. This ensures that an accurate record of cause is established. This was the case with both the Port Hills and Lake Ohau fires. The relationship with investigators also allowed some preliminary responses as to the type and scale of damage to be provided to insurers early in the claim review, with access being provided to investigators well before public or loss adjusters could be on site. One challenge we must address as loss adjusters is the emotional aspect to claims. People naturally have a deep emotional attachment to their houses and contents. Therefore, in the event of a total loss, everything that they have accumulated over years disappears, and this, understandably, has a significant impact on people’s lives. Lake Ohau is a good example of this. Although the Ohau area is a tourist and holiday home location, it is also the permanent residence

for senior citizens and retired members of the community. The damage caused by the fire to their property has been devastating and traumatic. Another key challenge is resources. Ohau is far removed from any main city centre. Queenstown is probably the closest, and it is at least a 90-minute drive to the area. Therefore, the issue is making sure that you have enough experienced loss adjusters and surveyors available to manage such a high number of claims within limited timeframes. Due to the extent of damage within Ohau, there was a strong requirement for demolition and removal of debris to be advanced as quickly as possible so that other residents could return home, and to prevent contamination from debris to the remaining environment. As a result, loss adjusters and insurers required a team of professionals from a multitude of other sectors such as demolition crews, cleanup workers, etc to advance this work as efficiently and quickly as possible. Additionally, temporary accommodation must be arranged for insureds who cannot return to their homes due to the damage sustained. Role played by insurers

Insurers were very proactive and swift in settling claims following the Lake Ohau fire. Such a response was commendable. They provided clear directives and worked with us to establish agreed processes as to how to quantify claims quickly – bearing in mind of course, that there remained a potential for litigation. Insurers requested that we establish a fast and effective plan for the response, including thorough recording of information at each loss site, and solid quantification checks. Within the first week, we had set up systems with insurers; and within one month, most of the claims we had were settled. For each property, we established a full record including details of the original building, the extent of the damage it had sustained,

an estimated reinstatement cost, including details of how it was quantified, and the demolition work and costs involved (including an audit of the same). This process, for which everything was accounted, worked well with insurers and all parties involved. Having said that, insurers are watchful of the impact bushfires may have in New Zealand. In particular, they are focused on residential property losses and subsequent claims. In the last eight or nine years, New Zealand has changed from having a size-based total replacement policy for most domestic buildings to sum insured cover. This means policyholders need to be mindful of factors such as accuracy of building costs, demolition expenses, yearly inflation and the impact of a remote location setting. Not many people take into account changes in construction prices. For example, a house that might have been worth NZ$2,000 per square meter three or four years ago, might cost NZ$3,500 per square meter today, given the country’s economic growth and substantial inflation in the building industry. Role of technology in damage assessment

To aid in understanding the scope and scale of damage to the village and location of insured buildings, we used drones to assess the damage caused by the Lake Ohau fire. Because of the fire’s intensity and the extent of the damage, Fire and Emergency New Zealand (“FENZ”) cut off any access to the site for inspection until they were able to determine that there was no loss of life and that it was safe to enter. Another complicating factor was very strong wind, thereby increasing the chances of windblown debris spreading across the village and putting more people at risk. As soon as the wind abated, we had drones in the air to assess the scale of the loss. The quick availability of this information allowed us to collaborate with the

origin and cause the investigation team to start to identify those parts of the village that had been damaged and to provide feedback to insurers as to the extent of loss before we were able to enter the village. In turn, insurers could begin to check their records to determine if they had properties insured in those areas and take a proactive review of the damage. This proactive approach by insurers was invaluable as some people, particularly in case of those owning holiday homes, might not have known whether their property was affected. We obtained a lot of shared video footage that we made available to investigators. Those videos allowed us to establish a review process. We began requesting property files from councils before we were able to put feet on the ground and see the damage onsite. Focus on prevention

New Zealand has always been proactive in terms of fire response and boasts high quality rural fire systems including comprehensive notification procedures as to when you can or cannot use anything with fire or heat sources. Firebreak systems are another example of prevention tools and are common throughout the country, particularly in residential areas. In Wellington, the surrounding hills are carved with firebreaks to prevent or minimise the spread of fire. Prevention will cost much less than an actual catastrophe. That is the whole point; it is vital to prepare so that the crisis does not take place. And if it does, you are ready. Conclusion

Fires will continue to be a formidable risk, and property owners should use this time to assess potential exposures and take necessary precautionary and preventative measures. When disasters happen and fire damage does occur, working with a team of experienced loss adjusters and related experts can help minimise the impact of such losses and ensure steps are taken toward proper restoration and recovery. www.covernote.co.nz

HUMANS of

Combining process with creativity Meet NZI’s new EM Operations and Governance, Nancy So

riving positive change through good processes and creative thinking has always motivated Nancy So, who has recently been promoted into the new role of executive manager operations and governance for NZI. Born in Guyana in South America, and from a Chinese background, Nancy moved to New Zealand when she was five-years-old, as her parents looked for better opportunities. “My parents worked hard to give us a better life. My mum was a sewing machinist and my dad a cook, and they worked very long hours. Seeing their hard work and the sacrifices they made so I could have the opportunities I have today has driven me to constantly put a big effort in everything I do.” Nancy has a degree in Economics, and her background includes strategy development and business planning roles in the public and private sectors. She joined IAG seven years ago and has been working closely with NZI for almost three years. Nancy is passionate about driving positive change in her new role. “I’m excited about the opportunity to look at ways we can improve the efficiency of our processes and continue to enhance our relationships with our broker partners. “I’ll also be looking at ways to enhance systems and processes around partner lifecycle management, including partner selection criteria and due diligence; contract management 20

June 2021

processes; partner remuneration structures, processes and controls; onboarding processes for partners, and educating partners on our products and expectations. “As we see higher industry standards and new regulations coming into force, it’s crucial to have stricter requirements around governance, linking ourselves back to what our customers, partners and regulators expect from us.”

Maintaining the social licence to operate

For Nancy, social licence and doing things right for customers is key. “I’ve learned a lot about the importance of social licence from my time working in central government and at Fonterra. It’s the concept that if you don’t have the trust and support of your customers and the public, you may not be able to grow and succeed as a company, even if you are doing everything right legally. “NZI has been a trusted insurer for over 160 years, and I want to ensure that we have the social licence to operate for another 160 years. Ensuring we have good systems and processes in place to do things right in accordance to customer, partner, and regulator expectations is key.”

Balancing act with a pinch of creativity

As a busy mum of three, balancing work and family life is important for Nancy, and this translates into extra planning and family traditions. “Being a working mum has its challenges, but I always put my kids first as I don’t want to miss key milestones. Every day I’m at work I use the time to the best of my ability, I give it 100 percent. This way, I can make sure that when I’m home I’m actively present.” Family traditions include her entire family - including three sisters, who together have ten children — coming together for dinner at her parents place every Saturday. For every birthday, she goes through the process of planning, baking, and decorating cakes. “Creating cakes is a real passion for me. It’s such a meaningful thing for my kids. The planning does take a bit of time, days or even weeks, as my kids would say ‘I want a Minecraft cake’ or ‘I want a Peppa Pig cake’, and I would have to do some research first! I made my mum’s 60th birthday cake and she shows the photos every time she has a chance; she is quite proud.” For Nancy, baking cakes isn’t so dissimilar from her work. “You need to follow a recipe (process) as your guide, use the right ingredients and the right amount, but you also need to consider your ‘stakeholder’ and what they want. That’s where you get to add in a “pinch” of the personal touch and creativity.”

Have the

right team behind you

Business is constantly evolving, and recently many Kiwi businesses have been adapting to new ways of working. Despite the changes, one thing remains true: having the right team behind you matters. NZI has been insuring Kiwi businesses for over 160 years. Today, nearly 300,000 New Zealanders choose NZI to have their back and protect what matters most to them.

Your success matters to us. Talk to your broker about insuring with NZI.

Feature

“Next Level” Queenstown Conference P

SC Connect held their very successful inaugural NZ conference at the QT Queenstown earlier in May with over 130 delegates attending what was one of the first industry conferences held since Covid-19 hit NZ shores. PSC Connect NZ Director, Dave Penfold, was delighted with the feedback from the PSC delegates and sponsors some of whom rated this as one of their best conferences. “We have attended the Australian annual conferences since the inception of the PSC Connect NZ business 9 years ago but as a result of our continued growth of around 30% year on year we were always intending to do our own NZ conference at some stage and we were thrilled to be able to put together a conference with valuable content, excellent key note speakers and some great networking opportunities at a stunning location”. “The conference theme was “Next Level” and linked in the FSLAA regime’s expectations of the

Financial Services Industry raising their level of professionalism. However “Next Level” also reflects the exciting plans PSC Connect have for big improvements to the model we offer to quality Advisors wanting to build their own businesses and assets for themselves” Penfold says. PSC Connect continues to show impressive growth since setting up in 2012 with 51 Member Brokers and over $70mill GWP throughout NZ with plans to double this over the next 5 years. "To achieve this we need to continually improve our model” Penfold says. The PSC Group also continues its expansion globally with further acquisitions in the UK and Australia meaning the group now manages over $2billion in premiums globally with plans to also double this over the next 5 years making the group an increasingly significant participant in the insurance market.

attractive option for Life Advisor businesses looking for quality compliance solutions and business guidance under the leadership of Steve Morris. CEO Tony Walker and Dave Penfold presented these awards at the Conference Gala Dinner

Broker of the Year: Rob Redmore from Insurance Partners Group Ltd

PSC Connect Life NZ is also growing quickly since setting up last year and is proving to be a very

BE YOUR OWN BOSS

Rising Star Lee Macaskill from Findex NZ Ltd

The Future is now If you want the freedom and flexibility to run your own General or Life Insurance Advisory Business, then speak to the team at PSC Connect NZ. Being part of PSC Connect comes with a range of benefits, including: • Buying power of the PSC Group which has a gross premium of $2bn • Full administrative and compliance support • Access to all major markets and specialist underwriting agencies including Lloyds • Agile operating systems that will allow you to work from Home, Office or anywhere • Assistance with hard to place risks • Product and Professional training • Claims and Marketing support

For confidential enquiries, call: Dave Penfold 021 409 400 dpenfold@pscconnect.co.nz

Proud members of:

June 2021

For confidential enquiries, call: Steve Morris 021 905 911 steve@pscconnectlife.co.nz

High Achiever Christine Martin Central Region/Broker Services Manager

starinsure.co.nz

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Bailey CHO

(Chief Happiness Officer)

Find us online: starinsure.co.nz

Give us a call on: 0800

250 600

Feature

Time for employers to consider mental health With quarter of a million mental healthrelated workplace insurance claims across Australasia, companies need to do more, writes Craig Furness, managing director of Gallagher Bassett New Zealand

he time for taking mental health in the workplace seriously has passed. It is now vital for employers to be taking active action on addressing the mental health challenges their workforce faces. Why? Because of the prevalence of full time employees who have reported they have experienced symptoms of a mental health condition at work. This means the vast majority of your team has likely come to work experiencing signs and symptoms such as feeling sad or down, confused thinking, reduced ability to concentrate, excessive fears or worries, extreme mood changes, significant tiredness, inability to cope with daily problems or stress or problems with alcohol or drug use. It’s fair to say that many of the leaders reading this piece have also likely experienced these same symptoms at some point or another. We all know it has been a truly tough year on professional and personal fronts, and we have asked so much more of our employees than ever before. We have all seen economies, travel, countries and populations

June 2021

severely impacted from the pandemic, and this in-your-face, all-consuming focus has led to many a sleepless night and nervous news conference for everyone we know. But, how do these experiences impact a company’s bottom line? Mental-ill health costs the NZ economy $10.4B, whilst anxiety costs another $1.75B. We know for every dollar an organisation spends on mental wellbeing programmes, they experience an average return of $4.20. It is overwhelmingly clear that companies who fail to address mental wellness are bleeding money. From workplace gyms, resilience training, to flexible working programs, it’s the same message: regardless of what benefit you prioritise, you will see a reward in the wellbeing of your people and to your bottom line by implementing a focus on mental wellness. So, what can we do as leaders to overcome this impact? To actually make an impact to our workforce, workplaces need to shift their view on the concept of wellness. We tend to deal with the

problem as it happens, or after the fact, rather than taking a proactive approach. I challenge you to ponder the impact we could have by understanding factors such as workload and by proactively providing enough space, time, and resources for our people to manage their health and wellbeing. Placing mental health at the centre of your wellbeing strategy will be foundational to any success. Following this, we need to give tools to our people to help them understand what mental health issues are and the sort of potential challenges they may face, to see greater shared understanding between employer and employee. Whatever your program looks like, I believe it needs to include these five design principles;

Physical: Promoting the mental health benefits of physical activity and good general health. Mental: Encouraging awareness through training, mental wellbeing leave and encouraging transparent dialogue. Space and Role: Creating positive organisational design that directly influences employee motivation and happiness. Culture: Nurturing a positive workplace culture that is transparent, inclusive and has workload balance. Ecosystems/Partnerships: Developing partnership and alliances between all parties to improve communication, engagement and mental health recovery.

If you’re still not sold there’s an issue, in the last five years across New Zealand and Australia, we’ve seen 250,000 claims with some aspect of mental health included. This is a really concerning trend that we seek to address through specialised providers, proactive programs and advice to our clients around improving their workplace mental wellness. After all, thousands of studies have shown that psychological and mental issues will last far longer than our physical injuries, so just as we have safety measures in place for our people if they were to break their leg at work, we must start protecting the minds of our people.

www.covernote.co.nz

Opinion

Update on the remedies for fraudulent claims in NZ F

or as long as there are insurance products, there will be fraudulent claims. This seems certain. We revisit the law relating to fraudulent claims and draw attention to one recent development in this area. Historically, there have been three different types of fraudulent claims:

1. Entirely fraudulent claims. There are two types: a) Loss or damage to property is caused by the insured’s deliberate actions, fraudulently portrayed as accidental. b) A fraudulent fabrication 26

June 2021

of the existence of the loss or damage in the first place.

Without becoming too legalistic, the common-law position in New Zealand differs from that in England.

2. Genuine claims that the insured fraudulently exaggerates.

In England, a fraudulent claim is treated as a breach of the rule that a wrongdoer cannot profit from his or her own wrongdoing. It is not treated as a breach of the duty of utmost good faith. This distinction is not academic because this means the remedy of avoiding the policy for a breach of the duty of utmost good faith (e.g., a breach of the duty of disclosure) is not available. In England, the only common-law remedy for the insurer is to be released from the claim payment.

3. Genuine claims that the insured fraudulently bolsters. We address each in turn.

Entirely fraudulent claims a) Common-law

Technically, an insurance policy does not require a term that addresses fraudulent claims. This is because the common-law (caselaw that sets precedents) already prohibits fraudulent claims and provides a remedy for them.

In New Zealand, a fraudulent claim is treated as a breach of the

duty of utmost good faith. This lays open the path to not only nonpayment of the claim, but also to avoidance of the policy. This leads to the further issue of whether the avoidance is retrospective or not. This is not presently clear from the case-law in New Zealand. As most insurers are content to simply not pay the claim, the avoidance issue has not been litigated further in New Zealand. In certain circumstances the issue is real. For example, if in the same policy year, the insured makes a fraudulent claim and subsequently makes a genuine claim, can the insurer not only refuse to pay the fraudulent claim, but also allege that the contract came to an

end as result (avoidance) and be relieved of paying the second genuine claim?

the right to legally refuse to pay the second genuine claim in the example above.

If a term of a contract expressly addresses an issue such as fraudulent claims, this overrides the common-law. Because of the uncertainty of the common-law in New Zealand it is perhaps not surprising that nearly every policy does.

The insured must commit the fraudulent act.

b) Policy term

Most insurance policies expressly include a term that gives the insurer not only the remedy of nonpayment of the claim, but also the discretion to bring the policy to an end from the date of the fraudulent act. This term will give the insurer

c) Fraud by a third party

However, there are two situations where the insured can be tainted with fraud by the actions of another party: •

Where the insured is a company, the actions of a director or senior manager of the company can be attributed to the company itself, making the company’s claim fraudulent.

• Where the insured adopts the material statements www.covernote.co.nz

Opinion

of a third party to pursue the claim without investigating the truthfulness of the statements. The third party will be the insured’s agent and if the third party’s statement is fraudulent, the insured becomes tainted with that fraud.

d) Section 11 Insurance Law Reform Act 1977

In an early case in New Zealand, the court held that section 11 was potentially available to the insured to save a fraudulently exaggerated claim. However, subsequent cases have corrected this and confirmed the section does not apply. This must be right. One of the requirements for section 11 to apply is that the insurer’s promise to pay under the policy:

… is so defined because the happening of such events or the existence of such circumstances was in the view of the insurer likely to increase the risk of loss occurring …

This is addressing events or circumstances before the loss occurs, not a fraudulent exaggeration afterwards.

Genuine claims that the insured fraudulently exaggerates

For an insurer to rely on this ground of fraud, the insurer must prove that the insured knew the claim amount exceeded a proper figure. The courts will accept a certain amount of ‘horse trading’ about the quantum of the claim. An inference that the claim is not honestly made may be justified where the claim is greatly exaggerated. It is difficult to know where to draw the line between genuine negotiation and fraudulent exaggeration. Generally, the courts look at the degree of the exaggeration; obviously, the greater the exaggeration, the easier it is to 28

June 2021

impute fraud by the insured.

Genuine claims that the insured fraudulently bolsters

The English Supreme Court recently clarified the English position where the insured uses fraudulent means to bolster what the insured doesn’t apparently realise is already a genuine claim. While the Supreme Court upheld the existing law about fraudulently exaggerated claims, it said it was a step too far and disproportionately harsh to deprive an insured of his or her claim because of fraudulent conduct when the claim was always recoverable. In reaching that decision, the Court held that there is an important difference between a fraudulently exaggerated claim and a legitimate claim supported by fraudulent evidence. In the former case, the insured is seeking to obtain something that he or she is not entitled to. However, in the latter case, the fraudulent evidence does not entitle the insured to obtain anything more than the insured’s legal entitlement. The Supreme Court referred to the fraudulent evidence as a ‘collateral lie’. While this decision is not technically binding on a New Zealand Court, we expect a New Zealand Court will follow this decision of England’s highest court.

SUMMARY 1. The New Zealand commonlaw allows an insurer to refuse to pay an entirely fraudulent claim. It may also allow the insurer to avoid the policy from the date of the fraudulent act. 2. A term of an insurance policy stating the remedies for fraudulent claims will apply instead of the common-law. 3. The fraud must be committed by the insured, unless the insured’s position is tainted by the fraudulent actions of an agent that the insured supports. 4. The courts tolerate an element of ‘horse trading’ about the legitimate quantum of the claim. The greater the insured’s exaggeration though, the more likely the court is to find the insured’s position fraudulent. 5. The New Zealand Courts are likely to adopt the English law that a collateral lie made in relation to a genuine claim does not allow the insurer to decline the claim.

Please feel free to contact us if you require any further information. Crossley Gates

Frank Rose

cgates@keegan.co.nz

frose@keegan.co.nz

TWELVE

for 12

It’s been a special year, despite Covid - in the last 12 months we’ve had 12 new brokers join the network from Auckland to Dunedin and everywhere in between. What a great line up! Thinking about starting your own business? Come and have a chat to David, Travis and Sue about joining NZ’s fastest growing network that allows your clients to benefit from our collective strength in the commercial and general insurance market. Then enjoy the satisfaction of being a local business supporting other local businesses and helping them succeed. Curious? Give us a call or visit insuranceadvisernet.co.nz and see what we’re all about.

For a confidential discussion, contact: DAVID CRAWFORD Director, New Zealand

 +64 9 926 2062



+64 21 905 537  dcrawford@ianz.co.nz TRAVIS ATKINSON General Manager, Operations

 +64 9 926 2066

 +64 27 505 1912  tatkinson@ianz.co.nz

SUE CRAWFORD National Partnerships & Development Manager

 +64 9 524 7600

 +64 027 224 5900  scrawford@ianz.co.nz

Features

Brokerslink appoints regional managers AegisInsurance Brokers, Brokerslink’s partner in Vietnam. Benjamin Boudeau-Raimbault will be the regional manager for Africa. Boudeau-Raimbault is the general director of Filhet-Allard Africa, Brokerslink’s affiliate in the Ivory Coast. Denise Nart becomes regional manager for Europe. Nart is the head of global accounts, reinsurance and business development, and vice president of the executive board at NART Insurance and Reinsurance Brokerage, Brokerslink’s partner in Turkey.

lobal independent broker network Brokerslink has appointed a series of new regional managers across the Asia-Pacific region. Brokerslink provides risk assessment, risk management, and insurance solutions to corporate clients. The firm’s NZ partner and affiliate is PSC Connect. Au Quang Hien becomes regional manager for Asia-Pacific. Hien is the chief executive and founder of

José Manuel Fonseca, Brokerslink’s chairman, said: “The role of regional manager is of critical importance as it provides a focal point to develop our presence and global network of independent brokers. Au Quang, Benjamin and Denise bring us an in-depth knowledge and experience combined with the perspective of a broker operating in their regions. I know they will work hard to encourage cross-border collaboration and drive new business opportunities for all of our partners and affiliates.

RBNZ creates insurance enforcement department

he Reserve Bank of New Zealand is to beef up its regulatory enforcement of the banking and insurance sectors with a new compliance unit. The new arm will look "to promote confidence in compliance across regulated sectors". The central bank is already the prudential regulator of banks and insurers, but the new division will operate as a standalone unit. RBNZ deputy governor Geoff Bascand said the central bank has "compliance goals of incentivising and managing prudent behaviour and holding institutions to account for non-compliance". “The enforcement department will support the bank’s more intensive supervisory and enforcement approach and help the bank promote a sound and efficient financial system built on integrity, innovation and inclusion,” he added. “The bank plays an important role in ensuring financial institutions remain sound and operate with appropriate conduct and culture, and we have a low-risk appetite for events that materially damage the financial system." 30

June 2021

The new division of the RBNZ will have an enforcement committee to look at serious regulatory breaches. Ben Carruthers, formerly of the Australian Prudential Regulation Authority, will run the department. Bascand said RBNZ's objective "is to transform into a flexible and proactive regulator, with leading-edge tools and technology, and the capability to use these to fully enable our evolving responsibilities, legislative powers, and expectations”. The RBNZ’s new team will work closely with other financial regulators including the Financial Markets Authority and the Commerce Commission.

Features

Delta Insurance eyes global growth

iwi underwriting agency Delta Insurance Group has restructured its management team as it eyes international expansion. Delta Insurance New Zealand chief executive Craig Kirk is appointed into a new role as director for underwriting operations for the wider Delta Group. Underwriting manager Dinesh Murali replaces Mr Kirk as CEO and managing director of Delta Insurance NZ. Murali will also join the Delta NZ Board of Directors

along with group claims manager Petra Lucioli. The changes came into effect in April. Delta recently appointed Kent Chaplin as chief operating officer at group level. The new role was established to support the group’s expansion. Delta grew by 25% in New Zealand last year, and “double that” in Asia, the group claims. Delta Group managing director Ian Pollard said Mr Kirk’s appointment recognised the company’s strong growth prospects. “This appointment will free Craig up to spend time on our Asia-Pacific business opportunities and to focus on what needs to be done across the group to achieve the growth we see possible.” Pollard said Lucoli and Murali’s hires recognised their leadership skills. “Petra and Dinesh have been a big part of our success and we welcome the experience and knowledge they will bring to the board table.” Delta celebrated its seventh year in April. Pollard said the company would pursue international expansion through 2021, with more announcements to come.

PSC taps Allianz for chief executive I

nsurance group PSC has hired a senior executive from Alliance to run the group, which includes broker network PSC Connect. ASX-listed PSC Insurance Group has appointed David Hosking to the new role of CEO PSC Australia and New Zealand. Hosking joins after a successful career at Allianz and IAG. PSC said Hosking “brings a long history and deep understanding of the insurance industry and

particularly the insurance broking and intermediary markets”. The insurer said Hosking’s responsibilities would include the Australian Speciality and Agency businesses which remain under Adam Burgess, the Network Insurance (Connect and Reliance) businesses which remain under Tony Walker, and the Australian Broking business, which remain under Pat Miller. Hosking’s responsibilities will also include IT, workers compensation and life broking. “We believe the addition of David to the PSC team continues our efforts to be constantly growing our capabilities and will help us as we strive to double the size of the business again over the next 4 years,” the company said. Hosking was most recently chief general manager for the broker and agency Division of Allianz Australia and prior to that he was chief financial officer for Allianz Australia. According to PSC, Hosking is well known across the insurance industry and also in PSC having worked with the business for over a decade in his previous roles with Allianz. www.covernote.co.nz

Feature

ICNZ criticises FENZ funding review T

he Insurance Council of New Zealand has hit out at the government’s decision to continue funding Fire and Emergency New Zealand through a levy model. Following a review, policymakers concluded insurance premiums should continue to fund FENZ for the foreseeable future. The ICNZ disagrees with the model and wants the Government to make a larger contribution to FENZ costs. ICNZ chief executive Tim Grafton said the current model was unfair. “Continuing to tax people for a public good such as fire and emergency services is out of step internationally. The evidence shows that other countries have had no difficulty in funding these services in other ways.” He added: “We disagree with the analysis that the levy is fit for purpose to fund the fire service for the future and we disagree that FENZ can’t be funded another way. New Zealand will be the last country standing on making insurance less affordable by taxing people who choose to insure. “Governments around the world understand the important role insurance plays in rebuilding an economy after a natural disaster and encourage as many people as possible to insure. The tax on insurance costs New Zealanders about $600 million each year” he said. “It is not a fair tax because people that are doing the right thing by insuring are paying for fire and emergency services for everyone. It is bad for consumers, it is bad for insurers and it is bad for [the] government. “Consumers pay more for their insurance, insurers are left to administer a complex collection service, and the government has no firm forecasts for budgeting because it depends on whether people insure or not.” “While we are disappointed with the outcome, we will of course continue to engage constructively with the Minister and her advisers and we look forward to meeting in due course” Grafton added.

June 2021

IFSO Case Study

Stress after the storm A

massive storm caused damage and flooding to an insured’s house.

One of the insured, who was undergoing cancer treatment and immunecompromised, was concerned about living in a damp, damaged house. The insurer accepted their claim, but ongoing issues about the scope of repair work continued for a year. The sick client’s treatment, and a close relative’s death, further extended the duration of the claim. The couple complained. They said the process had been stressful, the repair work hadn’t begun, and the insurer’s cash settlement offer wouldn’t cover the storm damage. The insurer was also keen to get the claim sorted and was supportive of the IFSO Scheme’s role. The policy specified the insurer was to pay the estimated reasonable cost to repair the damage. The IFSO Scheme case manager supported the couple getting an independent builder’s report and quote, which was significantly higher than the insurer’s cost estimate. The insurer agreed, on this basis, to increase the cash settlement offer by $62,995. The case manager found the insurer was also required to pay an additional $30,135 for items not included in the scope, like temporary accommodation and outdoor cleaning. However, the insurer was not required to pay more than 50% of the fence or survey report costs, because the fence was not within the boundary. The insurer agreed to appoint an independent builder to inspect the site when repairs began, to determine any hidden storm damage. Complaint partially upheld.

www.covernote.co.nz

FSCL Case Study

Does a broker have to go above and beyond? A

client had home, contents, and motor vehicle insurance with her insurer for a number of years. The insurer required the client to arrange the insurance through a broker, and insurance had to be paid by annual premiums. In February 2020, her broker reminded her that her insurance policies were coming up for annual renewal. However, the Covid-19 pandemic had affected the client’s business and income, and she found she was unable to pay the annual premiums in one lump sum like she usually did. Over the course of the next eight months, the client’s broker unsuccessfully tried to work out an acceptable payment solution. Eventually, the insurer had to cancel the client’s insurance because the premiums remained unpaid. The client complained to FSCL about her broker. She thought her broker hadn’t properly represented her interests or taken into account the unprecedented circumstances of the Covid-19 pandemic when working out a solution. Dispute The client wanted to pay monthly premiums and/or have a ‘premium holiday’, much like banks were offering to customers struggling with mortgage repayments due to the pandemic. The broker said they couldn’t offer those solutions because to do so would put them outside of their payment/credit terms with the insurer. The broker said they had done all they could to help but, ultimately, the premiums remained unpaid and the insurer had decided to cancel the policies. 34

June 2021

Review After reviewing the broker’s file, FSCL found that the broker had offered multiple solutions, including: • Increasing the voluntary excesses under the policies to generate lower premiums. • Exploring whether the client was eligible for a low kilometres discount under her motor vehicle insurance policy. •

Double checking the sums insured were accurate under the cilent’s policies (which would affect the amount of the premiums).

The broker had also liaised with the insurer to come up with a monthly premium payment option, which the client rejected because the payment amount was still too high for her. FSCL found the broker had met their legal obligation to act with

reasonable skill, care and diligence by proposing multiple solutions to the client and liaising with the insurer to offer the best payment solution possible. FSCL told the client that the broker wasn’t required to offer a premium holiday or lower monthly premiums in order to meet their obligations, even in the unprecedented circumstances of the Covid-19 pandemic. These solutions would have put the broker outside of their payment/credit terms with the insurer, requiring them to cover any shortfall to make it work. Resolution FSCL issued a final decision recommending the client discontinue her complaint. The client was disappointed with the outcome, but fortunately had found cheaper, comparable cover with another insurer who didn’t require her to use a broker as an intermediary.

FSCL Case Study

High value item risk A

client arranged travel insurance for her holiday in Spain through an insurance broker. The broker asked her about the details of her holiday and whether she had any pre-existing medical conditions. The broker did not ask whether she intended to travel with any high value items. The broker recommended a comprehensive policy, which the client agreed to. The broker sent the policy wording with their quote, and again with the certificate of insurance (when the policy had been purchased). The broker told the client to read the policy wording, including the schedule of benefits, so she knew what she was covered for. The broker also invited her to contact them if she did not understand her cover. The client did not read the policy wording. Unbeknown to her, the policy had a $1,500 limit per item for personal baggage. She was also unaware she could buy additional cover for high value items. While on holiday, the client slipped on a wet path and damaged a bracelet she was wearing. The cost to repair the bracelet was around $6,600. The insurer accepted her claim for the damage to the bracelet and paid her $1,500, in accordance with the policy limit. The client wanted the broker to pay the balance of the repair cost, which the broker declined. The client asked FSCL to help resolve her complaint. Dispute The client said the broker should have asked her whether she intended to travel with any high value items and advised her of the policy limits for personal baggage.

client had contributed to her loss by failing to read the policy to check that it met her needs. Resolution

The broker said the client had multiple opportunities to read the policy, including the policy limits, and to ask them questions about the cover. The broker also said it was not reasonable to expect them to discuss every high value item a client intends to travel with. Review Insurance brokers have an obligation under the Financial Advisers Act 2008 to exercise reasonable care, diligence, and skill. In practice, this means insurance brokers should make reasonable enquiries so they can arrange appropriate cover for their client. FSCL was of the view that the broker should have asked the client whether she intended to travel with any valuables given many common personal baggage items cost more than $1,500, such as jewellery and electronic devices. The client expected the broker to provide her with professional advice and, as the broker was the insurance expert, FSCL thought it reasonable for her to rely on the broker’s expertise and guidance. FSCL also found that the client would probably have left her bracelet at home, or would have arranged additional cover, if the broker had advised her of the risk of taking the bracelet with her. However, FSCL found that the

FSCL suggested that the client and the broker should share equal responsibility for the loss. Both parties accepted our view and the broker paid the client around $2,500, being half of the balance of the cost to repair the bracelet. Insights for consumers Taking high value items on holiday can be risky. It is important for consumers to read the policy wording, so they are aware of their cover, including policy limits. Personal baggage limits vary between policies and some policies have different limits for different categories of personal baggage. If a consumer has a high value item they want to travel with and do not want to take the risk that the full cost would not be covered if the item was lost or damaged, they should contact their travel agent, insurance broker or insurer before they travel to see whether they can buy additional cover.

INSIGHTS FOR PARTICIPANTS It is important for insurance brokers to ask about high value items their client intends to travel with. Common high value items people travel with include jewellery (such as rings and watches), electronic devices (such as cameras and laptops), medical equipment (such as hearing aids), and designer clothing and accessories. Brokers should also explain the risk of travelling with high value items that are not specified on the policy. www.covernote.co.nz

FSCL Case Study

Nowhere to hide for hidden costs I

n 2020, two small business owners began to suspect that their former insurance broker had charged them fees without telling them. When they first placed their insurances through the broker in 2016, the broker sent them a bundle of paperwork. They had multiple policies for their business, and the paperwork included all the coverage summaries. The paperwork also included a page with the heading, ‘Important Information’. One sentence on the page said: ‘PLEASE NOTE: Your premium charges may include a documentation fee.’ That was the only information the clients say they ever received from the broker that mentioned there might be a fee charged for the broker’s services. The broker arranged for renewal of their insurances each year in

June 2021

2017, 2018, and 2019. Sometimes the clients needed assets added to or taken off their policies between renewal periods – the broker arranged those as well. Each time, the wording on the coverage summaries was the same: ‘Policy Charge’. Late in 2019, the clients moved to a new insurance broker. It was about this time that they began to suspect their former broker had charged them fees without telling them. They complained to FSCL. Dispute FSCL investigated the broker’s dealings. It discovered the clients were right: between 2017 and 2019, the broker had charged them a total of $34,000 in fees. It turned out that the broker had included fees for their broking services ranging from between

$2,500 to $12,000 within some – but not all – of the ‘Policy Charge/s’. Whether fees were included or not was not apparent from the face of the coverage summaries: they all simply had a dollar amount beside the words ‘Policy Charge’. The clients were distressed to hear about the fees. All along, they had been under the impression that their monthly payments were for their insurance premiums only. The clients told FSCL they never saw the sentence about premium charges possibly including a documentation fee – the bundle of documents they had received was over 50 pages long, and the broker had not drawn their attention to that sentence. The broker said the fees were justified as they did a lot of work. The broker also said that they take some of the lowest commissions

INSIGHTS FOR PARTICIPANTS It is OK to charge fees. But it is not OK to hide them. If you hide them, then you do not have your customer’s genuine agreement to pay them. Under new disclosure requirements on financial advisers (including insurance brokers) in force from 15 March 2021, advisers must disclose all the ways they will earn income when clients use their services. This includes: • having general information on their websites about when clients may be charged fees • when first meeting or communicating with clients and once the scope of the advice to be provided is known, providing detailed information about the income the adviser will earn if the clients use the adviser’s service, and • providing clients again with detailed information about the income the adviser will earn, at the point they actually give their clients the advice.

from insurers, when compared with their competitors.

Charge’ was simply the premium payable.

The broker said that all they were required to do was let the clients know a fee might be charged. The broker said they had done that, by including the sentence about premiums possibly including a documentation fee.

All the coverage summaries looked the same, whether a fee was included in the ‘Policy Charge’ or not. No one would know, by looking at the coverage summaries, which one included a fee, and how much that fee might be. FSCL found that the broker had hidden the fees within the ‘Policy Charge/s’.

Review Insurance brokers are entitled to be paid for the work that they do. Generally, they are paid by commission from the insurer, but they are also allowed to charge a fee as well – provided it is disclosed. FSCL looked at the complaint through the lens of the Fair Trading Act 1986, and formed the view that the coverage summaries were misleading. Combined with some supporting documentation, they gave the impression that a ‘Policy

FSCL did not think that the sentence about premiums possibly including a documentation fee was enough to displace the misleading impression created by the coverage summaries. Most people would assume that, if a ‘documentation fee’ were to be included in a ‘premium charge’, that would be made clear in the coverage summary.

itself was misleading. The term ‘documentation fee’ was not sufficient to inform the clients that the broker was charging a fee for their services. FSCL also thought that the broker should have drawn the possibility of charging a fee for their services to attention clearly and explicitly, especially if they planned to rely on it to charge fees as high as $12,000 at a time. FSCL didn’t need to analyse how much work the broker had done for the business owners as the fees had not been disclosed. Resolution FSCL issued a final recommendation that the broker had breached the Fair Trading Act and should refund $34,000.

And, in any event, the term ‘documentation fee’ in and of www.covernote.co.nz

Ask an Expert

Under the influence, or not? A commercial client of mine has a Vehicle Fleet with approx 20 vehicles insured.

In December 2020, one of their staff was driving home on a Friday evening, having stopped at a friends house for dinner and a few drinks. On his way home, he hit some loose gravel on the road surface and lost control of the van, ending up colliding with a fence post. After gathering his thoughts and checking the vehicle over to ensure it was still safe to drive, he carried on home and reported the incident to our clients on the Monday morning.

Their Company policy is to report any accident immediately. However, the driver didn't do this as he's been with the company for 13 years, is a senior staff member and didn't want to disturb our client over the weekend, when the vehicle was driveable, albeit a little bit scraped & dented. Driver has been interviewed by our client & their HR team and line manager on four different occasions and the story is believable and accepted. He has been cautioned about the nonreporting but that is it. Late February 2021 (3 months later), the insurer has put an investigator on the claim due to the circumstances and they are now intimating that the claim will be declined due to the following exclusion:

CROSSLEY GATES The onus is on the insurer to prove the exclusion applies. As any court proceedings are in a civil court, the standard of proof required is on the balance of probabilities - in other words, it is more likely than it is not that the exclusion applies. Some objective evidence is required, obviously, to get to 51%. The courts don't operate on supposition.

It is correct that a scientist can work backwards, adopting the most generous position in favour of the insured, to calculate what the least the blood/ alcohol level would have been, based on volume 38

June 2021

QUESTION Broker Policy Wording

(v) being driven by any person who:

• is under the influence of any intoxicating substance or drug; or

My question is - what level of proof does the insurer need to be able to decline a claim on this basis?

Can they decline on the 'balance of probabilities'?

There has been no Police Report, no breathtesting nor blood tests taken and i'm very concerned that the insurer has intimated that they have a 'chart that sets out the approximate level of blood/alcohol' based on what someone has allegedly eaten and drunk over a period of time. Although based on science, it would / could never produce an exact measurement. I would have thought that to decline a claim, they'd actually have to have proof that the policy terms had been breached....rather than on a balance of probability? We do have the option of invoking the Invalidation clause if needed, but our client is not keen on this, as they are supportive of their driver/ employee and his version of events. Would very much appreciate comment from those in the know?

of alcoholic drinks consumed and food eaten beforehand.

Your client must have given this information to the investigator (which the insured is entltled to insist on). From memory, based on scientific evidence, the courts have accepted that at a blood/alcohol level of 50 (legal limit being 80) a person is under the influence.

I suggest your client asks the insurer for a copy of the scientific report (or whatever other evidence) it is relying upon, if it has not already done so to see what it says.

Ask an Expert

Cricketing quandary A local cricket club was playing a game of cricket. A player during the game hit a ball, it cleared the boundary and hit a neighbouring property, causing damage.

Under the Public Liability policy in place for the Cricket Club, who organised the match, there is a sporting activity endorsement which the insurer believes is sufficient to rule out any cover for the TP property damage. The endorsement reads as follows:

SPORTING ACTIVITY ENDORSEMENT: The Insurer shall not indemnify the Insured for any claim in respect of or alleging Personal Injury or Property Damage: 1. Participants arising out of the

QUESTION participation of any person in a Sporting Activity unless such Personal Injury or Property Damage is as a result of the Insured's negligence in regard to the course or facility provided for such Sporting Activity; "Sporting Activity" means: a competition, event, game, match, practice, race, training, trial or similar and including any warm up or warm down and other prior or post actions which are directly related thereto. 2. Alcohol and Drugs arising from the actions of any Insured who is under the influence of intoxicating liquor or drugs, except a drug taken in accordance with the advice of a registered Medical Person. Given the events described is there any cover under the club's policy? CROSSLEY GATES The endorsement is an exclusion that only provides liability cover if the write back applies i.e. the third party property damage was as a result of the club's negligence in relation to the course or facility provided. It's not entirely clear what that is referring to. Maybe it is referring to a situation where the choice of cricket pitch chosen is negligent in relation to the nearby property. If so, there will be cover if the club negligently chose a cricket pitch that was too close.

Theft or damage? We have a client who has had two areas of netting damaged, one area slashed and cut, and another just further along has had a section slashed and cut out and the netting taken.

The netting is designed to stop golf balls from damaging vehicles and property near the fairway. The netting is 5m high and 200M in length and a section of 1.5 x 3 meters has been damaged/ removed.

The netting removed has been roughly cut and along with the slashed area the police have noted it as willful damage. The club last year had another

QUESTION instance where the netting was slashed, the claim was accepted and paid out with the standard $500.00 excess applied.

The insurer has now noted this new damage as theft as the netting has been removed and wish to apply the $2500 excess for theft which is greater than the claim cost in total to repair the damaged section of fence. So is the insurer right to impose the greater excess as the damaged netting was taken or can this reasonably be considered as willful/malicious damage?

CROSSLEY GATES There has been a theft of the part of the netting removed and so the application of the excess for that peril seems correct.

Coverage under a policy can be very fact specific and small changes in the facts can make a difference.

www.covernote.co.nz

Ask an Expert

Careless car insurance client A client lives in an upmarket suburb and their house is up a long driveway some 80m+ long and not visible from the street front. Our client was having a number of guests around and as a result left his keys in his vehicle in case the vehicle needed to be moved to allow people to come and go. At the end of the evening the client forgot that they had left the keys in the vehicle so proceeded to go to bed to wake in the morning to find his vehicle had been stolen. The insurer has decided to decline the claim on the basis the client did not adhere to what they class as reasonable care. If the vehicle had been left in a public area unlocked with the keys in the vehicle I could understand there being some resistance in getting the claim accepted. I would also expect that the insurer would have to deem our client to be grossly irresponsible or

QUESTION grossly negligent in order to meet the legal test of reasonable care but has our client been grossly irresponsible? I'd suggest not but would welcome your thoughts.

The act of leaving the keys in the vehicle was also not a habitual practice and the vehicle was parked right outside our client’s front door up a long driveway out of sight. It is just unfortunate that an opportunist has stolen the vehicle. I would have thought the fact that the vehicle was up a long driveway and not visible from the road front along with the fact that our client does not normally leave the keys in the vehicle that the legal test of reasonable care to decline a claim could not be met? Can I have your feedback and thoughts on this matter please? STEVE KEALL Really interesting situation. The Courts have considered the issue of what reasonable care can mean in insurance policy like this. As you have indicated it cannot be mere negligence because one of the functions of the policy is for the customer to insure against his/ her own negligence. The insurer would need to establish at a minimum something more than negligence (there is a longer discussion about whether it is something more than that; gross negligence/ recklessness).

In this case, there was a break from what I assume was the customer's usual practice of locking his vehicle. He left his keys in it so it could be moved, because he was having a party; where the car was at the end of an 80m driveway, out of sight of the street (and so the keys could not be observed as they might be if it had been parked on the street). At the end of the night, he forgot he had left his keys in the car. The act of forgetting, as it has arisen in this particular case is, I suggest mere negligence. The forgetting is contextualised by the setting: the driveway and being out of site. It follows that the insurer cannot rely on the provision requiring the customer to take reasonable care because it could not establish there has been something more than negligence.

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

June 2021

Professional

College

Professional Development

Scholarship recipient commits to the task P

rofessional IQ College provided an award late last year to Ivana Vink, the winner of the last KWT Scholarship. The winner had 12 months to take up the Scholarship to undertake the College programme leading to the New Zealand Certificate in Financial Services Level 5 General Insurance strand. Ivana started the programme mid-January this year and has achieved two units and is already on her third unit standard. Looking back, Ivana says, “I was very nervous about the concept of studying again for my New Zealand Certificate in Financial Services Level 5”. Starting on the Core Module first Ivana says, “I found the Good Conduct quite overwhelming to start with as some tasks required to be completed in 500 words or less. However, I found the Course study materials very easy to navigate through, the pages are clearly marked with headings and subheadings and indicate which task they relate to and are written in chronological order which is great. Ivana comments that she particularly finds “Key Concepts” and “Test Yourself” fields of a great value.” Ivana says that she finds tasks with scenarios the most interesting. The real life examples definitely make you think about the wide range of financial products a Financial Adviser can offer. Based on the commitment that Ivana is showing in her studies she should complete the Core Module by the end of June. She is really

Ivana (right) with Adrienne Madden (left), the co-owner and Insurance Broker (Snr Assoc ANZIIF, Fellow IBANZ, QPB) of Vercoe Insurance Brokers.

looking forward to progressing to the General Insurance Module as this is the field she currently works in and enjoys tailoring insurance packages based on the client’s needs.

Whilst Ivana is aware she has a long road ahead, she says her assessor is very encouraging and helpful and she hopes to have her course completed before the end of this year. www.covernote.co.nz

Professional

College

Professional Development

The clock is ticking F

or those of you yet to commence your qualifications under the new FSLAA regulations, the clock is now truly ticking. The alarm goes off on the 15th March 2023, and if you haven’t got your qualification by then you cannot give advice, and while that might seem a long way away, think about what you were doing in May 2019 and realise time does fly — especially when you are busy. The time allowed for completion of New Zealand Certificate in Financial Services Level 5 is approximately eleven months. So ideally (and at the latest) you would want to finish no later than December 2022 to allow for any issues, re-submits and delays in finishing. For those of you who still need to complete Version 1 of Level 5, this will no longer be available after June 2022.

June 2021

Thousands of advisers and brokers have entrusted the College to help them through their qualifications. We are here to help you too. Call us on 09 306 1731 for information. New course for Estate Planning and Asset Management You may have seen a new offering from the College launched in early May. In a first for advisers and brokers, the College has released an online modularised Estate Planning and Asset Management course. Advisers are being encouraged to ‘strengthen and expand’ their conversations with clients and talk about subjects that may be outside of their traditional area of expertise - particularly estate planning, which can end up significantly affecting a client’s outcomes if not talked about. The programme will not

qualify advisers to provide estate planning advice but will give you the tools to have the conversation and refer clients to the right parties. The course includes education on the key principles of asset protection and estate planning, advice on how to hold more meaningful conversations with clients on the topic, identifying risks and providing solutions. The modules covered include estate planning, EPA’s, business legacy planning, relationship property, trusts, wills, conversations and scenarios. The course can be purchased as a whole or module by module.

Go to www.professionaliq.co.nz for more details.

DATE

TITLE

PRESENTER

WHERE

TIME

COURSE DESCRIPTION

Successful Email Marketing - Distribution. Response Management

Debbie Mayo-Smith

Webinar & Auckland

10.3011.30

How To Write, Send, Manage The Perfect Email/Update/Newsletter.

Complaint Handling Process and Skills Session 3

Trevor Slater

Webinar & Auckland

10.3011.30

Getting all the right information – questioning techniques and deception identification

Persue and get your goals

Natalie Cutler-Welsh

Webinar & Auckland

10.3011.30

How to hone in on what your 3 key goals are, how to avoid pitfalls and habits that are preventing you from achieving them and how to take empowered actions towards getting your goals.

General Liability

Philippa Fee

Webinar & Auckland

10.3011.30

General liability: what’s covered and what’s not. Philippa will specifically cover what liability the insured retains, such as the liability to repair or replace its own product or work; systemic product failure; multiple excesses.

D & O Insurance

Michael Robertson

Webinar & Auckland

10.3011.30

This webinar will focus on how D&O policies operate, the distinction between side A and side B cover, disclosure in a D&O Context and the knowledge of individual directors, how allegations of dishonesty are generally dealt with, the main exclusions and the implications of the Mainzeal and other recent D&O cases.

Getting the appointment: Landing meetings with qualified prospects

Clifton Warren

Webinar & Auckland

2.003.00

Getting new appointments with prospects should be one of your highest priorities through-out your entire career. Getting a first appointment is harder to do, but in the end, it is much more productive.

Online Security - How to Protect Yourself & Your Business

Debbie Mayo-Smith

Webinar & Auckland

10.3011.30

A cyber-attack costs a company $200,000 on average with 42% of attacks aimed at small businesses. Are you susceptible to hacks and breaches? This Webinar will cover ways that you can protect yourself and your business from a cyber-attack

Presenting online - Tips for powerful presenting

Natalie Cutler-Welsh

Webinar & Auckland

10.3011.30

Tips for powerful presenting - during this session, International speaker and online presenter Natalie Cutler-Welsh will walk you through what she calls 'the 7F’s for powerful presenting’. These are the essential tools, tips and techniques that you need to effectively communicate with clients and colleagues online in this digital age.

Business Interruption – Importance of cover for Additional Increase in Cost of Working

Mark Anderson

Webinar & Auckland

10.3011.30

BI is more than just the insurance of Gross Profit. Cover is automatically provided for Increased Costs as part of the Gross Profit item. But there are limitations to what can be claimed under this item – often referred to as Item 1(b).

Complaint Handling Process and Skills Session 4

Trevor Slater

Webinar & Auckland

10.3011.30

It’s your fault, not mine. Knowing what you bring to the negotiation and getting your message through.

Turning prospects into clients

Clifton Warren

Webinar & Auckland

2.003.00

One of your objectives during a meeting with a prospect is to get a commitment for a second follow up appointment. In the second appointment you gathered everything you learned to give the prospect a customized presentation.

Professional indemnity policies

Emma Gabor

Webinar & Auckland

10.3011.30

Professional indemnity policies - the basics and above, with lots of claims examples.

Policy extensions

TBC - from Robertsons Law

Webinar & Auckland

10.3011.30

This webinar will focus on how policy extensions operate, how they relate to the balance of the policy and the impact they have on cover.

June

July

August

Microsoft Word Mastery

Debbie Mayo-Smith

Webinar & Auckland

10.3011.30

A top tip and tricks walk around Word. You’ll learn how to free up heaps of time working with text, tables, templates as well as producing more professional looking documents in moments instead of hours. You’ll kick yourself for not knowing them before.

Business Risk Analysis

Trevor Slater

Webinar & Auckland

10.3011.30

Do you know the risks to your success? To reach a destination or achieve a goal you must have a plan and/or a map of how you are going to get there.

Leveraging existing clients to get new ones

Clifton Warren

Webinar & Auckland

2.003.00

The most efficient and effective marketing you can do is to leverage your existing clients to get new ones. Many experience professionals miss this opportunity.

Cyber Risks

Sophie Curlett

Webinar & Auckland

10.3011.30

This webinar will include an update of the cyber risk landscape in 2021 and what cover is available in the market to assist insureds to protect themselves from these risks.

www.covernote.co.nz

IBANZ Board Roger Abel

Tony Bridgman

Rothbury Group Limited PO Box 1596 Shortland Street Auckland 1140 Mob: 021 952 230 roger.abel@rothbury.co.nz

(Vice President)

Craig Buckle

Neil Cousins

Executive Director Marsh Ltd PO Box 2221 Auckland 1140 Tel: 09 928 3015 Mob: 021 873 399 tony.j.bridgman@marsh.com

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

Duane Duggan

Samuel Kerr

(President)

Jill Comley-Forbes

Chief Broking Officer BrokerWeb Risk Services Limited PO Box 7264 Sydenham Christchurch 8240 Tel: 03 348 9802 Mob: 027 451 8098 jill.comley-forbes@bwrs.co.nz

Ramesh Mavani

Manager Insurance People (Fire & General) Ltd PO Box 47218 Ponsonby Auckland 1144 Tel: 09 360 5616 Mob: 021 078 3465 ramesh.mavani@ insurancepeople.co.nz

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

Jo Mason

(Vice President)

CEO NZ Brokers Management Ltd PO Box 334012 Sunnynook North Shore City Auckland 0743 Tel: 09 869 2785 jom@nzbrokers.co.nz

Broker Services Manager Steadfast NZ Ltd PO Box 180 Shortland Street Auckland 1140 Tel: 09 309 7942 Mob: 021 377 942 neilc@steadfastnz.nz

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

Insurance Broker SHARE PO Box 305415 Triton Plaza Auckland 0757 Tel: 09 476 1670 Mob: 021 980 435 sam.kerr@sharenz.com

Angus McCullough

William O’Brien

(Immediate Past President)

General Manager Marketing & Chief Officer Aon New Zealand PO Box 1184 Shortland Street Auckland 1140 Tel: 09 3629059 angus.mccullough@aon.com

Manager Montage General Insurance PO Box 8307 Symonds Street Auckland 1150 Tel: 09 373 0700 Mob: 021 737572 william@mont.co.nz

PIQ Board Neil Cousins

Broker Services Manager Steadfast NZ Ltd PO Box 180 Shortland Street Auckland 1140 Tel: 09 309 7942 Mob: 021 377 942 neilc@steadfastnz.nz

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

Andrew Gunn

Strategic Partnerships Manager Insurance & Financial Services Ombudsman Scheme PO Box 10-845 Wellington 6143 Mob: 021 684 355 andrew@ifso.nz

Angi Mann

Contract Compliance and Learning and Development Specialist Auckland Mob: 021 293 1724 factnz2012@gmail.com

Gary Young

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

Staff Mel Gorham

Sylvia Heywood

Marianne Taljaard

Robyn Gosden

Karen Scard

June Wang

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

Academic Manager Professional IQ College DDI: 09 3061737 sylvia@ professionaliq.co.nz

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

Lisa Herbison

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

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

Student Liaison Manager DDI: 09 600 5710 marianne@ professionaliq.co.nz

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

June 2021

Each issue of CoverNote is packed with vital information, news, commentry and advice FSLAA so far: how has the industry cha nged? for the insurance industry from experts within the industry. To keep abreast of all the issues affecting New Zealand’s insurance broking industry just email info@ibanz.co.nz

www.ibanz.co.n z

Rod Severn

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

IBANZ Physical address:

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

Toll free: 0800 306 173 44

WANT YOUR VERY OWN COPY OF COVERNOTE?

June 2021

Mailing address:

PO Box 302504, North Harbour, Auckland 0751

www.ibanz.co.nz

TO ADVERTISE: Contact Robert Johnson on: e-Mail: robert@benefitz.co.nz Phone: 09-477 4702 Mobile: 0274-970-712 CoverNote is published quarterly by IBANZ, the Insurance Brokers Association of New Zealand. All correspondence should be addressed to: CoverNote, PO Box 33-1630, Takapuna, Auckland.

IBANZ CORPORATE COMPANY LIST

Abbott Group

Christchurch

Insure 247 Ltd

Auckland

Adams Trimmer Insurance 1992 Ltd

Whangarei

JRI Limited

New Plymouth

Advance Insurance Services Ltd

Paeroa

Luxor Insurance Brokers Ltd

Auckland

Affiliated Insurance Brokers Ltd

Wellington

Malcolm Flowers Insurances Ltd

Taupo

AIB Group Insurance Ltd

Lower Hutt

Marsh Ltd

Auckland

AIM Associates Ltd

Auckland

Matt Jensen Insurance Brokers Ltd

Taupo

Albany Insurance Services Ltd

Albany Village

McDonald Everest Insurance Brokers Ltd

New Plymouth

Amicus Brokers Ltd

Christchurch

Moneybox GI Limited

Wellington

Aon New Zealand

Auckland

Montage General Insurance Ltd

Auckland

Apex General Ltd

Auckland

Multisure Ltd

Auckland

Atlas Insurance Brokers Ltd

Christchurch

MW Insurance

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 Insurance Brokers Limited

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

Cartwrights Ltd

Ashburton

Paterson & Co NZ Ltd

Auckland

Certus Insurance Brokers NZ Ltd

Auckland

Penberthy Insurance Ltd

Auckland

Coast Insurance

Whangaparaoa

PIC Insurance Brokers Ltd

Manukau

Coastal Insurance Brokers (TGA) Ltd

Tauranga

Primesure Brokers Ltd

Auckland

Commercial & Rural Insurance Brokers Ltd

Alexandra

Property and Commercial Insurance Brokers

Feilding

Crombie Lockwood (NZ) Ltd

Auckland

Protekt Insurance Brokers 2008 Ltd

Auckland

Dawson Insurance Brokers (Rotorua) Ltd

Rotorua

Provincial Insurance Brokers Limited

Masterton

Edward Ruys & Co Ltd

Hamilton

PSC Connect NZ Limited

Auckland

Emerre & Hathaway Insurances Limited

Gisborne

River City Insurance Brokers 2000 Ltd

Wanganui

Frank Risk Management

Hamilton

RMA General Ltd

Warkworth

FundAGroup Insurance Brokers Limited

Auckland

Rothbury Group Ltd

Auckland

Grayson & Associates Ltd

Auckland

Runacres Insurance Ltd

Christchurch

Gregan & Company Ltd

Papakura

Auckland

GSI Insurance Brokers

Waitakere

Sit & Blake Limited

Auckland

GYB Insurance Brokers Ltd

Lower Hutt

South Pacific Insurance Brokers Ltd

Auckland

Hazlett Insurance Brokers Ltd

Christchurch

Sweeney Townsend & Associates Ltd

Rotorua

Honan Insurance Group (NZ) Ltd

Auckland

Thames Valley Insurance Ltd

Thames

Hood Insurance Brokers NZ Ltd

Auckland

The Advisers for insurance

New Plymouth

Hurford Parker Insurance Brokers Ltd

Hastings

Thorner General Insurances Ltd

Upper Hutt

Hutchison Rodway Ltd

Auckland

Towes Insurance Brokers Ltd

Te Aroha

ICIB Limited

Auckland

Trevor Strong Ins Ltd

Auckland

ILG Insurance Brokers

North Shore City

Trevor Sutcliffe Insurance Ltd

Hamilton

Ingerson Insurances Ltd

Wellington

Vercoe Insurance Brokers Ltd

Morrinsville

Insurance Advisernet NZ Ltd

Auckland

Vision Insurance (S.I.) Ltd

Ashburton

Insurance Brokers Alliance Ltd

Invercargill

Wallace McLean Ltd

Auckland

Insurance Design Limited

Warkworth

Wanganui Insurance Brokers Ltd

Wanganui

Insurance People (Fire & General) Limited

Auckland

Willis Towers Watson

Auckland

www.covernote.co.nz

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

New Zealand businesses have taken a battering in the wake of Covid-19. We’re feeling it too - we’re in it together. There’s strength in being local. And being New Zealand’s only locally based specialist liability insurer brings with it the ability to make decisions quickly, and 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

CoverNote June 2021 issue

Articles inside

Ask an Expert

Professional Development: Professional IQ College

ICNZ criticises FENZ funding review

Update on the remedies for fraudulent claims in NZ

Why take the chance why not just do it?

Cyber losses - which insurance policy applies?

Humans of NZI

Managing bushfires in New Zealand

Time for employers to consider mental health

Delta Q&A with Dinesh Murali

Changes to class actions and litigation funding: Good news for insurers?