ICNZ criticises FENZ funding review

The 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.

Stress after the storm

Amassive 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.

Does a broker have to go above and beyond?

Aclient 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. 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.

High value item risk

Aclient 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.

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

Resolution

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.

Nowhere to hide for hidden costs

In 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 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.

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.

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 Charge’ was simply the premium payable.

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’.

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.

And, in any event, the term ‘documentation fee’ in and of 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.