Covernote September 2013

INSURANCE SOLVENCY STANDARDS EXPLAINED: P40

covernote

covernote September 2013 ...for insurance professionals

RESURRECTING WHAT CAN THE INSURANCE INDUSTRY LEARN FROM THE EARTHQUAKES, THREE YEARS ON? P18

Image: Courtesy of Christchurch Central Development Unit

SEPTEMBER – NOVEMBER 2013

PLUS

HELPING CLIENTS DETERMINE THEIR SUM INSURED REBUILD VALUE P32 TIME TO PROVE YOUR WORTH P28

www.ibanz.co.nz

Bad’s not going anywhere.

Neither are we.

Image: Courtesy of Christchurch Central Development Unit

covernote ...for insurance professionals

PUBLISHER AND MANAGING EDITOR Toni Myers EDITOR Susan Edmunds PROJECT MANAGER Rod Myers, rodm@mediaweb.co.nz CONTRIBUTORS Hans van der Wal, Helen Smith, Gary Dransfield ADVERTISING MANAGER Kelly Davison, 09 529 3000, 0275 204 507 admanager@covernotemag.co.nz

WELCOME

I

t was pleasing to see the excellent turnout of brokers for our recent forum, “The Challenge”, in Christchurch.

This year, we had a single focus for our annual event, to provide brokers the background information on the many changes currently affecting general insurance.

Natural disasters such as the Canterbury earthquakes have resulted in significant, permanent changes affecting our profession.

The line-up of keynote speakers provided an excellent insight into the issues facing brokers as they work with their clients to manage risk.

SUBSCRIPTIONS subs@mediaweb.co.nz

The day started with GNS scientist Kelvin Berryman setting the scene. His summary of the extent to which New Zealand is at risk of natural catastrophes was enlightening and, to some degree, frightening. There is little doubt our country faces more than its fair share of natural risks. That places a great deal of responsibility on insurance professionals to get it right for their clients.

Phone 09 529 3000, Fax 09 529 3001 enquiries@mediaweb.co.nz www.mediaweb.co.nz PO Box 5544, Wellesley Street, Auckland 1141

Peter Townsend from the Christchurch Employers Chamber of Commerce gave us his views on how well insurance in general and brokers in particular had responded to the Canterbury disaster. He presented a very positive view overall but made it clear there were some areas where we could do better. The perceptions of his staff dealing with our clients were challenging for some delegates. But regardless of how correct they may be, their perceptions are their reality. The challenge for us is to change the perceptions.

DESIGNER Melissa McGregor PRODUCTION MANAGER Fran Marshall, franm@mediaweb.co.nz

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 publisher or IBANZ, and they do not accept responsibility for the content of articles featured within the publication.

Copyright © 2013: Mediaweb Limited.

All material appearing in Covernote is copyright and cannot be reproduced without prior permission of the publisher. The publisher does not accept responsibility for loss or damage to unsolicited photographs or manuscripts. Editorial contributions are welcomed. Letters to the editor are also welcomed, but pen names are not acceptable.

Covernote is printed by PMP. Subscriptions: One-year NZ subscription (4 issues) $30.00 (GST incl).

IBANZ Enquiries should be made to; Gary Young, Chief Executive, IBANZ. Email: gary@ibanz.co.nz IBANZ National Office located at: Level 5, 280 Queen Street, Auckland 1010 (PO Box 7053, Auckland 1141) Telephone 09 306 1732 Website: www.ibanz.co.nz

Roger Sutton of CERA and lawyer Richard Johnstone from Wynn Williams were equally direct in their views on the outcomes of recent events. Also contributing with their view on how the world has had to change was a panel of professionals: a risk manager, valuer, quantity surveyor and engineer. All deal with the insurance industry and all were able to show how brokers need to take account of different approaches in the future.

But perhaps the most sobering time for those from outside Christchurch was the field trip the following day. The full impact of a major natural catastrophe was graphically demonstrated by the reality of Christchurch today. The Vero team, led by Peter Bloy, provided a compelling overview of the challenges faced by those working to restore New Zealand’s second largest city.

Everyone who attended our forum will have gained a real understanding of the range of challenges to be overcome in adapting to the future insurance environment. They will be better equipped to cope with the responsibilities placed on them to manage clients’ risks.

The importance of such knowledge cannot be underestimated in New Zealand where the transfer of risk to insurance is greater than any other country in the world.

Gary Young CEO, IBANZ

September 2013 | covernote

1

EDITOR’S MESSAGE

CARVE OUT YOUR ADVICE NICHE

“A

You can read about the potential lessons from the Canterbury earthquakes for brokers – and all other parts of the insurance industry – on page 18. I also asked some of the key players at the big insurance firms what they thought lay ahead for advisers now and their answers are illuminating. See page 28.

Questions about proving worth will go away when the financial advisers of all descriptions, whether they are risk or mortgage, investment or KiwiSaver, are thought of as a profession.

One of the ways that IBANZ works to help that process is its strong focus on continuing professional development. CEO Gary Young said in our story this issue that it could be hard for experienced advisers to find quality CPD options, but the organisation firmly believes that advisers should do at least the minimum required for AFAs by the Code Committee.

At the moment that’s 10 structured hours a year but it looks likely to increase to 30 over two.

Young says the flexibility is a good move. See his reasons why on page 38. – Susan Edmunds

dvisers need to find a way to prove their value to their clients.”

It’s a statement I hear often, about advisers in all parts of the financial services industry. In an industry where technology is increasingly offering direct sales opportunities, and some commission structures are under question, advisers are being told they need to prove they offer value for money – even if the client isn’t paying them directly.

While I was working on the cover story for this issue, about the lessons from the Christchurch earthquake, I encountered some fairly searing criticism of some parts of the advice sector.

Some clients felt let down when they were at their most vulnerable and questioned how transparent brokers had been about their allegiances.

But there were also reports of advisers using such a traumatic experience to their reputations.

They were able to build on their client and insurer relationships through good claims handling systems, and in some cases took the pressure off insurance firms that were seriously struggling to keep up.

Some savvy brokers even took the opportunity to attract new clients by offering their services to others who were struggling.

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CONTENTS

COVER STORY

18

18 LESSONS FOR THE INDUSTRY

From the Christchurch earthquake.

FEATURES 28 HOW MUCH ARE YOU WORTH?

Brokers need to make their value proposition clear.

32 RESIDENTIAL COVER CHANGES

What will new sum insured policies mean for brokers?

34 WHAT RISKS LIE AHEAD?

32

A new report points to some crucial factors that must be addressed.

REGULARS 1 4 13 42 44 46

View from the CEO News & Analysis Out & About Ask an Expert Legal: Duncan Cotterill Lawyers Opinion: VERO

48 49 50 56 57

FSCL Case Summary ISO Case Summary IBANZ College IBANZ Contacts IBANZ Corporate Company List

Image: Courtesy of Christchurch Central Development Unit

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NEWS & ANALYSIS

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Insurers get ‘unfair contracts’ leeway I

nsurers will be granted exemptions when the Consumer Law But it does not provide a definition for underwriting risk. An Reform Bill introduces a new regime for unfair contract terms. insurer cannot be certain a term in an insurance contract sufficiently The bill allows the Commerce Commission to seek a declaration relates to an underwriting risk where it is not sure what the definition from the courts that a term in a standard form consumer contract is of such a risk is. unfair and therefore unenforceable.

It has been suggested the changes could increase costs because if As it was, the legislation posed significant difficulties for insurers insurers are uncertain about potential liability, they may be inclined because there was uncertainty about the scope of proposed to redraft and reprice policies. exceptions.

Ladd said insurers would have to review all their terms and make Simon Ladd, of Bell Gully, said: “Insurance policies are different sure that they were as clear as possible and complied with specific from many other standard consumer contracts. For example, the regulation. product being supplied is the contract of cover itself, and both cover “I think it’s fair to say the intention behind legislation like this is and pricing depend not only on the insuring clause, but also on the to try and increase clarity and ease of understanding for customers. definitions, conditions, qualifying exceptions and exclusions. Insureds So you can expect it will keep the pressure on brokers and insurers are also subject to duties of good faith and disclosure that do not apply to explain in clear terms what is and isn’t covered and how a policy to other contracts. A declaration that any of these terms are unfair works.” may have a significant impact on price and therefore the cover that Australia already has unfair contract terms legislation but it has insurers may be prepared to offer.”

But following submissions from insurers, the A term in an insurance contract may still be ‘unfair’ if it is Insurance Council of New Zealand and others, another supplementary order paper (SOP) was not transparent – that is, if it is not expressed in reasonably introduced that further amended the bill before it plain language, presented clearly, or readily available. was passed.

It introduces a new exception for insurance contracts, specifically providing that a number of terms cannot be not been applied to insurance. Before the Australian election, the declared to be unfair. These include terms that identify the subject Government was in the process of looking at the possibility of dealing matter or risk insured against; specify the sum insured; exclude or with insurance with separate legislation. “What we are doing is not limit liability; describe the claims process or provide for an excess that different from the approach in Australia,” Ladd said. amount; provide for the payment of the premium; relate to the duty He said the consequence for the insured and insurer of not getting of utmost good faith; and relate to disclosure. a contract right were serious. “That’s why we need to be careful about Ladd said: “These new exceptions are a welcome improvement over it. From an insurer’s point of view, they want as much certainty as the current bill. The SOP addresses many – although not all – of the possible. If you get the price of a policy wrong, then get a whole lot of potential issues for insurers posed by the bill.” claims, that can have significant consequences.”

He said insurers would still need to carefully review the standard The bill is expected to be passed shortly and would come into effect form consumer contracts before the bill came into force, to reduce the just over a year later. risk of action by the Commerce Commission or an adverse finding by Ladd said the Ministry of Business, Innovation and Employment the courts. “A term in an insurance contract may still be ‘unfair’ if it was also in the process of reopening its review and consultation on is not transparent – that is, if it is not expressed in reasonably plain the Insurance Contracts Bill. language, presented clearly, or readily available.”

It has been suggested that consumers’ obligations to disclose should be Insurers had hoped insurance contracts would be removed from the examined and Ladd said that could be done under that legislation. “That scope of the legislation entirely, but the amendment limits insurers’ is a more general look at insurance law and may well include disclosure covernote potential liability to some degree. requirements. The review work on that is still at an early stage.”

“

”

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4 covernote | September 2013

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NEWS & ANALYSIS

Watch out for ‘valuers’

V

Win

Photo: thinkstockphotos.com

aluation professionals are concerned by suggestions businesses are springing up around the country to take advantage of changes to house insurance policies.

New Zealand’s insurance companies are changing their policies from “total replacement value”, where the insurer pays out whatever is required to rebuild a home, to “agreed value” or “sum insured” policies, where a set payout is determined and agreed on by the property owner and the insurance company when cover commences.

If there is a total loss and the rebuild costs more than the amount agreed, the owner must make up the difference.

Homeowners are being encouraged to call in a valuer or quantity surveyor if they do not want to rely on insurers’ online calculators.

But the Property Institute and Institute of Quantity Surveyors are worried that some

may go to new businesses that are springing up to take advantage of those looking for guidance.

“We are concerned that these socalled professionals have no training or qualifications in valuation or quantity surveying” said David Clark, chief executive

of the Property Institute. “Worse, they may not carry professional indemnity insurance, giving you virtually no recourse in the event they let you down.”

John Granville, executive director of the Institute of Quantity Surveyors, agreed: “New Zealanders need to have confidence in the amount they are insuring their homes for, and we strongly recommend that they seek guidance from a qualified professional – either a registered quantity surveyor or registered valuer.”

He said people who were registered had to adhere to standards. “We certainly wouldn’t recommend putting your confidence into an unqualified practitioner” Both institutes are working closely with their membership to ensure that all their professional members nationwide are ready to deal with the demand for insurance valuation covernote services. ...for insurance professionals

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NEWS & ANALYSIS

Lack of information

revealed

Insurer donates to Cancer Society

I

L

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Photo: thinkstockphotos.com

ess than a quarter of people making business insurance decisions remember seeing any advertising by insurance, research has revealed.

NZI commissioned the research into the impact of business insurance advertising across the industry.

It found just 24 per cent of decision-makers remembered any advertising by insurers. And almost none took any action as a result.

The research also highlighted the importance of the broker’s role in the minds of insured businesses: 60 per cent of those interviewed said they would change their current insurer if their broker recommended they do so.

NZI said that research had prompted a new advertising campaign to highlight who the company is and what it does.

“We want to demonstrate leadership in the commercial insurance category by informing and educating customers, and ultimately we want our target to market to think more positively about the NZI brand”, said Karl Armstrong, executive general covernote manager.

nsurance firm Marsh will donate $5500 to charity to celebrate its 55th anniversary in New Zealand.

The firm announced it would make the donation and asked the public to vote on its website for the charity they wanted it to go to.

Marsh said the Cancer Society was a clear winner.

“We are delighted to be able to present this money to the Cancer Society,” said Grant Milne, country head of Marsh New Zealand.

“Many people are affected by cancer each year.

We hope therefore that this donation can be used as a small contribution to the wonderful work that the Society does to support cancer sufferers and their families.”

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NEWS & ANALYSIS

F

ire and general insurance complaints make up the bulk of work being done by the Insurance and Savings Ombudsman, its latest annual report shows.

The scheme received 3100 complaints inquiries, from which 279 complaints were investigated and resolved.

It has 3000 participants, including QFEs, adviser businesses, insurance and savings companies, super schemes and insurance firms.

Over the past financial year, 61 per cent of complaints, or 167, were about fire and general insurance matters. That is down from 75 per cent, or 181 in the previous year.

Eight complaints were about financial advisers, representing 3 per cent. That is an increase from just one complaint in the 2011/2012 year.

Most complaints are not being upheld. Just 16 complaints, or 6 per cent, were upheld in the most recent financial year, from four, or 2 per cent, in the previous year. In both years, 1 per cent were partly upheld.

Fiftyfive complaints were settled in the 2012/2013 year, compared to 50 the year before – a drop to 20 per cent from 23 per cent.

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Insurance sparking complaints About threequarters were not upheld in each year.

In the year ended June 30, almost $1,430,178 was paid by participants who had their complaints considered by the scheme.

Advisers paid $8000 in complaint fees in the most recent financial year, up from $3355 in the previous year.

The ISO made a net profit of $387,206 in the 2012/2013 financial year, from $73,620 the yearcovernote before. ...for insurance professionals

Christchurch rebuild 80% resolved

S

ignificant progress has been made in resolving Canterbury earthquake insurance claims, the Insurance Council of New Zealand says.

It has released data that shows insurers are dealing with 24,400 over-cap residential property claims. Of those, 34 per cent have been fully resolved through external resolution or fully completed, and a further 46 per cent are works in progress.

This indicates that 80 per cent of the over-cap residential property claims have been completed or are in the process of being resolved,” said Insurance Council chief executive Tim Grafton.

“This is significant progress given the challenges that insurers have faced in supporting customers to resolve their claims and helping to get Cantabrians back to some level of normality.”

He said the city’s rebuild and repair programme would be completed by the end of 2016.

The data shows 7200 (30 per cent) of the 24,400 had been externally resolved, which includes cash settlement and house reinstatements. An additional 3100 (13 per cent) of external resolutions are still to be fully completed.

The process hasn’t been easy, though.

The Insurance and Savings Ombudsman scheme has revealed that it has so far received almost 1000 inquiries and has investigated 62 formal complaints for Canterbury earthquake insurance claims.

Complaints covered issues such as loss of rent and temporary accommodation concerns, as well as homes affected by red zoning and insurance cover on the sale of a house.

“There are significant issues that are still to be addressed including land settlement, shared properties, the Port Hills review and the speed of building consents,” Grafton said. “But we’re hopeful that these matters can be resolved without any impact on insurers being able to achieve an end-of-2016 completion for the residential rebuild covernote and major repairs programme. ” ...for insurance professionals

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NEWS & ANALYSIS

Photo: thinkstockphotos.com

Marsh opens

Nelson branch I

nsurer Marsh is opening a new branch in Nelson.

It said it recognised the need to expand its regional presence and the Nelson and Marlborough area was a natural choice because of its growing economy.

The Nelson branch will be managed by Mike Gunstone, who has more than 32 years working in the industry.

Gunstone has previously worked for Crombie Lockwood. He has also held roles with International Insurance Brokers in Nelson and General Accident in Blenheim. ”I am delighted to be opening our third South Island branch,” said Grant Milne, country head of Marsh New Zealand. “Nelson and Marlborough is a perfect choice for us, not only because of the opportunities it provides to grow our current business there, but also because of our strength in providing risk and insurance solutions to the wine industry. I am also pleased to have Mike Gunstone on

10 covernote | September 2013

“

I not only have a huge passion for the region but also in helping businesses to manage their risk and insurance needs.

”

– Mike Gunstone

board as branch manager, who brings with him a wealth of industry expertise as well as local knowledge of the region.”

Gunstone said: “I am very excited about managing Marsh’s newest operation in Nelson. I not only have a huge passion for the region but also in helping businesses to manage their risk and insurance covernote needs.” ...for insurance professionals

NEWS & ANALYSIS

Photo: thinkstockphotos.com

Insurers licensed T

he Reserve Bank has announced it has issued licences to 99 insurers.

A law change in September 2010 meant all insurers that wanted to continue doing business in New Zealand had three years to apply for and receive a licence.

About 15 are to have their licences cancelled. The Bank says they can be cancelled for a number of reasons, ranging from an insurer no longer wanting to carry on business to a regulatory action.

The bank said the Insurance (Prudential Supervision) Act was designed to ensure a sound and efficient insurance sector, and to promote public confidence in the insurance sector. New insurers entering the New Zealand market must apply for a licence.

Head of prudential supervision Toby Fiennes said the law recognised the importance of adequately protecting policyholder and the public interest, while also ensuring any failure of an insurer

didn’t significantly damage New Zealand’s financial system or economy.

“The Reserve Bank achieves this through a system of licensing insurers, prudential requirements, supervising compliance and acting when an insurer is in financial distress or other difficulties. The purpose of the legislation is not to eliminate all risk of insurer failure, but to reduce the likelihood of failure.”

Since March 2012 insurers have been operating under provisional licences, while being assessed for a full licence.

Three insurers that are no longer writing new policies in New Zealand covernote continue to retain provisional licences.

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11

AIG | OUT & ABOUT

AIG watches ABS win

A

IG hosted the first home game of the 2013 Investec Rugby Championship for more than 70 brokers, clients and AIG employees.

All Blacks Liam Messam and Ben Franks mingled with guests at a pre-match function at Te Papa, and the MC was 1987 World Cup-winning All Black Alan Whetton.

Guest speaker was All Black legend and now team selector Grant Fox. The two displayed obvious camaraderie stemming from many years of being part of the same champion team, and Whetton and Fox discussed some of the new players in the All Black squad and the tactics that might be used during the match that night. Hospitality continued after the match with guests celebrating the All Blacks’ win at the Dockside restaurant.

AIG New Zealand’s Independent Board Director Chris Ryan said: ”It was a great event, good turnout and a good feeling about AIG – very successful.”

3

1

4

2 1 Jon Calverley (Cooper Gay) and Matthew Riddle (JLT) with Dave Crawford (AIG).

2 Colin Whyte (Marsh) and Grant Fox. 3 Tim Grafton & Terry Jordan (ICNZ) with Grant Fox. 4 Jeroen Schomaker and Kristene Crooke (AON) with Rob Houghton (AIG).

5 Casey Milne (JLT), Catherine Tait (Willis) and Jane Peach (AON).

5 September 2013 | covernote

13

OUT & ABOUT | IBANZ FORUM

With challenge comes opportunity

I

BANZ members and insurance industry players got together for The Challenge, two days of discussion and inspiration at the Air Force Museum in Christchurch.

14 covernote | September 2013

IBANZ FORUM | OUT & ABOUT

September 2013 | covernote

15

OUT & ABOUT | VERO

Vero goes back to the 80s

A

uckland’s Nathan Club was the scene of a trip back in history as Vero embraced the decade that taste forgot.

16 covernote | September 2013

COVER STORY | Earthquake Lessons

THREE YEARS ON: What have we learned from the Christchurch earthquakes?

By Susan Edmunds

Image: Courtesy of Christchurch Central Development Unit

18 covernote | September 2013

Earthquake Lessons | COVER STORY

“

The brokers with good product knowledge and claims processes stood out in my experience… It’s an opportunity for client and insurer relationship building but only some are taking it up.

”

– Richard Johnstone, partner, Wynn Williams

There is hardly anyone who hasn’t come in for some criticism for their response to the Canterbury crisis. But there are countless stories of individuals and organisations going to great lengths to help clients – and the insurance industry is emerging stronger as a result.

T

he ground may have started to stop shaking but three years after the first Christchurch earthquake, the stories of people upset at the length of time it’s taking to resolve their earthquake insurance claims have not.

Lawyers are still getting would-be clients turning up in their offices in tears and the 2016 deadline that has been proposed as the date for all insurance claims to be resolved is looking to be a very lofty goal indeed.

The Christchurch earthquakes have shaken the insurance sector throughout the country. Insurers and reinsurers received an unwelcome wake-up call about the extent of their risk exposure, many customers realised how under-insured they were, and the city’s adviser force was sometimes the public face of an industry under fire.

But the lessons learned in the catastrophic earthquakes’ aftermath should set all facets of the industry on a stronger, more sustainable path into the future, participants and commentators say.

At the end of June, 61 per cent of commercial claims had been completed in Christchurch by IAG. Just under 40 per cent were still in progress.

But by comparison, homeowners are facing a much longer wait. Just 28 per cent of residential claims have been completed and only 27 per cent are in progress. Just over 1000 new homes have been built and 1850 replacement homes have been purchased.

Frustration is building and more and more people are opting to take their battles to court.

Richard Johnstone, a partner at Wynn Williams and an insurance specialist, said there were 178 cases relating to the earthquakes waiting to be heard in the high court and 37 more before the district court. “The idea that it could be all wrapped up by the end of 2016 is in the ‘yeah right’ category.”

Commercial claims were being settled more quickly because most commercial customers were underinsured and had capped policies, limiting the amount that an insurer would pay out, he said.

Richard Johnstone, Wynn Williams.

It made sense for them to take the money and build while they could. But residential policy holders, with full replacement policies that will pay whatever it takes, have much more time and space to argue the point with their insurers.

Johnstone said there was a significant Earthquake Commission component in the delays but insurers weren’t without some fault, either.

There had been found recurring issues of policy interpretation including reinstatement of cover, the extent and meaning of full replacement, and what the standards “when new” and “new” mean.

Much of the general public did not understand insurance policies properly because the wording was not clear enough.

He said it was not a good look for the insurance industry that some three years after the first quakes, the insurers were before the court, arguing about statutory and policy wording.

September 2013 | covernote

19

COVER STORY | Earthquake Lessons

The 2016 goal was not possible, he said, because there were just not enough technical claims handlers and project managers and builders available, even if the claims could be processed in time.

“Up to 8000 homes may have to be built in Christchurch. Even at 1000 per year that will be a long time. With cash settlements, those policyholders will find it hard to get a builder on to the job and there is a risk that they will lose ground as build prices increase.”

He was already worried that many people’s homes were not being repaired properly and rushing it further would not help. “I have, in my dark waking hours, a real concern that we have defectively repaired houses.”

He could think of about half a dozen cases where floor levels had not been assessed properly and there was no engineering input. “The homeowner is left with an unsaleable house.”

Greg Greenwood, Rothbury’s South Island Operations manager, said most of the commercial claims that were left to be resolved were varied and complex. “Sometimes there’s litigation involved but business owners generally understand the process. And on the other side there’s the willingness of insurers to settle claims and move on.

But there’s huge frustration around residential claims.”

Much of the problem for residential claims was related to the Earthquake Commission, he said. There were delays there relating to the requirements and scope of works that could be undertaken, as well as the way problems were being dealt with. “They’re not client advocates. They’re not helping themselves or our industry.”

Peter Townsend, chief executive of the Canterbury Employers’ Chamber of Commerce, said insurance companies had taken a long time settling claims and the process had been delayed by the thousands and thousands of aftershocks that had rattled the city.

But he said it was now a “race to the line” and there was huge pressure from reinsurers, who were into their fourth year of uncapped liability, to start to get things sorted.

Image: Courtesy of Christchurch Central Development Unit

20 covernote | September 2013

The Christchurch rebuild has come with a huge price tag for insurance companies, which many say is not fully understood even by those working in the sector.

Companies such as AMI were publicly helped out by the Government and Western Pacific went into voluntary liquidation.

But other companies are still reporting profits.

Insurers chipped in 81 per cent and 80 per cent of the cost of the September 2010 and February 2011 earthquakes respectively.

That is a huge chunk, especially when compared to the less than 30 per cent that insurers have stumped up in other comparable recent world events. Not even 20 per cent of the estimated direct losses that occurred as a result of the Japanese earthquake and tsunami were insured.

The New Zealand Treasury has estimated the total cost of the earthquakes will be about $30 billion and will generate more than 400,000 insurance claims. Reinsurers are likely to contribute $20 billion.

New Zealanders’ propensity to insure their houses is partly to blame for the heavy weight that is falling on insurers’ shoulders. Johnstone said the Christchurch situation was unusual internationally because most people affected by the earthquakes were insured.

But despite the city’s level of cover, Roger Sutton, of CERA, said some insurers did not seem to be as prepared for such a big event as they should or could have been.

“I come from the electricity industry, where a big, unexpected event is central to planning. Insurers could have had better plans for how to manage such an event. The reality is, it was such a bloody big event and some were caught short. They also need to think about what their capacity is to scale up in big events.”

The local community’s impression of insurers soon after the earthquakes was not good, he said, but it has looked to be improving over time.

Greenwood said insurers copped a lot of criticism but some of the good work they had done had gone unremarked upon. “Most insurers paid clients with business interruption policies $5000 or $10,000 a week to keep their businesses going. They didn’t ask for claim forms or financials. They did the reconciliation after the fact and it was on the basis that they could claim it back if they needed to but they did it at the time to keep those businesses going.”

A report on Resilient Organisations, by University of Canterbury researchers, found that insurers needed to do better at explaining their policies in clearer

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COVER STORY | Earthquake Lessons

Photo: thinkstockphotos.com

terms, so there was less space for confusion or misinterpretation.

The authors, Charlotte Brown, Erica Seville and John Vargo, said insurance policies Roger Sutton, CERA. could also be better designed to meet the specific needs of some sectors.

“Particular sectors that have been identified as having unique insurance requirements include the tertiary education sector, tourism, manufacturing, central city business district-based organisations, organisations that are tenants and the farming sector. These sectors are particularly affected by the indirect impacts of a disaster, such as losses due to perception of Christchurch being an unsafe city to be in; impacts due to damage to neighbouring properties or access restrictions; impacts due to decisions made by a landlord; and being affected by disruption to critical infrastructure, customers and/or suppliers.”

They said there were also problems with resourcing and quality control of the claims assessment process. Some people were passed around within an organisation several times while trying to talk to someone about their claims.

“The large number of short-term personnel brought in to assess claims led to inconsistency and delays in some claims settlements.

Some claimants were reportedly seen by up to 15 different assessors.

There were also reports of claimant files being lost due to inadequate information management systems,” the Resilient Organisations report said.

Insurers were advised that they should revise policies to allow for more flexibility as to when an indemnity period started, such as to allow for delays in damage assessment, establish a predetermined, transparent claims prioritisation method based on vulnerability, review the current legal position with regard to the timing of reinstatement of cover and agree upon a standard interpretation of reinstatement where the clause was used.

The report’s authors also said it was important to ensure that policies were as prescriptive as possible and any policy information was able to be interpreted by the general public. They suggested an industry group should be set up to decide on the standard interpretation of clauses that required clarification after an event.

The major concern regarding insurers reported by the authors was the lack of consistency among and within different companies in both their policy interpretation and willingness to negotiate with their customers. One broker told them that, despite having the same standard wording in their policies, different insurers would interpret the wording differently.

Sometimes the interpretation changed within a company, when parent companies or reinsurers became involved in high-value claims.

It was reported that there was a notable shift in the generosity of 22 covernote | September 2013

Earthquake Lessons | COVER STORY

“

I come from the electricity industry, where a big, unexpected event is central to planning. Insurers could have had better plans for how to manage such an event.

The reality is, it was such a bloody big event and some were caught short. They also need to think about what their capacity is to scale up in big events.

– Roger Sutton, CERA

claims offers between the September 2010 and February 2011 events.

“This inconsistency created uncertainty and dissatisfaction with clients,” the report’s authors said.

Information should be held centrally to make it easier to assess in the case of a disaster and better claims management systems should be developed, they said.

Johnstone was helping some brokers with their own claims, he said.

“I’ve never had so many people in my office in tears in my career, they have really had enough. Frustration has reached a critical point.”

He has about 100 files on the go at present and about half a dozen litigation files are coming in every week. “It’s significant.”

”

But while the earthquakes were a shock to the insurance system, they also made many businesses around New Zealand take stock of their disaster plans.

Many businesses found that they had too little insurance for their needs. Farmers often did not have business interruption insurance – or not enough – and were left struggling. Some assumed that because they had insurance, all their risks were covered and they did not need to monitor them too closely or provide any contingency planning.

Others left their agreed value policies alone for too long without reassessing the sums for which they were insured.

Sutton said many people had found out the hard way the difference

Image: Courtesy of Christchurch Central Development Unit

Artist’s impression of the Te Puna Ahurea Cultural Centre.

September 2013 | covernote

23

COVER STORY | Earthquake Lessons

Image: Courtesy of Christchurch Central Development Unit

Blueprint, Cathedral Square.

between having one year’s worth of business interruption and three.

“People should now be more sophisticated in knowing what they need. There are mixed feelings. Some people are happy, some are unhappy and some are just unhappy because they are feeling generally frustrated.”

The inefficiencies in the system and the problems with claims have provided an opportunity of sorts for some advisers who can step in to help their clients through the process.

Johnstone said large events were a significant opportunity to build relationships with clients. Brokers’ product knowledge and interaction with clients would earn insurer and customer respect.

He had seen brokers building their reputations by helping clients with their claims, and offering to assist non-clients as a marketing opportunity for their businesses. “The brokers with good product knowledge and claims processes stood out in my experience… It’s an opportunity for client and insurer relationship building but only some are taking it up.”

But some had lost their clients as a result of their actions after the quake. Several commercial policy holders had changed brokers because of their experiences with claims and the level of support they were receiving, Johnstone said.

Greenwood has worked right through the earthquake and its aftermath. He said he had noticed a marked difference in the effectiveness of brokers who were part of a national chain compared to those who were running independent small businesses in the city.

His firm had huge support from other Rothbury staff around the country and was able to develop a buddy system, where people were fully backed up by resources in other parts of the company, such as head office. The Christchurch brokers’ client management system was on national servers and brokers could access full IT support and client files from anywhere, even if they had to work remotely from home for significant periods of time.

It was a chance to really connect with clients, he said. Many had lost their most significant assets and were not sure what to do next. “We really worked closely with them to deliver outcomes, and still are.”

But he said that was not the case for everyone.

“The flipside to that is I know of a lot of brokers who did not have 24 covernote | September 2013

that IT infrastructure and really struggled. They were dealing with stuff personally but also had no access to any files.”

Phil North, of Ferret Software, spoke to the recent IBANZ forum about the efficiencies that could be gained in the event of a disaster with good document management systems. He said a proper electronic document filing system would save everything in one, offsite place, fully indexed so that the required information could be found very quickly. A secure system would only allow authorised people to access it and could be accessible from anywhere in the world.

Townsend said the role of brokers had been queried and agreed that some businesses had felt very let down by their experience with insurance brokers in the aftermath of the earthquakes.

More transparency was needed, Townsend said, and brokers needed to be clear with their customers about where their allegiance lay. “In the post-earthquake environment, brokers are still earning an income based on insurance sales without disclosing that relationship and the amount to policy-holders.”

He said people wanted to be given a plain English summary of the policy, explaining what they could expect to happen in various circumstances. Some businesses had been concerned about brokers not using trust accounts for premium payments. “They’re not seeing a drive towards accountability and improvement in skills on the part of brokers.”

Townsend said brokers needed to embrace the new direction and use lessons from Christchurch in their dealings across New Zealand.

“Brokers have a valuable role to play but we need more clarity on how the role works. The whole nature of insurance has changed.”

The Reslient Organisations report’s authors wrote that it was observed by a number of interviewees that many brokers, particularly small brokerage firms, were not equipped, knowledgeable or skilled enough to handle the number of claims and assist claimants in

Early Cresta zones – the way risk was defined.

The target for risk analysis.

COVER STORY | Earthquake Lessons

this post-disaster situation. “In some extreme cases, brokers just disappeared. Some brokers merely acted as a ‘messenger’ between the insurer/loss adjustor and claimant, which appeared to be inefficient and, in some cases, detrimental to the settlement process.”

Some of the people who provided feedback to the report suggested that there was little incentive for brokers to do an adequate job in helping with the claim process because they could easily divert blame to the insurer without their commission being compromised.

And when brokers did not step up to the mark, some claimants were left without a reliable point of contact for their claim.

“On the other hand, there were some broker firms that had a dedicated team of claims managers. These firms clearly acted as an advocate for their clients. The brokers would work with the client and their accountant to prepare the claim and negotiate a settlement with the insurer. This service is a point of difference for some broker firms and is perhaps an attribute that organisations should look for in the future when selecting an insurance broker. In some cases these firms are picking up some of the clients who have been poorly assisted by other brokers.”

Brokers also came under scrutiny for their role in arranging cover that was seriously inadequate.

Vargo, Brown and Seville said a shift away from commission to a fee-for-service model would reduce the potential for allegations

Image: Courtesy of Christchurch Central Development Unit

26 covernote | September 2013

that brokers were recommending inappropriate insurance policies because of a larger commission. “Knowing how much commission is being paid would also show clients what level of service they should expect from brokers. Brokers should meet with their clients at least once a year at policy renewal and discuss business position, growth, risks and liabilities and recommend regular (every two years) building valuations.”

Some customers are allegedly plotting legal action against brokers who they claim gave them incorrect advice about the risks they were facing. Some did not recommend adequate business interruption periods and that has been suggested as an area where brokers will be expected to upskill, to delve more deeply into commercial client risk and report back to insurers.

While a disaster of its kind was unprecedented in New Zealand, many industry participants say insurers, brokers and those taking out insurance policies need to change the way they think about risk.

The idea that insured events are uncorrelated is being challenged by disasters that have global effects, such as big tsunamis and weather events.

Kelvin Berryman, of GNS Science, said the earthquakes could serve as a brutal reminder of the risks that this country is exposed to.

New Zealand as a whole is very exposed to tectonic plate movements, and also climatic events. Working out those risks in

Earthquake Lessons | COVER STORY

detail could help insurers plan for the possibility of future disasters. choose to select different layers in their rating algorithms. And But Berryman said insurance companies looking at the experience all insurers will have to consider how much change their existing in Christchurch needed to remember how rare that sort of event customers can stand, and in what timeframe.” actually was. “The impacts and consequences of the Canterbury Wellington offers significant earthquake peril risk that some earthquakes need to be understood in terms of their rarity. Changing insurers will want to avoid, some will want to risk select, and some policy without considering how rare the events are will lead to an will want to broadly target but only at the right price – and that is just overly conservative risk treatment,” he said.

There were some failures exposed in Brokers have a valuable role to play but we need more clarity on how Christchurch, he said, such as poor risk management, inaction on earthquakethe role works. The whole nature of insurance has changed. prone building policy and a lack of – Peter Townsend, chief executive, Canterbury Employers’ Chamber of Commerce communication, but there were also successes.

Scientists and policy-makers would need to work together to for new business. A large part of Auckland is a known flood risk. understand the magnitude, frequency and geographic distribution of But Aitken said it would be a challenge to work out how to move each of the hazards New Zealand potentially faces, to form a basis for existing customers from a “higher level’ rating algorithm to the new, risk and impact models. more detailed version.

Technology is already allowing insurance companies to drill down For residential customers, Vero is already pricing and underwriting deeply to define risk down to street-by-street exposure. Sometimes for some of the hyperlocal risks although it is not for business a property might be deemed to be a different risk from the one next customers at the moment. door. But he said there might be other risk transfer opportunities aside Berryman said people would have to realise that good land use from insurance that could be considered. planning was important to limit economic losses and a solution was Berryman said it was important to try to get in front of things, but needed to manage earthquake-prone building risk. Engineers and not get into trying to pick where things were going to happen. “You’ll scientists should be talking to the public in terms of possible impacts, end up being blindsided by the next event.” not the hazards in any area.

Insurers are already looking at changing the way they plan for Craig Lewis, of Lewis Bradford consulting engineers, said there was events. finally some urgency from central and local government to assess and Vero started with two rating zones for the whole of New Zealand, improve earthquake-prone buildings. “A lot of the issues that have then enhanced that to 16 Cresta zones based on the provinces. More arisen are due to the codes being pushed too hard.” recently, there was a movement to 98 postal zone Crestas.

The seismic design loads for Christchurch were increased by 36 per Vero’s executive general manager Andrew Aitken said: “That is cent after the 2011 earthquakes. But Wellington’s, by contrast, have still trying to shoehorn a natural peril based on a combination of not changed much in nearly 40 years. The earthquakes had shown seismic activity and localised soil conditions into a human construct, that the insurance cost of secondary element failure was often more that is postal zones for the delivery of mail, that really has only than the primary structural costs. minimal real relevance.”

Berryman said insurance was one of the key instruments that Aitken said it was moving from non-technical paper rate charts would help to stop natural hazards becoming the disaster they had the where the precise location was not critical, to geocoded risks attached potential to be. to technical rating systems. That would then have layers attached for Townsend said it was galling for some policy holders in major threats, such as seismic risks, landslip potential, flood zones, Christchurch that their premiums had increased so substantially remoteness and road access. “Some of the individual variations will be in the aftermath of the earthquake – when all earthquake-prone subtle, involving only small price differences, others will be very large buildings had been destroyed.

– and you are already seeing that in earthquake pricing.”

“Christchurch will be soon one of the safest places in the country Eventually, risk would not be able to be rated without geocoding, to put insurance money because it’s either tried and tested or has been Aitken said. rebuilt to the new code.”

“Insurers will travel this journey at different speeds. You are going Greenwood said the city would have to adjust to a new normal. to have both model T Fords and Ford V8s travelling on the road at That still meant difficulty getting policies in some parts of the city, the same time. Some insurers won’t have any choice but to stick with trouble increasing sums insured and pricing that had “gone through their old car – they won’t have the scale or resources to finance a the roof”. “It’s not going to go back to normal but the industry has covernote move to a more modern rating approach. Some insurers will simply changed and is moving forward.”

“

”

...for insurance professionals

September 2013 | covernote

27

BROKER FUTURE | Looking to the Future

TIME TO PROVE

YOUR WORTH Success in the face of the industrys’ challenges will come to those who can demonstrate their value, industry experts say.

N

ew Zealand’s insurance industry is reeling from an assault on many sides – the confidence hit caused by the Christchurch earthquakes, increasing premiums, the advance of technology, creeping regulation and changing consumer behaviour.

But the chief executives of some of the industry’s biggest players say the hurdles also represent big opportunities, both for insurers and the brokers who work with them.

John Lyon, chief executive of Lumley, said there had been serious reputation issues thrown up by the Christchurch earthquakes and their aftermath.

“Insurers have taken a bit of a pounding over the perceived slowness and lack of response in Christchurch. We need to find a way to restore confidence.”

He said it was hard to tell how much of the negativity was being driven by a small but very vocal portion of the market. “But when you have the John Campbell programme laying into the industry, it’s a sign of a problem.”

He said the best way for the industry to get consumers back on side was to improve the way it communicated with them. “And we need to absolutely nail the next stage of the response, which is getting homes repaired.”

Christchurch’s success stories were going unreported, he said. Commercial claims were being resolved at about twice the speed as residential claims, but that was getting little consumer attention.

Lumley chief executive John Lyon.

28 covernote | September 2013

By Susan Edmunds

The residential delays by comparison were partly because the Earthquake Commission is involved and partly because homeowners were less likely than commercial customers to be happy with a cash settlement. “There’s more complex issues. But the industry can be reasonably proud of the progress in the commercial space.”

Gary Dransfield, the chief executive of Vero, said that of all the problems facing the industry – whether it was concerns about the pace of the rebuild, affordability, or insurer profitability – the one common element was a limited understanding of the value that insurance provided. “There is absolutely no doubt substantial value is being delivered. Taking the Canterbury earthquakes as an example – up to $30 billion of insurance money will flow into Canterbury during the recovery. That is about 15 per cent of the New Zealand national gross domestic product and a massive saving to government and taxpayer.”

He said insurance was saving taxpayers’ money. “If the total cost of the Canterbury earthquake recovery had to be met by the Government alone it would be the equivalent of a 50 per cent increase in net core Crown debt.”

He said Vero was focusing on measuring performance in terms of the value it created and distributed to stakeholders. “There is economic value – or the income earned from the capital and other assets invested in our businesses. There is also the value we generate through the exchange of our services with our intermediaries, customers and other stakeholders. We still have a lot of work to refine how we calculate and communicate about the value we create.”

QBE’s Ross Chapman said some people did not realise the extent of the hit the insurance market had taken over Christchurch.

“The reinsurance market is committed to New Zealand despite the cost of the earthquakes. In terms of the premium pool, losses were very, very high. I am not sure that’s totally appreciated by everyone in the insurance market, or the companies for that matter. It will take a while to recover from.”

If the industry couldn’t turn around consumer perceptions and

satisfaction, it would likely lead to more regulation, Lyon said. “It’s an incentive for the Government to regulate more.”

New Zealand was already moving from being one of the least regulated insurance environments in the world to a much more bythe-book operation.

“There’s quite an onerous regulatory regime in place now,” Lyon said. “One of the reviews that is under way is a review of contract law. In an environment where insurance has reputation issues, that puts pressure on legislators to legislate problems out rather than to allow the industry to resolve them with competitive market forces.

The more legislation that’s applied to try to make insurance perform better, the more costs that are added to the overall environment. It’s not a better outcome for customers.”

It was a balance between ensuring that companies had adequate capital to pay out when required and allowing the insurance market to remain an attractive one for investors, he said. “If we have to hold more capital, shareholders get a lower return. They might end up taking their money to other companies, or other countries, that offer a better investment.”

Chapman says regulation was still changing and developing and would only become more onerous and demanding as time went on.

“That applies to both insurers and to brokers. The challenge is how to recognise and address that within our own organisation.”

Recruitment has been an issue for some insurance companies and Chapman said it would still be difficult to attract new people to the market for some time.

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September 2013 | covernote

29

BROKER FUTURE | Looking to the Future

Ross Chapman, QBE.

Karl Armstrong, NZI.

Gary Dransfield,Vero.

“Having said that, the people who are coming into the industry will be higher educated than in the past, most have a university degree.

There aren’t so many coming straight from school as there would have been 10 years ago. Of course, just because you have a degree doesn’t mean you know anything about insurance but the outlook is pretty good.”

Technology would allow insurance companies to take their businesses to a new level, Lyon said. “Look at what’s happening in the technology world. There is information available on a whole stream of things.”

Insurers could put GPS units in cars that would tell them how much the car was driven, how fast, and how often brakes were applied suddenly. “That information enables a company to potentially understand their risks and expenses a lot more. Overseas there’s the capability that some insurers have to charge people by the mile because of the way their cars are being driven.”

Companies could also get credit information on properties via geocoding or use fraud analytics to track items through data mining that were part of a claim through online sale sites such as Trade Me. “Information can be used to understand customer behaviour better but the challenge is how do we use that information to better provide products and control costs.”

Other issues that were confronting the industry this year included the change to sum insured house insurance policies, from full replacement value, and a slow economic recovery, the chief executives said.

NZI’s Karl Armstrong said the industry should not underestimate the impact of the changes to sum insured residential property insurance. “That’s only one part but it’s a very important part because the customer pays out of their own pocket, it’s not a business. It’s important that we get that right.”

Lyon and Armstrong said the recent central and lower North Island earthquakes were a reminder that natural disasters and other hazards were likely to continue to be a problem for Kiwi companies. “That is going to be an ongoing issue for the industry,” Lyon said. “How do you make returns in an environment with exposure to natural hazards and offer adequate protection to consumers?”

All of the chief executives were sure that brokers had a role in the future of insurance.

Chapman said: “The challenge in reserving that role in the future will be to step up their level of participation in giving more advice rather than just finding the cheapest product. It will come down to the quality of the cover the broker is advising on and the added value they are bringing.”

He said there would be challenges from direct sales, such as 30 covernote | September 2013

websites that allowed people to buy policies online. He said brokers would have to differentiate themselves from that. “If they’re selling just on price they will come under pressure.”

Lyon said customer expectations and buying patterns were changing quickly.

People were happy to transact online and insurers needed to be able to provide the facilities for them to do so when they felt like it, particularly for those customers with simple needs who did not need to get into much detail with their policies.

A lot of companies were facing cost constraints, he said, and moving to better use of technology would be one way that they could save money. “It gives them the opportunity to trade with customers and partners, such as brokers, more effectively. We’re working with brokers to improve our connectivity and cut out double-handling.”

He said many businesses that had operated as intermediaries, such as CD stores, travel agents and even book shops had suffered as customers opted to go straight to the manufacturer instead.

“We’ve seen big shifts in buying patterns whenever manufacturers are able to deal direct with customers. The challenge for brokers is to show how they add value and be clear about what that value is and what it costs. The best way to protect a role in any chain is to show that you are adding value and find ways to trade more effectively.”

Already people were willing to discuss insurance problems and recommendations on forums such as Trade Me’s message boards, he said. Brokers needed to make sure that they were clearly available as a source of advice. “How far that will go, time will tell. But the trend needs to be understood.”

More transparency would be required on commission and fees, Chapman said, and clients would expect to be able to work out what they were getting for the amount they were paying.

Armstrong said brokers sometimes questioned whether they would be better to direct their clients online. But with detailed policies in particular one-on-one advice was necessary, such as those dealing with risk mitigation and business continuity concerns. Helping clients through the change to sum insured would be one way to demonstrate their value.

Dransfield said insurance companies and brokers needed to develop business models and capabilities that were adaptive to any operating environment or external shock. “That is the best way to ‘future-proof’ their businesses. They ensure their people, processes and systems can cope with any sudden or more gradual change.”

Armstrong said NZI was very committed to working with brokers.

“We’re very serious about that. I am a broker-only business.”

He said brokers would always have a role in the industry, provided they continued to add value for their clients. “They just have to establish how the advice model works for them and differentiate themselves as providing an added-value service.”

Brokers needed to be transparent with the clients and explain what they did and how they were paid for it, he said. “Be proud that you are covernote a profession and you are entitled to charge like one.” ...for insurance professionals

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FEATURE | Policy Changes

Photos: thinkstockphotos.com

INSURANCE

OVERHAUL Changes to sum insured policies are the biggest thing to happen to New Zealand’s insurance industry in decades, participants say. Brokers should use the opportunity to cement their value proposition in the eyes of their clients.

V

irtually all of New Zealand’s insurance companies are changing their policies from “total replacement value”, where the insurer pays out whatever is required to rebuild a home, to “agreed value” or “sum insured” policies, where a set payout is determined and agreed on by the property owner and the insurance company when cover commences.

In the case of disaster, if a rebuild costs more than the amount agreed, the owner must make up the difference.

Most companies have already started to change policies as they come up for renewal. Almost all of New Zealand’s residential property insurance policies will operate on a sum insured basis by this time next year.

32 covernote | September 2013

Ross Collett, of Lumley, said it was the biggest change of domestic cover in New Zealand history and would affect everyone from clients, partners and brokers to reinsurers and insurers.

He said changes were needed to the way residential insurance policies worked because of the high level of inaccuracy in the sizes being reported for houses and because insurers had limited knowledge of the individual risks they were insuring.

The country’s largest insurance group, IAG, said reinsurance costs had doubled because of the Canterbury earthquakes.

“Insurers [have been] told to step in line with other countries because, with Canterbury, they will have no idea of the total cost of the rebuild until it is finished and that is because of the total

Policy Changes | FEATURE

The ISO is already advising customers that working with an independent adviser is a good way to get a good deal on their insurance. Douglas said brokers would be able to help people compare policies and wording as well as determine the right sum to be insured for.

Collett said brokers should work with their clients to offer confidence that sums insured were adequate and encourage them to obtain independent advice where necessary.

But Garth Gallaway, of Chapman Tripp, said there were some liability issues for brokers to consider if they were guiding clients through the process.

“I think is fair to expect that a broker advising a homeowner understands how the ‘sum insured’ will be treated by the insurer; and how a homeowner should calculate the ‘sum insured’. The greatest risk for brokers is that a homeowner is under-insured because they have not completed a proposal properly. “ It is for that reason that many builders have refused to offer advice on what sums people should be insured for.

The Certified Builders Association has warned its members that they could be putting themselves at risk of legal action if they offer a professional opinion that turns out to be incorrect.

It sent a message to members telling them that they may need more professional indemnity cover: “Owners are acting on your professional advice, should they suffer financial loss due to poor advice, they may well choose to recover this loss under the law of tort. Those who have chosen to live in this space are paying insurance premiums of around $10,000 to shift this risk to a third party. Get construction specialist advice on your existing cover before assuming any of your existing policies offer protection.”

But Gallaway said prudent risk advisers would already have adequate professional indemnity insurance. “[That ensures] that if they are unfortunate enough to have a claim made against them, covernote they have appropriate protection.” ...for insurance professionals

Photo: thinkstockphotos.com

replacement policies,” Insurance Council chief executive Tim Grafton said.

The move gives companies much more certainty about what they would have to pay out in the event of a widespread disaster.

As policies come up for renewal, most customers are being given an estimated sum insured based on the size of their properties.

Lumley had expected up to 50% of clients would question the renewal sum insured they were given and took on extra staff to deal with the likely influx of queries.

But the response rate was just 10%. “Either we did well or there is significant client apathy,” Collett said.

He said most customers knew about the change through the media and understood the reasons for it. Many were prepared to pay more to ensure they did not have a shortfall in cover.

For many customers, the biggest change will be that where cover was previously provided free, it now must be taken into account in the sum insured. That is primarily things such as demolition costs and garden fittings and fixtures. In some cases, what would have been considered chattels are now part of the house cover. There may also be an additional excess for items that are not covered by the Earthquake Commission.

Most insurers are offering online calculators to help customers work out what sort of sum they need to be insured for. In general, these work well for average-size, average-price homes. But they do not provide reliable estimates for complex or unusually designed homes, severely sloping sites, difficult access, remote locations, situations where land is rendered unusable or construction costs beyond $1.5 million.

Virginia Douglas, of the Insurance and Savings Ombudsman scheme, said complaints had been received about sum insured policies in the past and it was likely that those same problems could turn up again.

Many of the complaints were because people did not realise what they were signing up for under their new cover, she said. When it came time to claim, they found they did not get a payout big enough to rebuild their homes to the standard that they had been – they could not afford the same level of fittings, or were unable to resurrect landscaping.

Already, surveys show that people who used some online calculators to determine an appropriate value were often missing things such as conservatories, retaining walls and garden features that – in the case of total loss in an event such as an earthquake – could add significant cost to a rebuild, over and above the cost of replacing the house itself.

But Collett said that as time went on, sums insured would more closely represent rebuild costs as more data was obtained at the underwriting stage and insurers better used technology, such as geocoding, to determine risks in particular areas.

Brokers had an opportunity to stamp their mark by guiding their customers through the process and helping them to determine what sort of level of cover they needed, he said.

September 2013 | covernote

33

FEATURE | Challenges Ahead

INSURANCE INDUSTRY

RISKS OUTLINED

By Susan Edmunds

New Zealand industry participants are worried about risks to distribution strategies, report shows.

O

ptimising existing distribution channels and creating new ones will be vital for the future of the New Zealand insurance industry, PricewaterhouseCoopers’ latest New Zealand Insurance Banana Skins report says.

The report asks New Zealand participants what they consider to be the biggest risks to the local industry. While internationally, macroeconomic trends, regulation, natural catastrophe and capital were seen as the biggest risks, local industry players were concerned first with natural catastrophes, then reputation, distribution channels and innovation.

Distribution channels have become significantly more of a concern for New Zealanders compared to the last time the survey was conducted. While it was the third most pressing concern in 2013, it was ranked 11th in 2011.

“Not unsurprisingly, the number one concern identified by New Zealand participants in this year’s survey is the threat of natural catastrophes,” PwC said.

“At the time of our last survey in 2011, the Christchurch earthquakes had just occurred but the magnitude of subsequent challenges facing the industry was not fully understood.

This ranking appears well-justified in light of recent earthquake activity in the central part of New Zealand.”

34 covernote | September 2013

There was concern that events would become more frequent and that catastrophe risk was being underpriced. The time it has taken to settle Christchurch claims also prompted fears about the reputation of the insurance industry in this country.

Claims in Christchurch have affected the affordability and availability of insurance nationwide. The report says: “Increases in the cost of reinsurance are being passed to policyholders, with premiums rising significantly in a number of instances. New capital standards being implemented under New Zealand’s evolving regulatory framework will also place pressure on pricing and affordability if insurers are required to hold more capital.”

PwC partner David Lamb said there were interesting differences between the New Zealand situation and perceptions of the industry internationally. He said previous studies had showed less differentiation between perceived risks in New Zealand and those throughout the rest of the world.

“The bit that stands out to me is that on the one hand there are the negative things, such as catastrophes and the reputation of the industry but compared to the things that concern companies around the world, we’re progressive and looking to the future, focussed on distribution channels and innovation, a recognition that with social media and

everything else, there are changing customer dynamics.”

Regulation was not considered much of a concern for local participants compared to their international counterparts, even though insurers recently passed their deadline for being licensed with the Reserve Bank. The report suggested that could be because the effects of regulation are yet to be seriously felt.

Of most interest to brokers will likely be the concerns about insurance’s distribution channels. Report respondents said that optimising distribution channels and innovation were key challenges in New Zealand. Apps and online applications are becoming more popular internationally.

The report says: “Many respondents agreed the insurance industry had been slow to adopt new distribution channels for reasons of conservatism, cost, and failure to understand potential benefits but also out of a belief that traditional personal contact and advice remain essential parts of the offering.”

One respondent said insurers needed to get their heads around how young people wanted to compare offerings and buy things.

But some said that client-broker relationships were strong enough to withstand the threat.

Lamb said brokers’ role was very important in some areas of the industry, particularly when dealing with complex products or

Challenges Ahead | FEATURE

advising businesses on what they needed to do. “But for things that are easier to sell or simpler, such as motor vehicle insurance or life insurance in some cases, the direct distribution channel will get an increase.”

Brokers should also keep a watchful eye on developments such as Trade Me buying into life insurance, he said. “It’s not just insurers but what those outside the insurance industry are going to do. Organisations like Google have a wealth of information about what people want, what they do. If Google can get into selling insurance, that’s a real threat to brokers.”

Insurers would do well to use online customer data to improve risk analytics, pricing and digital interactions, it was suggested.

The insurance industry has problems attracting and retaining the right people in New Zealand, the survey says, although there are more people than are needed in some other parts of the world. “Insurers in New Zealand are certainly facing a different set of challenges from those abroad. Attracting talent to our corner of the world has always been difficult. In addition, retaining the talent we have remains a constant challenge.”

Globally, insurance industry players were concerned about reward systems, which 40% said were too complex, and performance management. Career development was also

a problem. PwC said insurers should develop systems to identify potential and help people progress through their careers.

“The challenge for insurers is to ensure that they have the appropriate human resources frameworks in place and use these as a differentiator in attracting and retaining talent.”

Lamb said brokers and insurers needed to sell the industry better to those who would come through the ranks. “It needs to be clearly communicated that a career path is available and the benefits of a career in insurance. If that message gets across to young people, the industry should be able to attract homegrown talent. Traditionally, banks had a leg up in terms of appetite to join in the first place but there’s no reason why young people

wouldn’t have the appetite to get involved.”

He said as New Zealand improved its links with Asia, it would not be uncommon to see talent flows through from insurance covernote companies there. ...for insurance professionals

September 2013 | covernote

35

FEATURE | Encouraging Diversity

AMP FOCUSES ON

FEMALE TALENT

W

omen have begun to enter the financial advice sector in greater numbers over recent years.

While only 7 per cent of the advisers who have been advising for more than 30 years are women, they represent 49 per cent of those new to the industry.

And while the face of advice is changing, the product providers are also focusing on shoring up their female talent.

Financial services firm AMP, which has a team of insurance advisers working throughout the country, has launched a new leadership development programme to foster the next generation of women leaders.

The AMP Pathways Programme includes modules on key leadership competency areas and one-on-one coaching. Participants undertake a business challenge and report regularly to the AMP leadership team on its progress.

The inaugural participants of the programme in 2013 will be trained in coaching so that they can mentor subsequent years’ participants.

AMP’s executive legal counsel Therese Singleton says the programme aims to build the women’s confidence and desire to go for senior roles.

“It became apparent to me that we needed to stop the talking and the networking and get on and actually do some stuff that helps to build these women and move the dial significantly,” she said.

While Singleton is the only woman currently on the organisation’s nine-member senior management team, 48 per cent of AMP’s senior executives and their direct reports are female.

Singleton said the challenge was sometimes that women did not think they were good enough to go for senior roles. The programme aims to address that. “Certainly there’s no bar in the organisation to them going for senior positions.”

AMP worked with Strategic Direction Consulting’s director Yvonne McLean to develop and implement its Pathways Programme. McLean is also the programme director for Global Women’s Women in Leadership Initiative.

The 2013 intake of 14 women from Auckland, Wellington and Christchurch come from diverse backgrounds including distribution, wealth management, finance, marketing, legal, HR, and customer service.

“Including participants from all areas of the business, and the 36 covernote | September 2013

commitment to run the programme annually, will see the benefits felt across the AMP workforce in New Zealand,” McLean, who is also the programme director for Global Women’s Women in Leadership Initiative, says other businesses within the insurance sector could follow AMP’s example.

“It’s really encouraging to see large corporates like AMP lead by example. Positive recent initiatives such as the launches of DiverseNZ Inc. and the Women of Influence Awards have increased the call for greater diversity in senior management, but individual businesses need to take action to create that diversity within their own organisations.

AMP has provided a great example stepping up and taking the initiative, and is a role model for other organisations, which I hope will follow suit.”

Talented women are nominated from all areas of the AMP business to take part in the programme.

The AMP Pathways Programme complements existing initiatives designed to support diversity, such as a flexible approach to working arrangements and hours, including job-sharing, part-time work and working from home. Since 2009, AMP has also provided 14 weeks’ full paid parental leave, on top of the government entitlement. For AMP, the benefits are clearly evident in the high number of women who return to work at AMP following maternity leave.

Singleton’s own career path provides inspiration for young professional women in the firm. In 2002 she was the first Irish citizen to qualify for the New Zealand Bar, which enabled her to transfer her specialisation in superannuation/pensions/tax to New Zealand.

She played an instrumental role in the major AMP merger with AXA. She spearheaded the New Zealand due diligence and integration processes, which included an in-depth review of AXA’s New Zealand business and products, and working with regulators including the Commerce Commission, Takeovers Panel and Overseas Investment Office. She also led the first phase of the integration of the two businesses before returning to the executive legal counsel role for the merged entity.

Singleton is an executive director of the AMP Financial Services entities in New Zealand, and a director of the Financial Services Council. She is a member of Global Women and recently won the Corporate Lawyers Association of New Zealand’s Private Sector Incovernote House Lawyer of the Year award. ...for insurance professionals

ADVERTORIAL

Chinese concerns for Kiwi Exporters S

ince the late 19th century New Zealand Exporters have been selling our country’s goods and services to all four corners of the globe with great success. During this time the continents of Europe and Australia have been the traditional targets for our best exports, but in the last decade Asia has emerged as the most popular destination.

China in particular has this year overtaken Australia as New Zealand’s biggest export country for the first time, while shipments across the Tasman have fallen. This rise in sales to China is tipped to continue as it is increasingly viewed by Kiwi exporters as the “promised land”.

A lot of time, effort and expense is put into making sure that Kiwi products and services are of the highest quality and that they meet international laws and guidelines, but the harsh reality of today’s exporting world is that the challenge of getting paid for all of this hard work can be very difficult.

The recent headlines of meat and dairy exports into China being held up or rejected are still ringing in peoples ears. Thankfully the current relationship between our two governments is good, so when issues such as these arise the New Zealand government can hopefully step in and assist. This may not always be the case moving forward, particularly if the transactions are not Fonterra sized! Whenever an overseas government imposes import control measures or administrative restrictions on Kiwi exporters it can be both a logistical and financial nightmare for your clients. Restrictive measures such as these can lead to extensive payment delays, or our exporters not getting paid at all.

So what does all of this mean for your clients? The key concept to grasp is that Trade Credit insurance does not provide cover for any defect or issue with quantity, quality or delivery. These are risks that are typically covered by Marine Cargo insurance and Liability lines.

The two key areas of Trade Credit insurance cover that apply to these scenarios are Political Risk and Non Acceptance.

Political Risk covers the inconvertibility of currency, contract frustration or cancellation of an import or export licence. This cover also encompasses the default of a customer that may happen to be a central, regional or local government agency or department.

Non Acceptance or Contract Repudiation arises from losses coming from the re-sale of goods which the overseas customer has failed to accept, through no fault of the Policyholder.

In both instances cover can be provided for warehousing, transportation, legal services or re-packaging.

The bottom line is if giant New Zealand businesses such as Fonterra or Zespri can run into administration issues with the Chinese government, then any New Zealand business can come across similar issues. So if you are an Insurance Broker that has clients exporting to China or anywhere in the world, then please talk to them about Trade Credit insurance.

If you would like to discuss Political Risk, Non Acceptance or Trade Credit insurance for your clients then please call Chris Murphy at (09) 5240960.

September 2013 | covernote

37

FEATURE | Code Committee Changes

Photo: thinkstockphotos.com

CPD PROPOSALS

GET IBANZ SUPPORT

By Susan Edmunds

M

oves towards increasing flexibility around continuing professional development (CPD) requirements have been welcomed by IBANZ. Amendments have been proposed to the Code of Professional Conduct for Authorised Financial Advisers, which would change the required number of hours’ training that advisers must complete each year.

At the moment, advisers must complete 10 structured and 10 unstructured hours of training each year. The code committee is proposing to change that to 30 structured hours every two years.

IBANZ chief executive Gary Young said that was a positive move.

Most of his organisation’s members are registered financial advisers, not authorised, and do not have any set requirements under the official rules. But IBANZ requests that all members keep up a programme of CPD and suggests that the minimum standard is what is set by the code committee.

Young said the shift to 30 hours over two years would provide greater flexibility. It also meant that if someone did a lot more training in one year than the next, they would not lose the benefit of the extra time and effort spent. “At the moment if you do a whole lot one year and not as much the next, you get penalised. Flexibility is good as long as it’s not left to the last minute. The danger is that at the end of two years you are stuck having to do 30 hours.”

He said there were already periods where there was a rush on CPD as people tried to get their hours in before the cut-off. Some advisers have complained that CPD is hard to access but Young said it depended on the type of training people wanted. Those who needed higher-level training would always find there was less available.

38 covernote | September 2013

“I don’t think it’s hard to access but it is harder for the more experienced advisers to get relevant CPD. For the inexperienced advisers, there is plenty around.”

The code committee has suggested that product providers should be allowed to include technical training on their product as structured training but not sales/promotional training.

It is worried that some advisers are counting sales presentations as CPD hours. Young said it was an issue for the committee to work though.

“

IBANZ is clear that pure product selling shouldn’t be part of CPD.

”

– Gary Young, CEO, IBANZ

“They have to talk about now allowing CPD that is purely how to sell a particular company’s product. We need to get away from CPD being all about how do you sell a particular product rather than understanding the product itself.”

It was like doctors learning about medicines, he said. They could do structured training that explained a particular type of drug, but not the merits of a particular brand. “IBANZ is clear that pure product selling shouldn’t be part of CPD.” IBANZ offers CPD through the IBANZ College and Young said online training was becoming more popular. Webinars in particular were being welcomed. “We’ve particularly found some bigger covernote companies taking up webinars.” ...for insurance professionals

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FEATURE | Solvency Standards

HEDGING AGAINST INSURANCE CHANGES

N

ine times out of ten, the Reserve Bank’s solvency standards for insurance companies will make little difference to those at the front line dealing with consumers, says Nick Maxwell, a Director in ANZ’s Financial Institutions Group.

Due to widespread regulatory overhaul of the financial services industry post-global financial crisis, insurance companies in New Zealand have moved to a “risk-based” capital approach.

Insurance companies will need to hold more capital aside to decrease the risk of insolvency. “That capital must be held in certain forms and be clearly visible to the Reserve Bank of New Zealand,” he said.

The portfolio, or assets with which the capital is deployed makes a difference, too.

If an insurer has a significant amount of shares or property within its portfolio, the Reserve Bank will want it to have more 40 covernote | September 2013

capital set aside than if it was holding cash.

“The more capital held aside will potentially see less available to be used in the day to day running of the business and therefore may see some cost increases to make up the difference” Maxwell said.

He also mentions, that a well-capitalised company with lower capital charge assets will be in a better position to reduce costs elsewhere. Furthermore, shares or fixed interest assets are subject to considerable movements in value, which would require the company to find more capital to match the movement. “If it’s in cash, then there is very little likelihood of a change in value and for that reason most companies have elected to hold capital in low risk assets like cash, term deposits and government bonds.”

The Minimum Solvency Capital (MSC) is the sum of several risk capital charges, which include; Catastrophe, Foreign Currency

(FX), Interest Rate (IR), Asset, Insurance and Reinsurance Recovery risks. If the sum of these components is less than $3 millon, then the licensed insurer must increase its MSC to at least this amount.

Maxwell said preliminary analysis showed capital relief was available for the FX risk capital charge and IR capital charge through hedging with FX and IR derivatives.

The Reserve Bank had stated there was no asset risk capital charge for the IR or FX position arising from derivative transactions.

Using these instruments may allow insurers to free up capital and use it more effectively within their business.

Most NZ insurers will hold large allocations of fixed IR assets and liabilities.

These are likely to be managed via existing derivative positions and strategies. Under Reserve Bank’s IR assets and liabilities which have fixed rates are required to be shocked

Solvency Standards | FEATURE

by +/ – 175 basis points each. The net difference between the maximum absolute moves on each item is capital which is required to be held. In the case of a large fixed rate position the cost of capital to hold this position may be more expensive than hedging via an alternative derivative strategy and gaining capital relief under the bank’s solvency standards.

If a company was capital constrained, then this may affect the company’s ability to write as much new business and take on more customers, he said. “In reality this was not an issue for most companies, but was another factor to take into account when these companies were looking at growth opportunities, either organically or by acquisition, Most New Zealand insurers were branches of overseas entities, he said, with large parents and big structures offshore so capital requirements would not be a major issue for them. But he said smaller local companies might have slightly more difficulty if they were not able to easily access capital.

“

I wouldn’t expect brokers to do due diligence on big firms’ balance sheets but if they get an understanding that a company might be capital constrained, it’s something to watch out for.

”

– Nick Maxwell, ANZ

Reinsurers could also be used to provide more capital. “I wouldn’t expect brokers to do due diligence on big firms’ balance sheets but if they get an understanding that a company might be capital constrained, it’s something to watch out for.”

It’s reassuring for customers that the Reserve Bank wanted to make sure that insurers were licensed and had enough capital and access to it when required. “ The changes have introduced enhanced oversight to the industry, aligned our regulatory model to international best practice, and built our protection against insurer failure.

He said most of the time the regulations would mean very little to consumers but it was helpful to understand what was hap-

pening. “In low volatility environments, capital charges can be more expensive than gaining capital relief through hedging the exposure with a financial derivative. As insurers employ a greater degree of focus on investment portfolios and capital management to minimise capital costs, derivatives will provide alternative capital relief.”

Execution of capital relief for various risk charges through different securities means preliminary analysis shows capital relief for FX and IR risk charge is available through hedging with FX and IR derivatives.

Capital relief for equities may be available for offshore equity holdings in markets with developed index options, while availability in New Zealand is dependent on the development of an NZSE indexcovernote option. ...for insurance professionals

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September 2013 | covernote

41

ASK AN EXPERT | Your Questions Answered

Separating events Q PROPERTY I have a claim where an ex-employee with a grudge has allegedly broken into and maliciously damaged two business vehicles. The vehicles were parked at two different employees’ residences after hours and were both damaged in the same fashion on the same evening.

The material damage policy (which covers items stolen from the vehicles) defines an event as “something that happens including continuous or repeated exposure to substantially the same condition, or a series of things that happen resulting from, or attributable to one source or original cause, which results in loss or damage”.

I am in discussions with the insurer who believes this is two separate events, with two excesses, but I believe they are attributable to the same source, so should be considered one event.

The vehicle policy refers to an excess applying to any one accident with accident defined as “an unforeseen or unintended happening or event”. Again, two excesses are being applied by the insurer.

Response from Crossley Gates, A DLA Phillips Fox, Auckland The material damage policy has the aggregating provision of “... attributable to one source or cause,” as you say. I think you are correct that the two break-ins to the cars are from the one source – the same employee. So one excess.

The commercial motor vehicle (CMV) policy does not have this

aggregating provision. A “happening” or “event” is something that happens at a particular time, in a particular place and in a particular way. I think the two break-ins are probably two happenings or events under the CMV policy. They happened in two different places.

Response from Paul Lightfoot, Auckland At the risk of taking this too far, could you argue that the source is not the employee? By himself, he does not cause anything, and may have decided to go home that night instead. It was his decision to break into first one car and then the next car, which is the true cause/source. So arguably there were two separate decisions or actions, so two excesses. This is a difficult issue to argue, because I think the clause is mainly designed for natural events, not people.

Furthermore if the events had been separated by one night or one week, two excesses would apply without much argument. So the critical fact here is the timing of the event and not the cause/source.

Q PROPERTY My client is a commercial tenant. He is aware that his landlord cannot seek recovery off him for accidental damage sustained to the building where the damage is deemed as accidental and unintentional i.e. the landlord must claim under their own property insurance. However, the tenant asks what would happen if one of his employees was to hold a grudge and intentionally and maliciously damage the landlord’s property. Would my client still be afforded protection under his tenant’s liability for the actions of his employee if these actions were shown to be malicious?

Photos: thinkstockphotos.com

Response from Crossley Gates, A DLA Phillips Fox, Auckland The exoneration of the lessee is dependent on the lessee and the “lessee’s agent” not intentionally causing the damage. The “lessee’s agent” is defined as anyone whose actions the lessee is responsible for at law.

An employer is usually vicariously liable (responsible) for his or her employee’s actions, unless those actions are outside the boundaries of the employment activities.

In short, there is a risk that a wayward employee could carry out deliberate damage for which the employer (lessee) is responsible.

This is perhaps a reason why lessees with employees should still maintain tenants’ liability insurance despite the Property Law Act. 42 covernote | September 2013

Your Questions Answered | ASK AN EXPERT

Q

Photos: thinkstockphotos.com

PROPERTY A policy limit for repair or replacement of jewellery is $5000.

An insured requires repairs to an item of jewellery to the value of $5290. The excess is $250. The insurer offers $5000, minus the excess of $250, which equals $4750. We believe the offer should be $5290 minus the excess of $250. That is $5040, so the payout should be the full $5000 that is available. We believe the insured would be twice prejudiced if only offered $4750.

What is the fair outcome?

Q LIABILITY Could someone confirm whether a farmer has strict liability for wandering livestock that cause property damage, such as collision with a car?

Response from Pauline Barratt, JonesFee, Auckland A The answer is no. That was the position at common law but it was abolished by the Animals Law Reform Act 1989.

Negligence has to be proved, taking into account: (a) The common practice, in the locality in which the relevant part of the highway is located, in relation to fencing, and the taking of other measures to prevent animals from straying onto highways in that locality; and (b) Any measures taken to warn users of that highway of the likely presence of animals on the highway.

A Response from Keiran Vlietstra, Auckland It will depend on the insurer’s definition of the excess – is the excess deducted from “the loss” – therefore settlement $5000 or deducted from “the claim” therefore $4750? The first example is the most commonly accepted definition.

Response from Crossley Gates, DLA Phillips Fox, Auckand Keiran is correct, although often it is not the definition of excess, but the basis of settlement clause that states whether the excess applies to the loss or the claim.

Photos: thinkstockphotos.com

Response from Jane Marsick, NZI I’d caution that you have to also be aware of the requirements of the Fencing Act. My understanding is that this isn’t a strict liability act but that it still has quite strong requirements on farmers to fence animals.

I see a difference in this situation between an animal that has “got out” and is just wandering, as opposed to an animal that is being driven under control.

From my 10 years’ experience as a rural underwriter I can confirm that animal damaged car is the most common of all rural liability claims, and mostly the liability does fall to the farmer.

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 (iNavigator experts offer free assistance to IBANZ Members via the IBANZ website).

September 2013 | covernote

43

LEGAL | Duncan Cotterill Lawyers

“

Encouraging insureds to focus on risk management and implementing proper compliance systems may avoid exposure to increased payouts resulting from the absence of such systems.

”

Insurance promotes environmental compliance

Hans van der Wal Duncan Cotterill Lawyers

Helen Smith Duncan Cotterill Lawyers

Insurers can be the fence at the top of the cliff as well as the ambulances at the bottom.

A

record-breaking fine for companies dumping contaminated earthquake waste in Christchurch is the outcome of a recent District Court ruling, which described the practice as a “complete disaster”.

The case, Canterbury Regional Council v Coutts Island Holdings, related to the disposal of an estimated 5000 cubic metres of contaminated materials removed from buildings being demolished after the Canterbury earthquakes.

A total of of $165,000 in fines and costs orders was imposed after two companies and a company director pleaded guilty to discharging contaminants to land in contravention of the Resource Management Act (RMA).

The regional council regarded the offending as the worst of its type seen in post-earthquake Christchurch. It estimated that between 800 and 1000 truckloads of contaminated material would have been dumped, costing up to $2 million in landfill fees.

The companies had agreed to undertake clean-up at their own cost, understood to be up to $150,000. Despite that, the court imposed a total of $165,000 in fines and costs orders.

The decision sends a clear message to demolition contractors of the need to properly dispose of waste. It is also interesting because, in sentencing, the court referred specifically to the availability of insurance as a mitigating factor.

It took the view that insurance was not compulsory and came at a cost to the companies. As such, it said the companies 44 covernote | September 2013

had taken responsible steps in obtaining cover.

The court highlighted the positive features of insurance, noting that in many cases it enabled the clean-up costs to be paid for which, if there was no cover and a defendant was not otherwise able to pay, the community would have to fund.

The court went further to say that insurance policies encourage adherence to environmental laws and/or regulations. It said that insurers had the ability to affect certain behaviours by requiring precautions against loss, reflecting insurers’ role in promoting compliance.

This recognition of the positive role and mitigating benefits of insurance is encouraging. The fine in this particular case was high, but was due to the particular circumstances of the case. The court found elevated culpability because of a total lack of knowledge, systems or procedures for ensuring compliance with the applicable demolition, sorting and disposal rules.

Breaches of the RMA are strict liability offences with high maximum penalties, which can be incurred through acts or omissions by employees, contractors or agents, for which ignorance of the law or of the offending generally provides no excuse.

The potential for inadvertent offending and significant fines is therefore high, making it vital to have statutory liability cover in place to respond when there is an accidental breach.

But this and the increasing fines and remediation costs for environmental offences translates to increased exposure for insurers, who would do well to focus on how

effectively they are limiting their potential exposure from this particular source.

Encouraging insureds to focus on risk management and implementing proper compliance systems may avoid exposure to increased payouts resulting from the absence of such systems.

In environmental offences, effective compliance systems do often succeed in preventing an offence from occurring. But because of the strict and vicarious liability associated with environmental offences, even the best systems will not totally eliminate non-compliance. However, in such cases the existence of systems may allow a successful statutory defence and be a relevant mitigating factor which could result in a lower penalty than might otherwise have been the case.

This decision highlights the value of statutory liability insurance as recognised by the Courts. Insurers may have a role to play in encouraging appropriate systems and compliance so that the existence of cover can act as the fence at the top of the cliff, as well as an ambulance at thecovernote bottom. ...for insurance professionals

Duncan Cotterill has a team of insurance law specialists. The team includes: Helen Smith; Hans van der Wal; Duncan McGill; Stephanie Grieve; Jonathan Scragg; and Alistair Darroch. www.

DuncanCotterill.com. Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

By Helen Smith and Hans van der Wal, of Duncan Cotterill Lawyers

AIG | TECHNICAL INSIGHT

New approach to management insurance

Cris Knell AIG New Zealand

Brokers with business clients who want a less time-consuming and complicated approach to their corporate cover may find AIG’s new Gold Complete product is a good fit, the insurer says. ris Knell, the chief executive of AIG New Zealand, said the local business environment was recognized for being innovative, entrepreneurial and fast-paced.

But there was also a trend towards a more litigious landscape. This created a challenge for New Zealand companies who needed to move quickly to compete effectively, but at the same time had to ensure they had adequate insurance protection for the company and its directors.

In response, AIG Insurance New Zealand has introduced Gold Complete, an “evergreen” management insurance policy.

The evergreen feature allows the insurance policy to automatically continue year after year, without the customary annual renewal process which can be time consuming and often complicated.

While this approach is common to consumer insurance, it is a new development for management liability and provides ongoing security for companies.

Traditionally, changes in a company’s risk, such as an acquisition, restructure or a change in strategy, would spark a review of the related insurance terms.

AIG’s new policy approach assists companies with preparing long-term business plans and budgets as well as removing the burden for executives who have had to complete unnecessary and cumbersome paperwork.

Clients have the flexibility to request increased policy cover and limits at any time. A traditional renewal process can be requested by either party giving a year’s notice.

Designed for NZX-listed and large private

Photos: thinkstockphotos.com

C

corporates, the policy comprises 12 modules covering the key areas of management insurance including Directors & Officers’ (D&O), Prospectus and Employment Practices Liability. Additional features include the reinstatement of insurance limits for unrelated claims and the ability to passport the policy worldwide to ensure a seamless global solution for multinational companies.

Companies also benefit from access to a broad range of top-tier advisers who can provide PR, legal and risk management advice should they face litigation or an event that could result in reputational damage to the client or directors.

AIG’s financial lines manager Ryan Clark said that in an increasingly litigious environment, organisations were seeking cost-effective and streamlined insurance solutions.

“Gold Complete’s revolutionary evergreen feature is the management insurance solution for forward-thinking corporations looking for efficient process as well as comprehensive protection.”

Knell said: “D&O insurance is an integral part of a company’s risk management framework. Few directors, no matter how highly paid, can bear the financial cost of the level of legal expertise required to defend themselves against D&O claims.

Good D&O policies are about providing sustainable, transparent protection for talented and honest managers and directors, helping to keep their expertise engaged, and covernote in New Zealand.” ...for insurance professionals

Cris Knell is the chief executive of AIG NZ

September 2013 | covernote

45

OPINION | Vero

“

All of us value people, products, services and companies in different ways. It is a matter of perception and what we call salience – or relevance to our needs and interests. Whether you are a small, independent business or a major, multi-national firm – you have an equal capacity to demonstrate value for the stakeholders you choose.

”

The hedgehog and the fox

Gary Dransfield Vero CEO

The headline of this column is taken from a Greek saying: “...a fox knows many things, but a hedgehog knows just one big thing...”

O

ne simple interpretation is that a fox is prepared to try many ways to adapt to change – but a hedgehog just relies on his unique body.

A more sophisticated analysis is that the hedgehog is a symbol for those who base their lives, businesses or nations on long-standing concepts, institutions and capabilities – what might be called the “big things”. The fox represents those who favour different, constantly changing approaches to managing resources, organisations and people – a focus on “many things”.

This is the situation the insurance industry faces in New Zealand today. Some of the “big things” or longstanding beliefs and approaches we have used in managing our businesses are being challenged. These include: • The market economy and the roles of private and public sectors in national economic growth and living standards.

• The limits to the effectiveness of the limited-liability, joint-stock company and the level of regulation required to ensure market efficiency and transparency.

• The role of corporate profits in generating the capital required to sustain national growth and the quality of life of individuals.

Sometimes the challenges to these are direct; but more commonly, the problem is an erosion of confidence caused by persistent criticism of performance and operations.

There is no doubt that global financial and equity market crises; natural disasters; and local corporate collapses have shaken public confidence and caused significant concern.

Vero’s response is guided by some general principles I believe are relevant to our 46 covernote | September 2013

industry in general. These are: • Vero’s corporate strategy, planning and operations need to address both short term priorities and longer term secular trends.

• We need to achieve a balance between keeping the business capabilities that have served Vero so well in the past – while making the changes needed to ensure sustainable and profitable growth.

• We have to improve the efficiency of our own businesses and also publicly advocate for the reforms we believe are needed.

There is nothing unique or particularly insightful about the types of long-term issues Vero is assessing.

The general insurance industry in New Zealand is being transformed due to the combined impacts of the recovery from the Christchurch earthquakes; the protracted recovery from the global financial crisis; and the restructuring and consolidation of businesses within our industry. There are also broader, secular shifts at work.

There is the shift from stability to volatility in global financial markets and economies.

We do not believe there is any immediate prospect of a return to settled conditions.

We prefer to plan for volatility and build our capacity to cope with that.

We see a shift from enduring to transient competitive advantage. Major companies spend millions building trusted brands. Our businesses have traditionally focused on what we believe are distinctive competencies or competitive advantages. While these will remain influential, it cannot be assumed they will deliver the same competitive advantage over time as they have in the past.

Major advances in information technology

are leading to a shift from producer power to consumer choice. As these continue they will give consumers greater power over product information access; product awareness; and service provider choice.

The most important shift is from scale to value. Scale and pricing power have been traditional foundations for companies to achieve industry leadership. I believe that will change and companies will seek to differentiate themselves from their competitors much more on the way they create and distribute value.

All of us value people, products, services and companies in different ways. Whether you are a small, independent business or a major, multi-national firm – you have an equal capacity to demonstrate value for the stakeholders you choose.

When faced with this mix of immediate and longer term changes – what should industry and individual businesses do?

Our first priority is to know and communicate what it is that guides everything we do in our businesses and industry sectors. That can be a vision, purpose or direction that is used as a guide and also to assess the value or relevance of business or industry strategies and operations.

I believe government in New Zealand may be ahead of industry here in being clear about purpose and framing policy decisions to achieve that. There is clarity about government direction and key fiscal and monetary policy settings. At a department level, the way the New Zealand Treasury frames all their policy decisions around a central objective of higher national living standards should be noted by industry.

Vero | OPINION

Treasury assesses the likely impact of its policies on factors such as national economic growth; income distribution; the sustainability of capital stocks; social infrastructure; and New Zealand’s ability to withstand shocks. That is an approach that is as relevant for companies as it is for government. It could certainly be used by the general insurance industry.

National economic growth; the sustainability of capital stocks and infrastructure; as well as New Zealand’s ability to withstand shocks are dependent on a profitable insurance sector. Our industry is indisputably a major contributor to higher living standards.

We have failed to find a way to make that case and measure our performance in a way that is clear and understood. Perhaps there is scope for closer alignment between the work of Treasury and our industry in addressing this.

When you consider the key issues the general insurance industry faces including concerns about the pace of the Canterbury earthquake recovery; affordability; and insurer profitability – there is one common element. There is limited understanding or appreciation of the value provided by insurance for New Zealand and the way that contributes to higher living standards.

There is absolutely no doubt substantial value is being delivered. Taking the Canterbury earthquakes as an example – up to $30 billion of insurance money will flow into Canterbury during the recovery.

The annual value of the asset protection provided by insurers is massive. Vero alone provides over $215 billion worth of fire and household insurance protection for our customers each year across New Zealand. In other words – the protection Vero provides is the equivalent of the entire annual gross domestic product of New Zealand.

We are moving Vero to a focus on the value we generate for our stakeholders. We state our purpose to be “protecting New Zealand’s future”. When we talk about how we will do that, we measure our performance in terms of the value we create and distribute to our stakeholders.

There is economic value – or the income earned from the capital and other assets invested in our businesses. There is also the

value we generate through the exchange of our services with our intermediaries, customers and other stakeholders.

We still have a lot of work to refine how we calculate and communicate the value we create.

Having a clear purpose and strategic focus is a priority for business success in a changing, challenging and highly competitive environment. Another priority is to ensure we have businesses capable of delivering sustainable value irrespective of any external shock to our operating environment.

I believe industry and business leaders must develop and be prepared to present a compelling case for change and business transformation to our employees, customers and other stakeholders. That is not easy because it inevitably creates debate about how to share the burden of reform.

At Vero, we have a new strategy, threeyear plan and suite of projects designed to improve the efficiency of our key systems and processes – particularly in claims management, pricing and information technology. We are working on both labour and capital productivity.

The cost of this transformation is being met from our profits and retained earnings.

What we will spend on new equipment and process efficiency changes is about the same as our profit for this year.

Improving corporate efficiency is important. We also recognise that we must be active in mounting an external case for the changes needed to ensure New Zealand has a sustainable general insurance sector.

That case would include reasons why: • Insurance company productivity needs to improve to ensure premiums remain at affordable levels.

• Premiums need to better reflect risks covered.

• Corporate profits are required to ensure New Zealand has adequate capital to underpin future growth, and meet reinsurance and solvency requirements.

• There are significant benefits for New Zealand from increased integration of local and Australian insurers.

It would also include the case for changes to the way natural disaster recoveries are funded and managed in New Zealand. The

Christchurch recovery has highlighted the need for reform.

Vero had around 20,000 claims from the Christchurch earthquakes. We are more advanced that most insurers and have completed around 60 per cent of these and have paid out over $2.2 billion in claims. To put that another way – we have paid out in claims well over 20 times what we earned in profit for the current financial year.

I cautioned very early in the recovery about the way a lack of experience in the management of complex, large scale natural disasters was leading to unrealistic expectations by government agencies about the pace of rebuilding.

I have noted the problems that would result from a lack of uniform claims assessment and management processes.

Today, I sense there is a greater sense of realism on the part of government agencies about the duration of the recovery and the relative efficiency of private insurers in claims management.

We can improve recovery efficiency in Christchurch and any future crises through harmonisation of claims management processes; agreement on apportionment methodology; and increased involvement of private insurers in claims management.

Whether we are industry, business or government leaders, fear of failure should not cause us to avoid developing and communicating our response to the major changes around us.

We should not easily dispense with the long-standing strengths that have served us well. Equally, we should be prepared to innovate and accept the changes needed to ensure future national, corporate and individual needs are met.

We need to be both hedgehogcovernote and fox. ...for insurance professionals

By Gary Dransfield – CEO Vero Insurance New Zealand

September 2013 | covernote

47

CASE SUMMARY | FSCL

Personal property cover:

inadequate insurance cover – who’s to blame?

48 covernote | September 2013

been brought to her attention she would have gladly paid an additional premium to ensure she was fully insured.

Review We reviewed the complaint and considered both parties had contributed to the loss – the broker by not drawing Ms F’s attention to the $10,000 limit and Ms F by not reading the letters sent to her alerting her to the unspecified policy limits.

It seemed to us that both parties would benefit from the opportunity of talking through the complaint from their perspective so we suggested a conciliation meeting.

Both parties agreed with our suggestion and attended a conciliation meeting.

Although the contents of all conciliations are confidential we can say that an outcome satisfactory to both parties was achieved and the complaint was resolved. This case demonstrated the benefits of the conciliation process. Both parties were able to sit around a table to “have their say” which, with the guidance of a FSCL conciliator, resulted in the satisfactory settlement of the case with the parties agreeing to maintain their professional relationship of broker and client.

Lessons to be learned It is important for an insured person to carefully read all notices and changes to policies sent to him/her by the insurer, even if the insured uses the services of a broker.

In particular, the insured should satisfy him/ herself that he/she fully understands the amount or extent of cover he/she has.

It is also important that a broker satis-

Photos: thinkstockphotos.com

Background Ms F had arranged her insurance through the same broker for many years. In 2010, Ms F inherited some jewellery from her mother and as soon as she brought it home she telephoned her broker and asked what she needed to do to make sure it was insured.

The broker advised Ms F that items valued over $3000 needed to be individually specified on the policy schedule, and that the broker could note the items worth less than $3000 on the policy to keep a record of them.

Ms F sent the broker valuations for the jewellery. Three items were valued at more than $3000 and so were specified on the policy schedule. Four other items all worth less than $3000 individually, but collectively worth $8000 were noted on the policy schedule.

In 2010 and 2011 Ms F was sent a renewal letter alerting her to the “unspecified items limits” on the attached schedule. Ms F did not pay any attention to the letter or the schedule, believing her broker had taken care of matters for her.

In 2012 Ms F’s home was burgled. One of the items valued at over $3000 was stolen and all of the other jewellery in Ms F’s home with an indemnity value of $25,000 was stolen. Ms F happened to be wearing the other two items listed on the policy schedule.

Ms F’s insurance company assessed the claim. It accepted the claim for the item specified on the policy schedule and paid Ms F $10,000 for all the other jewellery stolen.

The insurance company explained that the policy had a $10,000 limit for all unspecified items of jewellery. Ms F was unaware of the $10,000 limit and considered her broker should have drawn her attention to this limit as soon as the broker became aware that Ms F had brought jewellery worth $8000 into her home. Ms F said that if this limit had

fies him/herself that the insured client has adequate cover for the insured’s needs and personal circumstances. In this case the broker had been on notice that the insured had inherited a considerable amount of extra jewellery and, with a little more care, the broker could have ensured that the insured had adequate cover for the additional jewellery in the event of a total loss. Had the broker done so, the complaint would never covernote have arisen. ...for insurance professionals

Financial Services Complaints Ltd (FSCL) is an approved dispute resolution scheme under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 and has over 5000 participants. For membership enquiries, call 0800 347 257 or email info@fscl.org.nz

ISO | CASE SUMMARY

Residential property cover:

check your floor area

Review When arranging insurance, the onus is on the insured to provide the correct information regarding the risk to be insured. In the case of house insurance, this includes providing the correct information about the floor area of the house. Insurers do not inspect houses, nor take floor measurements for insurance purposes and, as such, rely on the insured to provide this information. In

Photos: thinkstockphotos.com

Background In or about May 2000, C arranged insurance on her house with P. Cover was provided for full replacement value based upon a floor area of 145m2.

In September 2006, the policy was cancelled due to non-payment of premiums.

In October 2006, C telephoned P with the intention of reinstating the house policy.

Due to the time that had elapsed since cancellation, P would not reinstate the policy.

C was transferred to a sales representative to arrange a new policy and was asked new underwriting questions.

C was unable to provide the floor area of the house and, therefore, it appeared that P had accessed the information from an independent website, which indicated the floor area of the house was 110m2. Cover was provided on this basis.

In September 2010, February 2011 and June 2011, earthquakes struck Canterbury, damaging the house. Subsequent assessments of the house revealed that the actual floor area was 142m2. P offered settlement of C’s claim based upon a floor area of 110m2, as specified on the policy schedule.

C rejected P’s offer, as she believed P should have noticed the discrepancy in floor areas between her previous policy and her current policy. Therefore, C believed that P should settle the claim based upon the actual floor area of the house.

the ISO Scheme’s experience, assistance in calculating the floor area of a house does not usually form part of the service provided by insurers. The responsibility for ensuring that this information is correctly recorded lies solely with the insured.

The case manager accepted that, when C was unable to provide the floor area of the house, it would have been good customer service for P to check C’s previous policy; however, P was under no obligation to do so. The case manager could find no legal justification for finding that, in this instance, the onus of providing the correct floor area had shifted to P. The case manager also noted that C had been sent renewal certificates annually for 5 years prior to the earthquakes, accompanied by express instructions to check the accuracy of the information they contained. Therefore, C had adequate opportunity before the earthquakes to correct the square metres insured.

The complaint was not upheld.

Lessons to be learned This case demonstrates how clients often do not understand their responsibilities in respect of their insurance policies. The ISO Scheme believes that in the future we will see many more complaints like this, in par-

ticular, in relation to the provision of sums insured for house policies.

We know that many people do not understand the change to sum insured policies.

The ISO Scheme believes that advisers have a key role to play in educating their clients about their insurance cover, including the change to sum insured.

But clients need to understand that it is their responsibility to determine the sum insured and to ensure it is correct. Clients may mistakenly assume you are advising them on or endorsing the accuracy of their sum insured. You need to make it clear to your clients what your role is and direct their queries about the amount of their sum insured to a suitably qualified professional (who will have PI cover for this covernote advice). ...for insurance professionals

The Insurance & Savings Ombudsman Scheme Inc is an approved dispute resolution scheme which resolves complaints between members of the ISO Scheme and their clients. For more information go to www.iombudsman.org.nz or call 0800 888 202.

September 2013 | covernote

49

CONTENTS: 50 News 52 Understand your learning style

www.ibanzcollege.ac.nz

54 Give your career a boost 55 Calendar of events

Ready to tackle

A CHALLENGE September is the dawn of a new phase in the development of IBANZ College. We welcome our new principal Lesley Southwick with great enthusiasm, knowing that she is bringing with her a wealth of experience and exciting ideas. Poorna Prakash spoke to her to learn a little bit about her background, her thoughts on this new role and the challenges and opportunities she envisions for the future.

W

ith a background in vocational training and having worked in senior management for 15 years, Lesley Southwick’s vocational education expertise in New Zealand includes qualification development, resource development, marketing and communications.

She firmly believes that the role of IBANZ College is to provide the insurance industry with professional, quality training through qualifications and continuing professional development.

She stresses the importance of brokers continually growing their knowledge and understanding of the industry because it raises the professionalism of the sector as a whole.

Her vision for the college is simple. “I want IBANZ College to be the most trusted and preferred provider of education and professional development, for the insurance and related services industries in NZ and Australasia,” she says.

She believes this can be achieved through implementing innovative ideas, and creative and quality well-designed programmes that are delivered by outstanding professional trainers who know the business.

She realises that the job is not without its challenges. “All Private Training Establishments (PTEs) are facing competition from polytechnics and in-house training.” To survive, Lesley says that PTEs must “provide a value-add service to their students, by providing quality well-designed and structured training programmes that meet the needs of the industry and students they serve.”

Another of those challenges is to continue to keep students motivated in a blended learning environment with a mix of distance learning and workshops.

Southwick acknowledges that some students do struggle with self-paced study. But she points out that it can and has been a very successful learning method. “As the CEO of REAL ITO, [the 50 covernote | September 2013

Industry Training Organisation for real estate education prior to its merger with Skills Organisation] we developed resources and assessments for potential salespeople to complete their training through self-paced study programmes.

These were very successful and paved the way for the current on-job training programs for real estate salespeople, agents and property managers.”

Southwick completed a Lesley Southwick.

Graduate Diploma in Business through Massey University’s distance learning programme and says that the support of family and friends is paramount. She recommends doubling up with a colleague, as this means you can study together. The key thing is perseverance, she says. “Just keep on until it is done, one assessment at a time – it’s such a great feeling to know that you have finished!”

Lesley says owning her first delicatessen by the age of 22 was a definite bright spot in a career full of professional achievements.

“Food Affaire offered take-home meals and home-made cream cheese seafood pâtés, a novelty at the time.”

She also rates as significant milestones REAL ITO gaining recognition as a funded ITO; its rebranding and having trainees successfully complete their full agent’s qualification through the ITO, on the job, along with more recently having set up and managed the Targeted Review of Qualifications for the Forest and covernote Wood Industries. ...for insurance professionals

News | COLLEGE

CELEBRATING SUCCESS AT IBANZ COLLEGE Students of Excellence Christopher Jecks – AJIB Insurance Brokers Ltd, Wellington Big congratulations to Chris Jecks who has successfully completed his Level 4 Certificate in Financial Services qualification. His dedication was evidenced by the exemplary standard of coursework that he consistently produced. Well done, Chris!

Keith MacKenzie – ILS Insurance Brokers Keith has shown great commitment to his course and has quickly finished his Set E unit standards and has attended a Set B and Set C workshop and then just a few days later a Set E workshop where he completed three unit standards. Keep up the good work, Keith!

Congratulations to the following students who have successfully completed the legislation module (Set B exam), which is particularly

challenging and a huge milestone to reach in the Level 5 qualification: Faith Owens – Bridges Insurance Service Limited Daniel Mathieson – Runacres & Asssociates Limited Congratulations to the following students who have achieved the insurance specialist strand (Set E) within the Level 5 qualification: Blair Dyer – Austinsure Ltd Keith McKenzie – ILS Insurance Brokers David Weston – Austinsure Ltd Peter Crawford – Adastra Consulting Ltd

Students of the Month JUNE: Stephen Wood – Rothbury Group Ltd JULY: Jenny Small – Edward Ruys & Co covernote AUGUST: Christopher Jecks – AIG Insurance Brokers Ltd ...for insurance professionals

Crash management

O

ur winner for June was Paul Kang (Allied Financial Advisors Limited) who said because he had always had such good feedback from his clients when he recommended Crash Management to them; he decided to enter the competition.

Once he won, he was excited to choose his course from IBANZ College because “I always wanted to attend IBANZ workshop but due to Christchurch earthquake, I needed to help my clients first. I still need to help earthquake claims but I also need to study more and I believe IBANZ help

my professional development for my career”.

Sam Whata (Marsh, Dunedin) was the lucky winner in July. His winning entry was the first time he had responded to Crash Management’s blog post.

He was excited to learn that his prize was a free workshop or short course with IBANZ College because “[it] allows me to learn and improve as a broker which is even more important in the current insurance environment.

The market has changed over the last few years and it’s important that we covernote do as well to meet our clients’ requirements and expectations. ” ...for insurance professionals

September 2013 | covernote

51

COLLEGE | Student support

UNDERSTANDING YOUR LEARNING STYLE IS THE FIRST STEP TO SUCCESS Sometimes it’s not what you learn but how you do it that makes all the difference.

Have you ever wondered why your fellow student always has highlighter pens out when they study? Or why another needs to talk in a group and share his or her thoughts? Or why you prefer to sit at your desk and learn in silence?

I

t is because each person has a unique and individual learning style. The good news is that every learning style is right and some people prefer using more than one learning style when processing information. When you read through the types of learning styles below you can begin to identify with the learning styles you use.

You can then target the learning techniques that are available to you and implement them:

Verbal learning style: The verbal style involves both written and spoken 52 covernote | September 2013

Visual learning style: If you are a visual learner, use images, pictures, colour and other visual media to help you learn.

Incorporate imagery into your visualisations.

Suggestions: • Symbols, graphs, maps,

Photos: thinkstockphotos.com

Auditory learning style: If you are an auditory learner, you enjoy and find it easy to study with sound.

Explanation by talking is the easiest way that information is articulated for you. Either the voice of a tutor or lecturer would be beneficial to you, or studying using sound techniques: Suggestions: • Pay attention when others are speaking. Join or set up discussion and focus groups.

• Shift any pictures and graphs into talk and chat.

• Repeat information to others and use your voice to show your emphases.

• Discuss topics with others.

• Attend training sessions.

• Explain new ideas to other people.

• Present your findings orally.

• Brainstorming and working in groups is beneficial.

communication. If you use this style, you find it easy to express yourself, both in writing and verbally. You enjoy reading and writing.

You like playing on the meaning or sound of words. You know the meaning of many words.

Suggestions: • Mnemonics are your friends for recalling lists of information.

• Try to study with a class.

• Role-playing is a technique that works well with others, whether it’s one-on-one or with a group of people.

• Share your reviews, review checklists and “perfect performance” scripts with those in your group as well.

• Incorporate more speaking and writing techniques into your studies by talking yourself through procedures.

• When working with your colleagues use role-playing to learn verbal exchanges such as negotiations.

• Mind mapping and systems diagrams are great to work with.

Often there is no right answer but merely talking through ideas is sufficient for the information to be loaded into your mind.

Student support | COLLEGE

logos and free-drawn plans.

• Different colours and highlighters.

• Pictures, videos, posters and slides where the emphasis is on the design and different fonts are used.

• Different spatial arrangements on the page.

• Books and business reports with diagrams and flow charts.

Kinaesthetic and physical learning style: You enjoy learning when you are physically active.

For example cooking, sports and carpentry are ways that you pick up elements of information.

You like to think about ideas, issues and problems

Intrapersonal Learning Style: You are solitary in your learning, you like the quiet which you find reassuring and calming, a perfect set up for absorbing information. You are aware of your own thinking and focus on your thoughts and analysing them: Suggestions: • Find a space like a library that is organised and quiet where you can relax and absorb information.

• Organise your information and set it out accordingly, using highlighters and files will assist.

• Assertions are positive for you. This ensures that your internal self image covernote matches your learning objectives.

Photos: thinkstockphotos.com

Logical and lateral learning style: You like using your brain for logical and mathematical reasoning.

You process information systematically and prefer linear explanations of information. You also like problem solving using deductive reasoning. You work well with complex situational calculations as well as using number accurately. You like creating procedures for future use and using templates that solve problems, such as spreadsheets and budgets.

Suggestions: • Linear reading complemented by mind mapping.

• Studying with a goal in mind.

• Studying by association.

• Thoughts and analysis are key when memorising information.

while you exercise. You would rather go for a walk or a run when something is bothering you than sit at home. You would rather create than listen and you can’t sit still for long.

Suggestions: • Describe your actual opinions, taking them from intangible to tangible.

• Read the information whilst on the treadmill.

• Listen to information when you are out for a run.

• Remember that writing and drawing diagrams are physical activities so use them systematically to make information appeal to you.

...for insurance professionals

Janine Kantor

Article by Janine Kantor (Student Liaison Officer and Tutor).

Photo: thinkstockphotos.com

WEB CONFERENCES

W

eb conferences or webinars are a great way to take part in workshops and seminars in your office without leaving home.

They are interactive and informative sessions. We cannot always make it to your area but we can through a webinar. We can tailor the programme to your company needs or you can join a public webinar.

It is simple to connect and we can take you through the process to ensure you can connect with the system prior to starting.

Give Lesley a call to check on available webinar programs or to tailor a programme to meet your company needs. lesley@ibanz.co.nz covernote phone 09 306 1735 ...for insurance professionals

September 2013 | covernote

53

COLLEGE | Ongoing support

START OF A CAREER IS NOT THE END OF LEARNING Photo: thinkstockphotos.com

O

nce you begin work as a broker, keeping up with the needs of your clients becomes synonymous with

remaining current in your knowledge and understanding of the industry.

Furthermore, it will allow you to have the competitive edge within the industry, ultimately distinguishing you as a knowledge-based adviser as well.

This also means an increase in your potential to maximise profit. To take this to the next level is to make your quest for knowledge a point of personal pride so that you give your clients the best and most relevant advice.

So where does education fit in this schema of professional competency and personal satisfaction?

According to Abraham Maslow, in his establishment of needs hierarchy, a person should fulfil all levels of the need hierarchy, including self-actualisation, to be a happy, productive human being.

Self-actualisation refers to a person’s desire to be the best version of themselves.

The needs of safety, esteem, confidence,

recognition and belonging will also have to be realised. Education has not only a self-fulfilling role but also incorporates other needs and wants as well Fulfilling your education potential can form part of your self-actualising element.

It will also soon become a professional necessity with changes coming soon where structured learning will become more important to your working life.

Bearing this in mind, why not stay ahead of the curve and choose to do something instead of being made to do it?

What this will entail is just finding that extra time in your day to invest in your studies and move forward with the aim of completing your qualification. And if you haven’t already enrolled it might just be the perfect opportunity for you to think about covernote actualising your own potential. ...for insurance professionals

Article by Janine Kantor (Student Liaison Officer and Tutor).

CHANCE TO GET BOOST IN RIGHT DIRECTION IBANZ College and QBE have just announced their joint scholarship for 2013/14.

It is a great opportunity for brokers who are keen to pursue professional development and excellence to add this feather to their caps. We asked some former winners about their experience and for some expert tips.

Teru Time, the 2012 winner, was already doing papers with ANZIIF when he decided to apply for the scholarship because he felt the importance of educating himself about the New Zealand industry.

The 2011 winner, Faith Owens, agrees: “IBANZ College was great for me because it is specifically tailored to the New Zealand industry and addresses the legal requirements of working within the industry.”

The scholarship is designed to give brokers a gentle nudge in the right direction as many struggle with making time in their busy lives for keeping up to date with their knowledge.

Teru Time.

54 covernote | September 2013

Both Time and Owens agree that the scholarship was a great motivator because there is added incentive to get it done.

Owens said: “My job is not always 8.30-5 so it was a matter of constantly motivating myself. But once I passed my Set B, it was a great boost and things just kept rolling from there.”

So what advice would the two winners give to those who are considering applying?

“I found it really helpful to work through my application with someone so I could bounce ideas off them,” says Owens.

Time is more succinct. “Just do it. Don’t covernote overthink it.”. ...for insurance professionals

Calendar of Events | COLLEGE

College Events Calendar 2013 Technical & Specialist

Business Skills & Interpersonal Leadership

OCTOBER Warrant of Fitness The Code

Legislation & Compliance

NOVEMBER Monday

DUNEDIN

5

Tuesday

CHRISTCHURCH

WELLINGTON

6

Wednesday

WELLINGTON

Monday

DUNEDIN

7

Thursday

AUCKLAND

8

Tuesday

CHRISTCHURCH

9

Wednesday

WELLINGTON

5

Tuesday

AUCKLAND

10

Thursday

AUCKLAND

6

Wednesday

AUCKLAND

Commercial Negotiation Skills

15

Tuesday

CHRISTCHURCH

Set E Mortgage Essentials and Residential Property Lending

12

Tuesday

AUCKLAND

Set E Mortgage Essentials and Residential Property Lending

16

Wednesday

WELLINGTON

17

Thursday

WELLINGTON

Strategic Investment Property Lending and Residential Security for Business Lending

29

Tuesday

CHRISTCHURCH

Set A

19

Tuesday

AUCKLAND

30

Wednesday

CHRISTCHURCH

20

Wednesday

WELLINGTON

22

Wednesday

AUCKLAND

21

Thursday

CHRISTCHURCH

23

Wednesday

AUCKLAND

22

Friday

DUNEDIN

Basics of Risk Insurance

Monday

CHRISTCHURCH

14

Monday

AUCKLAND

21

Monday

7

Set B & Set C workshop

4

Set E

7

New events are being updated on a daily basis so visit www.ibanzcollege.ac.nz for events in your area. * Workshops are subject to minimum participant number requirements.

September 2013 | covernote

55

CONTACTS | IBANZ Contacts

College Board 2013/14

IBANZ Board 2013/14

Tony Butson Rothbury Group Limited PO Box 1120 Queenstown 9348 Mob: 021 332 605 tony@butson.co.nz

Tony Butson Rothbury Group Limited PO Box 1120 Queenstown 9348 Mob: 021 332 605 tony@butson.co.nz

Richard Russell (Chair) Branch Director Crombie Lockwood NZ Ltd PO Box 34 Invercargill 9840 Tel: 03 218 8994 Fax: 03 218 8996 Mob: 027 258 8433 richard.russell@crombie.co.nz

Tony Bridgman (Vice President) Executive Director Marsh Ltd PO Box 2221 Auckland 1140 Tel: 09 928 3015 Fax: 09 309 9891 Mob: 021 873 399 tony.j.bridgman@marsh.com

Ruth Steele Brokerage Manager/ Commercial Broker Certus Insurance Brokers NZ Ltd PO Box 26621 Epsom Auckland 1344 Tel: 09 377 0951 Fax: 09 307 2386 Mob: 021 639 286 ruth@certusnz.co.nz Gary Young CEO, IBANZ PO Box 7053 Wellesley Street Auckland 1141 DDI: 09 306 1734 Fax: 09 307 0960 Mob: 027 543 0650 gary@ibanz.co.nz

David Crawford Chief Executive Officer Insurance Advisernet NZ Ltd PO Box 74557 Auckland 1051 Tel: 09 926 2062 Fax: 09 524 2226 Mob: 021 905 537 davidc@insuranceadvisernet.co.nz Nick Cressey (President) Director Insurance Brokers (International) Ltd PO Box 305019 Triton Plaza North Shore City 0757 Tel: 09 477 0277 Fax: 09 478 0277 Mob: 021 707 025 nick.cressey@ibi.co.nz

IBANZ Staff 2013/14 Lesley Southwick Principal IBANZ College DDI: 09 306 1735 Fax: 09 307 0960 Mob: 027 459 9804 lesley@ibanz.co.nz Robyn Gosden Finance & Office Manager DDI: 09 306 1733 Fax: 09 307 0960 Mob: 027 275 2477 robyn@ibanz.co.nz Janine Kantor Student Support Officer IBANZ College DDI: 09 306 1731 Fax: 09 307 0960 janine@ibanz.co.nz Karen Scard Membership & Secretarial Support DDI: 09 306 1738 Fax: 09 307 0960 karen@ibanz.co.nz

56 covernote | September 2013

Allan Daly Managing Director Avon Insurance Brokers PO Box 3923 Christchurch Mail Centre Christchurch 8140 Tel: 03 371 0301 Fax: 03 366 6589 Mob: 027 535 8128 allan@avoninsurance.co.nz Duane Duggan (Vice President) Head of Insurance Legal Crombie Lockwood (NZ) Ltd PO Box 91747 Victoria Street West Auckland Tel: 09 357 4805 Fax: 09 623 9901 Mob: 021 833 286 duane.duggan@ crombielockwood.co.nz Peter Lowe General Manager NZ Willis New Zealand Ltd PO Box 369 Auckland 1140 Tel: 09 356 9368 Fax: 03 358 3343 Mob: 021 909 148 lowepj@willis.com

Stuart Speirs Director Abbott Group PO Box 3086 Christchurch 8011 Tel: 03 366 7536 Fax: 03 379 5395 Mob: 021 358341 Jason Smith Managing Director Property & Commercial Insurance Brokers PO Box 4 Feilding 4740 Tel: 06 323 8820 Fax: 06 323 8872 Mob: 027 293 8724 jase@pcinsurance.co.nz Ruth Steele Brokerage Manager/ Commercial Broker Certus Insurance Brokers NZ Ltd PO Box 26621 Epsom Auckland 1344 Tel: 09 377 0951 Fax: 09 307 2386 Mob: 021 639 286 ruth@certusnz.co.nz

IBANZ 2013 Steve Wardley Technical Support DDI: 09 306 1736 Fax: 09 307 0960 steve@ibanz.co.nz

Physical address: Level Five, 280 Queen Street, Auckland 1010 Mailing address: PO Box 7053, Wellesley Street, Auckland 1141 Phone toll free: 0800 306 173 Website: www.ibanz.co.nz

Gary Young CEO DDI: 09 306 1734 Fax: 09 307 0960 Mob: 027 543 0650 gary@ibanz.co.nz

WISH TO RECEIVE YOUR OWN COPY OF...

Sophie Kowalewski Academic Co-Ordinator DDI: 09 306 1737 Fax: 09 307 0960 sophie@ibanz.co.nz

covernote ...for insurance professionals

Each issue of Covernote is packed with vital information, news, commentary and advice for the insurance industry from experts within the industry. To keep abreast with all the issues affecting New Zealand’s insurance broking industry just email robyn@ibanz.co.nz

To advertise: Contact Kelly Davison admanager@covernotemag.co.nz 09 529 3000, 027 520 4507 Covernote is published quarterly by IBANZ, the Insurance Brokers Association of New Zealand. All correspondence should be addressed to: The editor, Covernote, PO Box 5544, Wellesley Street, Auckland 1141 or email editor@covernotemag.co.nz

Next issue is due out: December 2013

IBANZ Corporate Company List | CONTACTS

IBANZ Corporate Company List Abbott Group Adams Trimmer Insurance 1992 Ltd Adams Trimmer Nauman Insurance Ltd Addex Ltd Advice First Limited Affiliated Insurance Brokers Ltd AJIB Insurance Brokers Ltd Albany Insurance Services Ltd Allfinanz Risk Andrew Scragg & Associates AMP Services (NZ) Ltd Aon New Zealand Apex General Ltd API Insurance Ascot Insurance Brokers Ltd Atlas Insurance Brokers Ltd. Austinsure Ltd Avon Insurance Brokers Baileys Insurance Brokers Ltd Barley Insurances Limited Bay Insurance Brokers Ltd Benson Insurance Brokers Ltd Benton & Power Ltd Bill Boyd & Associates Ltd Boston Marks Group Ltd Bridges Insurance Services Limited Broker Direct Services Ltd BrokerWeb Risk Services (Auckland) Ltd BrokerWeb Risk Services (Bay of Plenty) Ltd BrokerWeb Risk Services (Hawkes Bay) Ltd BrokerWeb Risk Services (Manawatu) Ltd BrokerWeb Risk Services (Northland) Ltd BrokerWeb Risk Services (Southern) Ltd BrokerWeb Risk Services Limited Card Marketing International Ltd Cartwright General Insurance Limited CBA Insurances Limited Certus Insurance Brokers NZ Ltd Coastline Insurance Services Commercial & Rural Insurance Brokers Ltd Crombie Lockwood (NZ) Ltd Dave Fielding Financial Services Dawson Ins. Brokers (Whakatane) Ltd Dawson Insurance Brokers (Rotorua) Ltd Edward Ruys & Co Ltd Elders Insurance Limited Emerre & Hathaway Insurances Limited Executive Insurance Services Ltd Freedom Insurance Ltd Future Agency Co. NZ Ltd Gary Jamieson Insurance Brokers Ltd Glenn Stone Insurance Limited Graeme England Insurance Services Ltd Grayson & Associates Ltd Gregan & Company Ltd Harden & Hart Insurances Ltd Hawke’s Bay Insurances Ltd Hazlett Rural Insurance Limited Hopkins Paton Ltd Hornibrooke Dolan Ltd Hugh Vercoe and Associates Ltd Hurford Parker Insurance Brokers Ltd Hutchison Rodway Ltd I C Frith (NZ) Ltd i2i Insurance Brokers Ltd Ian K Everett Ltd ICIB Limited ILS Insurance Brokers Inbroke Ltd Ingerson Insurances Ltd Insite Insurance Insurance Advisernet NZ Ltd Insurance Brokers Alliance Ltd

Christchurch Whangarei Dargaville Auckland Wellington Wellington Lower Hutt Auckland Lower Hutt Auckland Auckland Auckland Auckland Manukau Whangarei Christchurch Auckland Christchurch Auckland Auckland Tauranga Christchurch Auckland Palmerston North Auckland Hamilton Christchurch Auckland Tauranga Napier Palmerston North Kerikeri Christchurch Auckland Wellington Ashburton Tauranga Auckland Thames Alexandra Auckland Auckland Whakatane Rotorua Hamilton Auckland Gisborne Auckland Wellington Auckland Thames Auckland Auckland Auckland Papakura Auckland Napier Christchurch Auckland Auckland Morrinsville Hastings Auckland Auckland Wellington Auckland Auckland Auckland Auckland Wellington Pukekohe Auckland Invercargill

Insurance Design Insurance People (Fire & General) Limited Iremonger Insurance Brokers Limited James Forster Insurance Brokers Ltd Jane Cook Insurance Ltd JLT Holdings (NZ) Limited JRI Ltd Ken McNee Family Trust Lifetime Insurance Brokers Ltd Lloyd East & Associates Insurance Brokers Lowe Schollum & Jones Ltd Luxor Insurance Brokers Ltd MA Risk Solutions NZ Limited Mainprice King Chartered Brokers Ltd Malcolm Flowers Insurances Ltd Marsh Ltd Matt Jensen Insurance Brokers Ltd McDonald Everest Insurance Brokers Ltd Mike Henry Insurance Brokers Limited Montage General Insurance Ltd Multisure Ltd Neal P Sadgrove & Associates Ltd Nelson Bays Insurance Brokers Ltd (NBIB) Neville Newcomb Insurance Brokers Ltd Nexus Insurance Brokers Ltd North Harbour Ins Services (1985) Ltd Northco Insurance Brokers Ltd Northcrest Insurance Brokers Ltd Oamaru Insurance Brokers O’Connor Warren Insurance Brokers OFS Insurance Brokers Ltd Omni Fire & General Ltd Paramount Insurance Agencies Ltd Paterson & Co NZ Ltd Penberthy Insurance Ltd Peter C Cranshaw Insurance Broker Ltd PIC Insurance Brokers Ltd Pinnacle Insurance Brokerage Ltd Presland Tocker Insurance Services Primesure Brokers Ltd Property and Commercial Insurance Brokers Protekt Insurance Brokers 2008 Ltd Provincial Insurance Brokers Limited PSC Connect NZ Limited Pulsar Insurance Agency Reid Manson Ltd River City Insurance Brokers 2000 Ltd RMA General Ltd Rosser Underwriting Ltd Rothbury Group Ltd Runacres & Asssociates Limited Seneca Insurance Brokers Ltd Sit & Blake Limited Smith Pitman Insurances Ltd South Pacific Insurance Brokers Ltd Sweeney Townsend & Associates Ltd Thames Valley Insurance Ltd The Insurance Brokers Ltd The Stoneman Group Thorner General Insurances Ltd Towes Insurance Brokers Ltd Travel & Accident International Ltd Trevor Strong Ins Ltd Vision Insurance (S.I.) Ltd Waikato Insurance Brokers Limited Wallace McLean Ltd Wanganui Insurance Brokers Ltd Wholesale Insurance Brokers Ltd Wilkinson Insurance Brokers Ltd Willis New Zealand Ltd Yesberg Insurance Services Ltd

Warkworth Auckland Auckland Christchurch Auckland Auckland New Plymouth Christchurch Christchurch Auckland Hamilton Auckland Auckland Auckland Taupo Auckland Taupo New Plymouth Auckland Auckland Auckland Auckland Nelson Auckland Auckland Orewa Masterton Auckland Oamaru Tauranga Dunedin Auckland Auckland Auckland Auckland Levin Auckland Rotorua Cambridge Auckland Feilding Auckland Masterton Auckland Auckland Timaru Wanganui Warkworth Waipukurau Auckland Christchurch Auckland Auckland Wellington Auckland Rotorua Thames Auckland Wanganui Upper Hutt Te Aroha Auckland Auckland Ashburton Hamilton Auckland Wanganui Papakura Wellington Auckland Christchurch

September 2013 | covernote

57

Star Underwriting Agents Limited is...

New Zealand owned

available 24/7

behind NZ Brokers

privately owned

of claims settled by SUAL

focused on providing a professional and quick service

underwriting decisions are ours (we ask advice sometimes)

share holding by any insurance company or brokerage

Star Underwriting Agents network of products include

A specialist in the true sense of the word. Star Insurance provides specialist motorcycle insurance, knowledge and policy conditions specific to motorcycles such as helmet and leathers cover. When it comes to claims we have motorcycle specific assessors covering the country.

The unrivalled prestige motor insurer, Prestigio Insurance provides policy holders with exclusive benefits such as replacement vehicles, manufacturer’s parts, lifetime No Claims Bonus, medical expenses and other benefits you expect from a Prestige Motor Policy.

With a razor sharp focus on providing a policy wording that’s second to none, alongside an over achieving claims service. Camper Care’s aim is to be New Zealand’s leading specialist in motor home and caravan insurance.

Tailor Made Money provides credit card payment facilities, monthly payments, direct debits, and other payment services to insurance brokers of New Zealand.

24hour roadside solutions and emergency assistance for motorcycles, vehicles and fleet operators. From basic solutions such as flat tyre, to accident coordination, legal and medical advice. Journey On is designed to operate as an affiliate program allowing you to increase your income by providing added value to your clients, while maintaining client ownership.

Warranty Plus provides electrical extended warranties and service plans for both the consumer and electrical retailers. Our systems are set up to ensure commissions are paid for the original sale, and any future warranty repairs are directed to the original retailer.

For more information on how we can help your business call us on 09 250 6009 or email admin@sual.co.nz