Covernote December 2015

EQC REFORM: REGULATION SET FOR OVERHAUL

December 2015 The professionals’ magazine from IBANZ

A YEAR IN REVIEW Insurers reflect on 2015 and ponder what might lie ahead next year.

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Our liability insurance solutions are backed by our proactive claims team, enabling our customers to trade with confidence.

To find out more about NZI Liability please contact your NZI Liability representative.

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WELCOME

Advertising/Editorial: Robert Johnson, Benefitz Telephone 09 477 4702, Mobile 027 4970 712, Email: robert@benefitz.co.nz Design/Production: Anne Vindriis, Benefitz Imaging: CTP by Benefitz Produced for IBANZ by: Benefitz, Cnr Constellation Drive & Parkway Drive, Mairangi Bay, North Shore City.

PO Box 33-1630 Takapuna.

Telephone 09 477 4700, Fax 09 477 4799 Advertising Deadlines: Bookings 10th of the month prior to publication, Material 15th of the month prior to publication.

CoverNote is the official publication of IBANZ and is distributed FREE on a quarterly basis (March, June, September, December) to members throughout New Zealand and associated companies.

Additional copies are available at a cost of $7.50 per copy, or 12 month (4 issue) subscriptions at $30.00, inclusive of postage and packaging. The articles or opinions featured within this magazine are not necessarily the opinions of the publishers or IBANZ, and they do not accept responsibility for the content of articles featured within the publication. No part of this publication may be reproduced without the written permission of the publisher. The publishers do not accept responsibility for loss or damage to unsolicited photographs or manuscripts.

IBANZ enquiries should be made to: Gary Young, Chief Executive, IBANZ. Email: gary@ibanz.co.nz IBANZ National Office located at: Level 5, 280 Queen Street, Auckland (P.O. Box 7053, Wellesley Street) Telephone 09-306-1732.

Website: www.ibanz.co.nz

Gary Young CEO, IBANZ

No one right answer in regulation review The future regulatory environment for insurance brokers moved one step closer following the recent release of an options paper as part of the Financial Advisers Act review.

Earlier this year the Ministry of Business, Innovation and Employment (MBIE) produced an issues paper that sought to determine what the issues are with the current financial advice regime. After considerable consultation they have identified the issues.

Their options paper sets out possible solutions in three “packages”.

What is encouraging is that throughout this review process MBIE have maintained an open approach to consultation. While the end goal is clearly to have an environment in which consumers have access to quality advice there does not appear to be a predetermined way to achieve this.

The options paper is structured as three packages but this is not intended to restrict the outcome to any of these particular structures. Instead they are a starting point for the debate on how to overcome the identified barriers to achieving more confident and informed consumers.

IBANZ represents a very significant proportion of advisers in financial services and therefore any legislation affecting our members will impact on large numbers of the public. We have been and will remain fully engaged in the review process.

To achieve the regulator’s desired outcomes there is a fine balance to be struck between the benefits and cost of compliance. With general insurance broking there is no major problem needing to be solved, so compliance should reflect that by being light-handed and low-cost.

It is acknowledged that IBANZ has gone further than the minimum required by legislation when setting standards for members. Our members have shown leadership with their commitment to ethical and competency standards which exceed those imposed by legislation.

The advantage of being a leader is the ability to be involved in determining what is most appropriate. We have achieved this and shown what is possible when those most affected are involved in determining the future.

Whatever regime is implemented at the end of the current exercise it has to reflect the environment to which it applies. One-size-fits-all is not a pragmatic answer. Within the overarching approach across the broad spectrum of financial services there has to be adaption for each distinct sector.

IBANZ will continue representing our members as the debate continues. We understand our market place, our members represent the end users and we know what will work.

Gary Young, CEO, IBANZ

Features 14. Year in Review

Insurers rate 2015 and gaze into their crystal balls to predict the year ahead.

18: FAA options paper released, and general insurance submissions revealed 26. EQC Reform: ICNZ View

New Zealand's natural disaster support

structure is valuable but it needs to be improved.

36. The state of cyber insurance in New Zealand Kiwi use of cyber insurance is still low by international standards.

38. South African but backing black AIG chief executive Mike Raines keen to build local capability.

30. Lesson learnt from Canterbury Gerry Brownlee, Minister of Canterbury Earthquake Recovery and Minister Responsible for the Earthquake Commission.

Regulars 40. Worlds Biggest Insurance Payouts

Which global disasters have been the priciest for insurance companies?

1. View from the CEO’s chair 3.

News 24.

Out & About 34. Ask an Expert

48. Professional Development: Professional IQ College 52. IBANZ Contacts

45. FSCL Case Study EQC REF

ORM: REG

ULATION

SET FOR

OVERHA

UL

December 2015 The professio

nals’ mag azine from

46. ISO Case Study WANT YOUR VERY OWN COPY OF

COVERNOTE?

See page 52 for details on how you can have your very own copy delivered directly to your door... HOT OFF THE PRESS!

A YEAR IN REVIE

W

Insurers refl what mig ect on 2015 and ht lie ahe ponder ad next yea r.

IBANZ

NEWS

Competition heats up by more nimble competitors, and they expected further disruption over the next five years.

Munro said this experience was reflected in New Zealand – where retailers and new entrants, such as Youi, were providing more choice to customers.

“It is too soon to properly assess the impact of this disruption…but in its first year, Youi has written just $19 million in premium revenue, by positioning itself as being more customer-centric.”

A number of iconic New Zealand retailers have also joined the market, partnering with established insurers.

Since November 2014, Countdown has offered a range of insurance products through its supermarkets, from bill protection and pet insurance to funeral cover. Tailored insurance products, underwritten by Cigna, can be bought over the phone or online.

The Warehouse G roup has followed suit, with the recent launch of Warehouse Money.

A period of innovation and disruption has introduced new levels of competition in the Kiwi insurance market, a new report says.

KPMG’s insurance analysts said innovation and customer focus were critical to the success of established insurance companies – who were increasingly coming under threat from new competitors and product offerings.

Financial services partner Jamie Munro said while customers depended on their insurers, “they are also demanding cheaper premiums and more personalised products”.

Research by KPMG International earlier this year, which surveyed 280 insurance executives from 20 countries, showed industry leaders were acutely aware of the need to innovate.

Just over 80% of respondents said the future success of their business was tied to their ability to innovate.

Almost half (48%) said their own business models were already being disrupted

Five insurance products, underwritten

by Vero and nib (providing car, home, contents, travel and health cover) are available for purchase online and over the phone.

Kay Baldock, KPMG’s head of insurance, said: “Insurers such as AA Insurance, AMI and State have enhanced their digital offerings – providing quotes and accepting initial claims notifications online, and allowing customers access anywhere, anytime.”

“This is all about providing more choice and tailored products to everyday customers,” Munro said.

Established Kiwi insurers are also investing in technology; and using data and analytics to help drive greater innovation and growth, improve product offerings and service capability.

“Disruption is not the sole domain of small companies or start-ups,” Munro said.

“It can come from within any organisation, as long as they’re prepared to take bold steps forward.”

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NEWS

NZI rewards safer driving NZI’s new Safe Driving Rewards Programme incentivises operators to meet driver safety benchmarks.

The heavy motor vehicle insurance programme is a joint venture between NZI and EROAD, and rewards commercial carriers that demonstrate safe driving behaviour and meet set conditions, by waiving their excess in the event of an insurance claim.

The safe driver ratings are based on factors such as the frequency and severity of speeding events, harsh braking and acceleration.

Drivers are ranked against others in their company using a driver

safety rating that compares them against other EROAD customers.

The programme comes at no additional cost and customers don’t have to wait for their insurance to renew to sign up.

Customers just need to have EROAD hardware installed in their heavy commercial vehicles, be on an EROAD service plan that includes vehicle tracking, and be insured by either NZI or Lumley.

Out of those companies participating in the programme, those that are placed in the overall top 25% for driving performance should qualify for an excess waiver.

Ian Taylor, national manager commercial motor for NZI and Lumley says, “We understand the challenges faced by today’s operators in creating safe workplaces and want to be able to support our heavy motor customers to reduce risk and help them to improve their driver safety rating. “ Under the Safe Driving Rewards Programme, joint customers of NZI and EROAD opting into the programme agree to share their data with NZI to allow it to research the development of heavy motor vehicle usagebased insurance products.

“The collaboration between

NZI, EROAD and our customers presents an exciting opportunity to develop a worldleading heavy motor usagebased product that will benefit both the transport and insurance industries,” says Taylor.

Customers can apply to take part in the programme by registering at www.safedrivingrewards. co.nz The data received under this programme will not be accessed by the underwriters or used to either set an individual customer’s renewal terms or decline a claim.

NZI moves into Auckland’s industrial engine room NZI has opened a new branch at 38 Highbrook Drive in Auckland’s industrial engine room in East Tamaki. The official opening of the new East Auckland branch took place in September, with almost 100 people in attendance at Fisher House, including local Botany MP Jami-Lee Ross.

Ross addressed the turnout and spoke about the business park, saying: “The combined greater East Tamaki and Highbrook Business Park areas contribute greatly to New Zealand’s and 4

December 2015

Auckland’s gross domestic product (GDP) and employs almost 5% of Auckland’s workforce.

It’s appropriate that a company as prestigious as NZI sets up a branch in Botany, at Highbrook Business Park, one of the fastest growing business zones in Auckland.”

The statistics underpin the talk that East Tamaki is the new manufacturing and distribution hub of Auckland.

Between 2000 and 2010 there was a 61% increase in

employee numbers in the East Tamaki Business Precinct, with 27,580 people employed across 2510 businesses in 2010 (East Tamaki Business Precinct Economic Analysis, June 2011).

This contributed 4.5% to the Auckland region’s employment.

The East Tamaki branch has 19 employees, including two risk surveyors, and NZI is excited to now be able to complete broker transactions in person.

Branch manager Andy Rowe said: “We wanted to enhance our current service offering

with even more face-to-face contact. It will be great for brokers now that we’re right on their doorstep to discuss key clients.

I understand NZI is the only underwriter with a physical presence in the area and we think it’s vital to service the significant growth in East Auckland.

“We’re open Monday to Friday 8.30am to 5pm and anyone who wants to visit is most welcome,” he said.

NEWS

Tackling insurance fraud Fraud is the “elephant in the room” for insurers, this year’s Insurance Council (ICNZ) conference was told.

Dave Ashton, head of the Insurance Claims Register, which is run by ICNZ, addressed the conference to explain updates to the system which will help insurers identify fraud more quickly.

He said insurers did not want to accuse customers of being fraudsters “but we do know it goes on”.

There had to be a balance between identifying fraud and working with the public to educate and inform them, he said.

Some of the cases could be classed as hard fraud, he said, such as body shop collusions, while others could be considered soft, such as people who embellished a legitimate claim.

“We talk about a moral seal, people might have agonised over whether to add a camera to a travel claim then they throw in an iPhone or iPad as well and think ‘who cares, no one is going to know’.”

Some people did not realise double-dipping –

where customers have two policies and claim on both - was fraud, he said. “Some people don’t understand it’s wrong.

We are going to look at ways to educate the public to be aware that we can catch you and we’ll be a lot smarter now and educate them about what the standards are.”

New Zealand’s register was the envy of a lot of other countries around the world, he said.

“It’s been very successful and has evolved into various capabilities over the years.”

The register allowed insurers to share

knowledge and look at repeat offenders and claims history. Insurers had common goals, Ashton said, of assessing risk for new business and looking for issues of non-disclosure.

“One of the things we’re seeing a greater awareness of is members of the public ringing up the fraud line, sending through information through the online tip-off system. They are hacked off that people they know are committing insurance fraud.

They don’t like it. They know their premiums are paying for some of that fraud.”

Ashton estimated that 10% to 20% of gross written premium could be fraudulent but when a tool such as the register was available, insurers had more awareness of what was going on.

A warning is assigned when someone is suspected or known to have committed fraud.

The update allows faster access to the register, gives insurers the ability to conduct more data analysis and offers more predictive data so that they can see what to expect when large-scale events hit, such as storms.

www.covernote.co.nz

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NEWS

New look for IAG

Wellness month marked Marsh held its inaugural “wellness month” in October.

The concept was to hold a series of activities and events that focused on the health and wellbeing of Marsh colleagues, along with their sister companies Mercer and NERA. The programme of activities included free eye tests and health screenings, lunchtime wellness seminars, weekly wellness challenges and the launch of a new employee benefit.

Colleagues submitted pictures and ideas for how they stay well and special discounts for holistic massages were arranged.

The month also saw the start of a wider programme to install defibrillators in the company’s main offices. Auckland and Wellington were the first to receive the new machines, with further machines to be rolled out in the new year.

Grant Milne, country head for Marsh, said: “The health and wellbeing of our colleagues is paramount. It is easy, especially when we are busy, to forget to take care of ourselves. Our Wellness month was an opportunity to draw attention to wellbeing issues and encourage our teams to stay fit and healthy.”

IAG has launched a new brand identity, moving away from the traditional financial services colour blue to embrace the colour purple and featuring a lower-case text and a circular theme that is more distinctive and progressive.

The insurance group’s New Zealand chief executive, Jacki Johnson, said that the new identity was part of IAG’s evolution and signalled a new and exciting phase for the company.

“The new identity better reflects IAG’s position as the general insurance market leader in Australia and New Zealand, with an emerging footprint in Asia,” she said.

“We’re also operating in a more digitised environment so it is important that the brand identity is flexible and adaptable for use across all marketing channels and mediums as well as stretch across geographical boundaries.”

IAG’s New Zealand executive general manager of strategy, people and reputation, Martin Hunter, said that IAG was

increasingly playing an integral role in the community, not just with shareholders, so it was important that IAG’s new brand identity created a sense of warmth and approachability.

“The new brand identity is centred on creating confident futures and is designed to help differentiate IAG from the insurance crowd.”

The identity does not impact on the insurance group’s consumer brands which include NZI, Lantern, Lumley, AMI, State and NAC, however over time there will be a stronger visible link through the consumer brands to IAG, Hunter said.

“We want to strengthen the link between IAG and its customer brands to differentiate us from our competitors.

Our research shows the majority of our customers value knowing who stands behind the insurance brands they choose to purchase from, particularly the financial security, strength and scale that comes from being backed by IAG.”

Brokers get marine masterclass Efforts are under way to boost brokers’ understanding of marine insurance.

IBANZ and the Insurance Council of NZ (ICNZ) ran a one-day workshop dedicated to marine cargo and hull insurance in early November.

ICNZ said marine insurance was a specialised sector of the insurance industry but most insurance brokers would need to handle some marine coverage for their customers at some stage.

The workshop served as a refresher and was attended by 60 brokers and insurers, and coincided with the official launch of the new updated Marine Cargo Open Policy Handbook.

The new handbook outlines the advantages of New Zealand exporters using an open cover policy that automatically picks up all their shipping movements over a 12-month period for agreed terms.

Mark Roelink, manager at NZI Marine, presented a paper on perishable cargo.

6

December 2015

Much of New Zealand’s exports require refrigerated and/or atmosphere-controlled shipment.

His presentation outlined the fine time margins of getting New Zealand produce to overseas markets before it over-ripens and is not able to be sold.

Slow steaming by shipping companies to save fuel costs tightens those time margins even further.

Matthew Flynn of McElroys gave a practical overview on the Carriage of Goods Act and the limitations and importance of the parties having their own marine cargo/transit insurance.

Willum Richards, who is New Zealand’s only current General Average surveyor, presented on both boat/ship builders' risks and perils of the sea combined with claim basis of settlement and the potential liabilities of all cargo interests if a General Average is ever declared.

Neil Beadle of DLA Piper presented on the

importance of insuring cargo correctly and to ensure that the terms of sale are well understood. The Tianjin port explosion recently highlighted the complexity and risks associated with New Zealand cargo entering foreign ports.

Philip Rzepecky, a barrister and expert on maritime litigation, outlined the Maritime Transport Act Section 65 prosecutions. The Act imposes strict liability and defence costs and penalties that can be insured for.

Glen Hunter of Hunter Marine outlined the role of a hull surveyor as well as some interesting salvage cases that he had been involved with on the behalf of insurers and vessel owners. Of note was the classic yacht that broke its mooring and ended up on a Far North beach following a storm last year.

The organisers, Gary Young of IBANZ, John Lucas of ICNZ, and John McKelvie of Vero Marine, said they were pleased at the interest shown, and will consider running another workshop next year, dependent on demand.

NEWS

Roboadvice not New Zealand’s future… yet New Zealand’s general insurance industry is unlikely to see a large-scale introduction of roboadvice any time soon, industry commentators say.

Roboadvice has become a buzzword among life insurance and investment advisers worldwide as it takes a growing chunk of the market with increasingly sophisticated technology.

Complex algorithms operating via websites and apps take details about customers and match them to suitable products and services.

They then check for changes in clients’ circumstances at regular intervals and adjust their investments and insurances accordingly accordingly.

Some roboadvisers only deal with investment services but more are starting to offer life and general insurance advice as well.

The current Financial Advisers Act review recognises that more advice may be delivered electronically in future and is looking at whether regulation should be amended to allow that.

But New Zealand commentators said it was unlikely to take hold in the general

insurance industry in this country, for now.

David Whyte, former director of Southern Response Earthquake Services, former managing director of AIG Life in Australia and former general manager of AIA in New Zealand, said commercial insurance was so customised that it was hard to see much gain in a roboadvice platform for business risks.

“Some brokers may have online packaged products for SMEs but I am not sure how successful they are,” he said.

Travis Atkinson, executive general manager of NZI, said it should be expected that the way the insurance industry in New Zealand operated would change and was ripe for disruption.

But he did not expect wholesale change to be imminent.

“Certain segments of customers want to do things differently and SMEs increasingly want to transact business online.

They want to balance advice with better ease of doing business. I don’t see that massively changing but it will evolve.”

Whyte said an obvious area for development of automated offerings was personal lines insurance. Already there is direct consumer

access to these products without any advice.

“There has been a move to establish a private vehicle insurance aggregation website as is commonplace in the UK, but the rating data required has been declined by the NZ motor insurance providers,” Whyte said.

“The UK has taken to buying vehicle and home insurance via this channel, but the market there enjoys the benefits of scale.

Our small market is easily controlled by a few big players, IAG, Vero, QBE, and they simply freeze out any attempts at innovation that may lead to increased competition. I don’t think there is much scope for a roboadvice-type platform in general insurance in NZ.” Tim Grafton, chief executive of the Insurance Council, said it was important that industry participants were ready to respond as the environment changed.

He said was another form of technological innovation that could provide some opportunities and a new way to distribute insurance. “Those that don’t adapt will suffer.”

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12/4/13 12:48 PM

NEWS

Vero team with Ministers pictured left to right are: Chris Brophy, Melissa Saunders, Alys Parker, Samantha Calvert, Minister Jo Goodhew, Loretta Dunphy, Prime Minister John Key, Charlotte Henderson, Jo Jalfon, Jon Watson, Suzy Moore and Paul Gallop.

Vero has A&P show covered Canterbury brokers warmed up from the weather by joining Vero staff for breakfast in the Vero Marquee at the Canterbury A&P show this November.

"The A&P show is a really important opportunity for a good catch-up with the many rural brokers who attend the show,” said Jon Watson, Executive Manager Rural Insurance for Vero.

“We also take the opportunity to speak to many of our mutual Canterbury farming clients, some of whom have been clients of Vero for decades.”

The brokers in attendance were addressed by Cam Bray of PGG Wrightson.

Bray was the 2014 Young Auctioneer of the Year and represented New Zealand at the Sydney Royal Easter show earlier in 2014.

He spoke about his experiences at the show and of being an auctioneer.

The marquee near the Vero Livestock Pavilion also received visits from

Ministers Steven Joyce, Jo Goodhew and Nathan Guy as well as Prime Minister John Key who asked about Vero’s rural insurance products.

“It was great to be able to host the Prime Minister and other Ministers together with members of the local community, in a rural environment,” Watson said.

The Vero Christchurch team talked rural and personal insurance over complimentary coffee with over 2000 people during the three-day show.

The team also sponsored the 2015 Young Auctioneer Competition which was won by George Mannering of PGG Wrightson Methven.

Mannering stressed the importance of livestock insurance during his competition auction.

IBANZ still working to get best possible Fire Service result All hope is not lost for changes to the way the fire service is funded.

The Government has released details of how the Fire Service will be structured in future and confirmed it will still be funded through levies from insurance premiums.

The insurance sector had argued a fairer way would have been for it to be funded through general taxation.

IBANZ chief executive Gary Young said the main focus now was working to ensure that the process became simpler to administer.

“The real change we wanted to see was never on the table; instead insurance will remain the vehicle for funding. However IBANZ has remained engaged in the review because there are significant risks that the process could run off the rails, leaving brokers bogged down in a costly compliance exercise.”

One change suggested has been to move the basis for the levy from fire to material damage cover.

Another was to calculate levies using premiums, not sums insured.

The Department of Internal Affairs also suggested a Government contribution for non-fire actives of the Fire Service would 8

December 2015

be appropriate.

Young said: “While the move to material damage policies is manageable we emphasised the current exemptions must remain. DIA do appear to have listened to us on premium-based calculations and have backed away from this, agreeing it would introduce unacceptable volatility.”

He said: “Our major concern is a proposal that the levy is calculated on total asset value rather than sum insured. Valuations for all assets, particularly for contents/plant and machinery are not necessarily obtained for insurance placements. We question what assets would be included in such calculations. Also what value – book value, replacement or indemnity – will be relevant and what will constitute an acceptable valuation. These are all key issues that have the potential to create complexity and confusion in the market.

“Moving to asset value is essentially moving away from an insurance basis. The levy, supposedly based on insurance will in fact be a property tax. This complicated combination of insurance and tax must inevitably lead to increased compliance costs for brokers and their clients. We have

communicated these concerns to the DIA and to the Minister.”

He said the idea of the motor vehicle contribution coming from the National Land Transport Fund was more appropriate but it would only work if it completely replaced the motor vehicle insurance levy, so motorists were not paying twice.

IBANZ is worried that increasing levies will lead to further under-insurance.

“The key will be transparency with the assessment and ensuring political pressures do not adversely affect the quantum paid,” Young said.

“IBANZ remains focused on ensuring the best outcome with any new legislation on Fire Service funding. The calculation and collection of levies must be simple, transparent and cost-effective. This will be no easy task when the chosen mechanism of insurance has been shown to be totally inappropriate.”

Internal Affairs Minister Peter Dunne said the details were still to be worked out.

Dunne had previously said the cost of the service would remain broadly the same and changes should not make a significant difference to insurance costs.

NEWS

Contents policies step up Runaway shopping trolleys are the cause of about 200 car claims each year, according to research by IAG New Zealand.

In the last five years, 983 Kiwis have claimed for damage to their car caused by an out-of-control shopping trolley, with repair costs of up to $15,000.

IAG spokesman Robert McDonald said tests carried out by his team at IAG’s Research Centre in Sydney showed loaded shopping trolleys could pick up speeds of up to 15km/hour.

“Shopping trolley collisions are influenced by the slope of a car park and the weight of a trolley, which can be up to 50kg,” Robert said.

“On average we deal with 197 claims each year that are due to shopping trolley incidents.

“In the year up to June 30, 2015, the average cost of repairs for damage to a car caused by a trolley reached $1100, although it’s not unusual to have $10,000 to $15,000 worth of repairs on expensive cars due to paint and parts costs.”

Data collected by the insurer between 2010

and 2015 showed that October to January is the time of year when drivers are most at risk of encountering a rogue trolley.

The data also showed a correlation between busier shopping times and more collisions, with showdowns between trolleys and vehicles happening most frequently on Fridays between 12pm and 3pm.

AMI claims expert Chris Kiddey said while most people were aware that their car insurance would cover them if a shopping trolley dinged their car or they hit another vehicle while manoeuvring, fewer people realise that contents insurance could offer protection in other difficult situations.

“People usually think of contents insurance as what covers their possessions within the home but it may surprise you to know that your contents policy also covers liability in various situations,” Kiddey said.

“Imagine you’ve just finished the grocery shopping and you reverse your car out of the car park, and crunch… you run into someone else’s car.

“Simple solution: call your car insurer and they’ll fix your own damage and just as

importantly, they’ll take care of any liability - i.e. your legal financial responsibility - for damage to the other car as well, which can sometimes be the really expensive bit.

“But now imagine you’re only on your way to your car, you’re fishing for your keys and you let the shopping trolley go and, again… crunch.

“This time your car insurance can’t help because you weren’t using your car. What do you do? Call your contents insurer.”

Most insurers offer legal liability cover through contents policies, which means policy-holders are covered for accidental damage or loss to other people’s property occurring anywhere in New Zealand.

Kiddey said that while there will be exceptions, there is one important thing to remember: “If you’re going about your day and you negligently cause damage to someone else’s property, you may be able to claim with your contents insurer to cover the costs that you become legally responsible for.’

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9

NEWS

Get set for innovation, industry told Driverless cars are a trillion-dollar gamechanger for the insurance industry, an insurance expert says.

Allan Manning, of LMI Group, said the move to vehicles such as the Google Self-Driving Car was one of a number of trends that would completely disrupt the sector over the coming years.

Questions were already being asked about whether the car insurance industry could survive it. “Driverless cars’ accident avoidance is going to be a big game-changer we have to address as an industry,” Manning said.

It would affect panelbeaters, car manufacturers, finance companies as well as insurance, he said. There might be claims for minor scrapes or hail damage but, in theory, a lot of the big work would be removed.

Other technology might also affect the vehicle claims processing experience, he said.

“Will we need as many panelbeaters, or will the claims office have a 3D printer on the desk and print out a bumper to send to the client? Or will the client have a 3D printer at

home and the claims office will just send the software for them to print out a bumper?”

Other looming changes included a move to buying insurance from an app, particularly for motor cover, and wearable technology that would give insurers insights about their customers.

Some market changes were taking time for insurance customers to catch up with.

Manning said houses and businesses had a 2% chance of being affected by fire but a 73% chance of being hacked, he said, yet their focus was still usually on fire insurance rather than cyber cover.

“I’m convinced in my mind we haven’t priced this product right.”

Other changes included reinsurers taking the lead on more policies and underwriting agencies threatening the market position of insurance.

Manning said many other industries were also set for disruption and would see job losses because of technological advices.

But he said in a tough market it was likely

most insurance companies were looking at the cost of using a third-party distribution channel, who sometimes pushed back on increasing the cost to consumers.

“I can’t believe there isn’t a board in the world of an insurer that isn’t looking at their distribution channels and saying ‘am I better paying commission to the broker’ and get these statistics or to sell direct.

That’s a concern and if we don’t address it brokers could end up with no role. Just like fantastic travel agents continue to make a living, there is a role for a good quality broker but you can’t be a post office box, you can’t sell on price.”

Manning said insurance had become too focused on price when it should have a much bigger role for businesses and consumers.

“Until we believe in ourselves and insurance advice, insurance will go the way of the aggregator, and cheaper [policies] are going to win.”

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10

December 2015

Steadfast expands Steadfast Group has added Insight Australia Group members to its network.

Insight is a cluster group of insurance brokers and authorised representatives across Australia which generates annual gross written premium of more than A$250 million ($267 million).

Established in 1991, Insight has about 40 independently-owned members with a strong presence in regional Australia.

David Hosking, chairman of Insight, said, “We are delighted to join the Steadfast Group and benefit from their scale and strength as the largest general insurance broker network in Australia and New Zealand. As one of the broker members of Insight, I look forward to taking advantage of the services Steadfast has to offer.”

Robert Kelly, managing director and chief executive of Steadfast, said, “We welcome Insight into the Steadfast Network and encourage their members to take advantage of our broker services, product offerings and support services. Greater access to our strategic partners and their offerings will also be a priority. We look forward to working with chief executive David McKinnis to bring further growth opportunities to Insight and in turn Steadfast.”

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FEATURE

Insurance Advisernet 2015 Review

Looking to the future.

Remembering the past.

The end of any calendar year is a natural time for reflection.

As 2015 draws to its conclusion it’s certainly been a significant 12 months for Insurance Advisernet, highlighted by strong continued growth, several key strategic additions, the move into new Parnell offices and an inspirational partnership with the Walking Wounded Foundation, coinciding with the 100-year anniversary of the ANZAC landings at Gallipoli.

SUPPORTING THOSE WHO SUPPORT US ALL n April Insurance Advisernet entered into a significant sponsorship with Walking Wounded, a foundation assisting returned soldiers as they look to transition their way into civilian life following active service in conflict zones such as Afghanistan.

Specifically the company was directly involved in supporting Walking Wounded founder, Brian Freeman, on a remarkable non-stop journey spanning three continents to honour fallen servicemen and women.

This included climbing Mt Everest, running over 4,000km from the northernmost tip of Australia at Cape York to the south cape of Tasmania, kayaking solo across Bass Strait, walking the Kokoda Track in PNG and then summiting Africa’s Mt Kilimanjaro. Insurance Advisernet was naming rights sponsor of the Mt Kilimanjaro and Traverse of Australia stages of Freeman’s epic journey, where he was also joined by members of the Insurance Advisernet management team and several ARs. A portion of all proceeds from new and referred policies was also donated towards Freeman’s once-in-a-generation tribute.

I

NEW OFFICES, NEW FACES, NEW OPPORTUNITIES After nine years in Newmarket, 2015 saw Insurance Advisernet move into brand new offices closer to the Auckland CBD at Parnell.

When asked about the move Insurance 12

December 2015

Advisernet NZ CEO David Crawford explained the need to be closer to key markets without being in the very centre of the city.

“Parnell really is the ideal location for us and we were very fortunate to secure a fantastic building,” he said, explaining the offices have generous amounts of space to accommodate future growth. “We’ve designed the office layout so new brokers joining us in Auckland can work from our offices until they’re ready to get their own offices. We have ambitious plans for growth and wanted to raise our profile. The new offices certainly help.”

Geoff Long and David Burrough are two of the new faces who’ve joined IANZ since the shift to Parnell. When asked about the move Long explained, “The single biggest advantage of joining Advisernet has been autonomy. As new brokers in a fledging business, being a member of Advisernet allows us to concentrate on what we are good at – being brokers.” Burrough agrees, adding: “From day one we’ve been able to hit the ground running, building relationships and business opportunities without the worry of dealing with the ever-increasing regulatory burden, that’s handled really competently and professionally by Advisernet. Without this backing I don’t believe we’d have made the gains or the success we have had in the short time of operation.”

Dan Donaldson has recently celebrated his first anniversary with Advisernet. Reflecting on his first year Donaldson said, “The prospect of leaving corporate security and starting your

own business can be daunting.There are so many variables to consider. One of the best decisions I made was to partner with Insurance Advisernet.

Their systems and processes let me spend far more time on growing the business rather than doing paperwork. The support, expertise and sense of family from the wider group has given me far greater confidence and conviction to see this dream of mine into a reality. Anyone considering doing the same would be foolish not to consider IANZ as a partner.”

A number of other strategic changes have also been implemented in 2015, with more to come in the first half of next year.

The collective result means Insurance Advisernet is strongly placed to capitalise upon opportunities and respond to market challenges in 2016 and beyond.

“As we approach our 10th anniversary here in NZ our focus is changing. We’re no longer the new kid on the block,” said David Crawford.

“We’ve come a long way and are looking to attract the best talent in the broking industry from the big corporates, by bringing them into an exciting business model that’s growing fast and can compete with anyone in the market.”

“We continue to work very closely with our Australian colleagues,” he adds. “Between us we have over $500m GWP. We’re also part of Austbrokers with over A$2.5bn GWP. This brings us the scale and ability to access global markets and specialist resources to assist our brokers as they grow. It’s an exciting time, no question.”

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13

COVER STORY

YEAR IN REVIEW

Insurance industry players rate 2015 and gaze into their crystal balls to predict the year ahead.

TRAVIS ATKINSON, NZI

T

ravis Atkinson has had a very clear focus over the past 12 months on bringing the Lumley and NZI teams together to form a new amalgamated business.

That has meant developing a new workplace culture, he says, as well as new systems and operations.

“From where we were 12 months ago to today, people are well down the track to being something that is not NZI or Lumley anymore but something different.

That’s my number one highlight of the year in some respects.”

The market had been a challenging one to operate in over the year, he said, but NZI had been able to perform strongly, despite having an internal focus as it worked on the business integration.

14

December 2015

He said that was not always an easy feat but he was proud of the way the business had been able to trade, handle operational challenges and respond well to claims while it was focused on refining its own processes.

“There’s a lot of work to do to integrate the businesses that the customer doesn’t see, to do with governance and risk.

It’s been a year of putting the companies together but it’s got momentum and has done well.”

Over the next year he hoped to be able to put more focus back on external factors.

“That’s a natural progression in doing a lot of work internally this year, we can out the focus more on getting out and having more focus

on customers and brokers.”

There would be more product focus and new initiatives that would make business easier to do, he said, as well as product development announcements.

Atkinson said while competitive pressure might flatten out, the market would likely still present challenges.

Getting the right people into roles and developing their skills was a key component of NZI’s success, he said.

“That needs to be a priority for next year.

There’s been a lot of people moving around in the market, and change, that’ll continue to be an area of focus.”

COVER STORY

NEW ZEALAND IS A COUNTRY READY TO EMBRACE CHANGE, AND LOOKING FOR OPPORTUNITIES FOR ENTREPRENEURSHIP AND INNOVATION.

PAUL SMEATON, VERO

V

ero’s chief executive, Paul Smeaton, has only been in the job since September but has spent the last 21 years with its parent company, Suncorp.

He said since joining Vero he had been able to meet a range of brokers and stakeholders.

“It’s been great to hear that our relationship with them is strong.

The insurance industry and the competitive market within New Zealand is continually changing and evolving. I sense that New Zealand is a country ready to embrace these changes, and looking for opportunities for entrepreneurship and innovation.

I love this attitude, and I’m looking forward to my time here accordingly.Vero is a strong business

with a proud history, and I believe it’s well-positioned for the changes the future will bring.”

He said the insurance industry was very competitive.

“It means we don’t stay still. We are focused on what we can do to deliver value to our customers.

Customers are looking to purchase insurance products and services in different ways and for commercial clients, their businesses continue to operate in highly-complex environments and new solutions are required. We have been investing during 2015 to meet these needs through improved products and technology.”

Smeaton cited the company’s strong financial performance among its successes for the year, as well as its momentum in the Canterbury rebuild and new SumExtra policy.

It has also been an active participant in EQC reform.

Smeaton said Vero was well positioned in the New Zealand market and he was looking forward to building on that over the next 12 months.

“Our response to the changing insurance market requires new business models, new products, new providers and new technologies.

We’re continuing to invest in simplifying and transforming our business through all these channels, to ensure continued growth,” he said.

“We will also continue to move forward with our rebuild programme in Canterbury. As a business we have paid out close to $4.6 billion for claims related to the Canterbury Earthquakes, out of an estimated $5.2 billion total. We believe we are close to 90% complete with our rebuild programme, and we hope to be

near completion by the end of next year.”

He said market challenges also offered opportunities.

Disruption from new providers and technologies was a sign of a strong market, he said.

“We’re very well-positioned because of the investments we’ve made and the work we have done to better understand, anticipate and meet the needs of our customers.

We look forward to the result of the EQC review early next year, and hope to see an outcome that ensures the interests of New Zealanders are best served in the event of a future natural disaster.

We see this as an opportunity to really embed everything we’ve learned from Canterbury.”

Further regulatory reviews over 2016 would be an opportunity to have wider conversations about the role of insurers in New Zealand’s financial services industry, he said.

“One concern for us is the level of under-insurance in New Zealand. The events in Canterbury made the importance of appropriate cover apparent to everyone, and we continue to look for new ways to encourage our customers to engage with their insurance cover and make sure they understand the value of their belongings and their insurance. SumExtra is a good example of our innovation in this area.”

He said customers are increasingly changing the way they wanted to review and purchase insurance services and he expected that to continue, particularly in terms of digital behaviour.

“We have been investing in our technology to continue to anticipate changing customer needs.” www.covernotemag.co.nz www.covernote.co.nz

15

COVER STORY

TIM GRAFTON, ICNZ

I

WE WANT YOUNG PEOPLE WITH THE SKILLS AND EXPERTISE TO CHOOSE TO JOIN THE INDUSTRY.

IBANZ Regulatory change has been a big focus for the Insurance Brokers Association over the past year.

It has submitted on consultations including the review of the Fire Service Act, Financial Advisers Act and Earthquake Commission Act. Chief executive Gary Young said reviews and lobbying had been a major activity for the year and had taken a lot of the association’s attention.

Young said all of the reviews had been positive, but to varying degrees.

The insurance industry had not got as much as it wanted from the review of the insurance levies used to pay for the Fire Service.

“We’ve been talking to the Department of Internal Affairs and [Minister] Peter Dunne about what the dangers are if they don’t get it right,”Young said.

The final result of the 16

December 2015

nsurance Council chief executive Tim Grafton can name a number of highlights for his organisation over 2015, including work on the new Fair Insurance Code, which comes into effect in January.

That involved a lot of work, including ensuring it received all the necessary approvals, and appointing a code compliance committee to oversee it.

That committee will be chaired

by Grafton, with other members including former Governor General Anand Satyanand, David Caygill and David McGee. Grafton said a number of workshops had been held to explain the expectations and requirements of the FIC so that the industry would be ready to operate under the new code when it kicked in.

He said it had also been a busy year for ICNZ in terms of submissions on legislation.

The EQC review had required a specialist committee to be set up to

develop the ICNZ submission.

It had also submitted on consultation on the Fire Service levy.

Grafton said while the ICNZ’s ultimate goals had not been achieved, more progress had been made in he past year on developing a fairer system to fund the Fire Service than had been made in the 20 years before that, including the shift away from applying the levy to vehicle premiums.

“Hopefully we’ll see a greater contribution from the Crown to the Fire Service, which is what it should be doing if fairness is any measure,” Grafton said.

Other successes included its position paper on natural hazards, which had raised issues that had been picked up by local and central governments, he said.

The ICNZ had also worked to improve financial literacy through partnerships with the Young Enterprise Trust to bring material into schools and with Banqer, to

develop an educational insurance model and resources for schools.

Banqer is an online tool that turns a classroom into a virtual economy.

ICNZ members had helped with funding to give low-decile schools access to the software.

Over the next year ICNZ’s work in natural hazards risk resilience would be a key focus, as would be the next stages of the EQC, Financial Advisers Act and Fire Service levy reviews.

A long-term goal for Grafton and the ICNZ is to boost the industry so that insurance is a “first choice” career for young people with the skills and expertise the industry needs.

“People talk about getting into the industry accidentally. What that means is it’s not their first choice and we are fortunate to have had talented people fall into the industry. But we want them to choose to join, it’ll be stronger as a result.”

MIKE RAINES, AIG Financial Advisers Act review is not yet clear but Young said the Ministry of Business, Innovation and Employment’s approach had been reasonable.

But he said there was a chance advisers’ compliance burden could increase because of the review, which IBANZ was watching closely.

“There could be things in there that are very costly from a compliance point of view if it doesn’t go the right way. The key is making sure there are enough advisers left who still want to do the job. If compliance costs are too high you end up with no one willing to do it.”

IBANZ held three workshops with the Insurance Council this year and Young said they had been very successful. His organisation had agreed to do more in 2016.

“The PIQ College also had a lot of successful workshops and services this year.”

A

IG’s chief executive has only been in the job a matter of months and says 2015 has been a bit of a whirlwind.

But he has some clear goals for 2016. “Currently our business is mostly focused on commercial insurance. Rates in that area have fallen considerably over the last couple of years and there is also fresh capital in the market.

That’s tricky for most insurers but probably more tricky for us because of our business mix.”

He said the focus for AIG over the coming 12 months would be to develop the business into the consumer space. “That would include entrance into the personal property and residential insurance market.”

AIG also hoped to expand its work in extended warranties and look to develop pleasure craft business. It has entered a new underwriting relationship with Nautilus Marine Insurance in Australia and under the NM Insurance New Zealand brand.

Raines said it made sense to develop opportunities that presented in New Zealand, considering the number of people who own boats here.

AIG would use the next year to focus on increasing its footprint both geographically in New Zealand and across other segments of the market, he said.

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17

FINANCIAL ADVISERS ACT REVIEW

OPTIONS FOR LAW REVIEW REVEALED Requirements on registered financial advisers look set to lift as Financial Advisers Act is reviewed.

WHAT DOES THE OPTIONS PAPER WANT ALL ADVISERS TO DISCLOSE? •

• • •

18

The range of products they are able to offer/advise on including any limitations of their advice (advisers would need to clearly note any limitations on the advice they are offering).

The nature of their remuneration - commission (e.g. ‘tied’ arrangements), fees (e.g. ‘insurerneutral’ arrangements).

Any other conflicts of interest.

Relevant experience and qualifications

December 2015

A

n options paper that will guide the Financial Advisers Act review has been released and shows the Ministry of Business, Innovation and Employment (MBIE) is keen to tighten up the rules on non-authorised financial advisers, and make clearer the distinction between salespeople and advisers.

The options paper was released after consideration of submissions on MBIE’s issues paper. Final recommendations will go to the Commerce Minister, Paul Goldsmith, mid next year.

Goldsmith said the Financial Advisers Act had lifted professional standards in the adviser industry and had improved customer protections because all providers had to belong to a dispute resoliution scheme. But there were also problems with it.

“We have heard concerns that the regime has had the unintended consequence of making it more difficult for New Zealanders of modest means to gain access to financial advice, because of the costs imposed,” he said.

“We have also heard that the regime is unnecessarily complex which is making it hard for consumers to know where to seek financial advice from. We have also heard that the

FINANCIAL ADVISERS ACT REVIEW

distinction between advice that puts the interest of the customer first, and what is essentially sales activity, remains blurred. There are concerns that consumers may not be receiving advice from people with adequate skills to deliver the best outcomes for them.”

MBIE acknowledged that it was hard for consumers to know where to seek financial advice from, certain types of advice were not being provided, consumers could be receiving advice from people without adequate knowledge, skills or competence, conflicts of interest could be leading to poor outcomes and consumers did not always understand the limitations of different types of advice.

“There is an imbalance between higher competency requirements for some advisers (AFAs) and low or non-existent competency requirements on other advisers (especially RFAs),” the options paper said.

“We hear that these competency requirements are not always proportionate to the risk or complexity of the financial advice services being provided. This includes the concern that RFAs do not have to meet a competency standard, despite advising on financial products which can have a significant impact on consumers’ financial wellbeing (e.g. insurance).

For an RFA to practise he or she must simply register as a financial service provider (this involves an application form, criminal record check, annual fee, and joining a dispute resolution scheme).”

It wants to amend restrictions on who can provide advice, such as removing the distinction between personalised advice and class advice, narrowing the number of complex services that only certain advisers can provide and removing any distinction based on product complexity.

Some of the biggest changes for RFAs mooted include new minimum entry requirements, which is a preferred option for MBIE. It said advisers would have to demonstrate they had met a minimum competency standard before providing advice services.

It also would like to see mandatory and structured CPD for all advisers.

“This should result in an overall improvement in the quality of advice consumers receive and better alignment of adviser competence with consumer expectations.”

Ethical requirements that currently require authorised financial advisers to put clients’ interests first and opt not to act for a client if they could not tackle conflicts of interest should be extended to all advisers and there should be clear delineation between advice and sales so consumers would know when a salesperson was pushing a product, not giving them advice, the paper said.

It also suggested a new system where advice businesses would be registered and would be responsible for ensuring their employees were keeping up with their requirements.

MBIE also said there was a need to make roboadvice possible from licensed entities and to come up with new terminology for some aspects of the industry, such as RFAs, AFAs and QFEs, It suggests requiring all advisers to disclose the same information, streamlining disclosure to make it more meaningful for consumers and

THERE ARE CONCERNS THAT CONSUMERS MAY NOT BE RECEIVING ADVICE FROM PEOPLE WITH ADEQUATE SKILLS TO DELIVER THE BEST OUTCOMES FOR THEM. requiring advisers to meet minimum competency standards.

It presents three packages of options, each with varying levels of impact on the industry, but says they are not finalised.

“Importantly, while we are seeking feedback on which, if any, of the three packages are preferred, none are set in stone. They are intended as a basis for discussion with stakeholders about the pros and cons of each and what may or may not work in practice. We are also seeking feedback on whether there are other packages that could work better than the three permutations presented here.”

The first package is a collection of relatively minor changes and is intended to cause less disruption to the industry.

Under this package, the current boundaries about who can provide what type of advice would be retained, all advisers would have to comply with the same ethical obligation to put consumers’ interests first, all advisers would have to provide simple and common forms of disclosure, including commissions, terminology would have to be updated to be more meaningful for consumers and licensed entities could get into online roboadvice.

The second package of options includes all the package on improvements, removes the distinction between class and personalised advice, introduces a subset of expert financial advisers who can offer advice on complex matters and requires all financial adviser businesses to be licensed and those businesses to ensure their employees comply with competency and ethical standards.

The third package includes all the package one changes, some from package two such as no distinction between class and personalised advice, licensing of adviser businesses, advisers required to be competent, as well as introducing a category of salespeople not subject to the obligation to put the consumer first but who would have to tell their clients about this.

These sales people could only sell their own financial products. There is also potentially a role for industry associations to help their members comply with the rules in this package.

The report said banning or restricting commission was not a preferred option. “This option could limit access to advice to those who are not willing to, or cannot afford to, pay upfront for advice.”

Submissions on the options paper close late February. www.covernote.co.nz

19

FINANCIAL ADVISERS ACT REVIEW

Insurance industry weighs in on review

Submissions drawn on to craft FAA options paper are revealed.

N

ew Zealand’s general insurance industry would benefit from better distinctions between financial advice and sales, the Ministry of Business, Innovation and Employment has been told.

The Ministry has received hundreds of submissions on the issues paper it distributed as the first step in the review of the Financial Advisers Act (FAA).

Commissions, adviser designations and the problem of consumers not understanding whether they are talking to someone giving them impartial advice or selling a particular product, were identified as key concerns by submitters.

IAG said the regime needed to be simplified.

“A clear distinction is needed between advice and sales. Financial advisers should be regulated by an amended FAA to ensure minimum yet high levels of independence, conduct, competency and accountability,” it said.

“Salespeople and their employers should be removed from the FAA and be subject to the current care, conduct, redress, and censure obligations in the Financial Markets Conduct Act, Fair Trading Act, Consumer Guarantees Act and Financial Service Providers Act.” The submission said the distinction would come down to a question of whether the adviser was acting for the product provider or the consumer.

It said that was easier to determine in the general insurance space than in some other parts of the industry because people were usually branch and call centre staff or insurance brokers, although some brokers were tied and not independent. “It is important that the broker’s customers understand for whom the broker is acting at any given time.”

A person acting for a consumer would be an adviser and one tasked with selling a product would be a salesperson.

“This would see much of the complexity that arises from a definition based on phraseology swept away and replaced with a simple test based on agency to determine when one is a financial adviser,” IAG said.

“This would make independence an important and determining factor.

It would mean that, even though a person may provide an opinion or recommendation, that would only make them a financial adviser and subject to the obligations of the FAA if that advice was independent, because they were acting for the consumer and not the product or service provider.”

20

December 2015

FINANCIAL ADVISERS ACT REVIEW

IAG said that would mean its own operation would not be covered by the FAA and it would take responsibility for the activities of its staff and advisers. “That would remove the compliance and operational burden of the FAA and positively impact the decisions we can make, along with other insurers and financial product and service providers to support our customers' decision-making through the increased provision and consumption of advice. “ In some cases, it was not economically viable for businesses to deliver advice, IAG said. “In the general insurance market this is typically where the complexity of the need outstrips the value of the underlying sale. This is mostly likely to be the case for small businesses – where they still have much of the complexity and needs of bigger businesses, but the size of their premium means that the cost of providing advice can easily outstrip the margin available from transacting the business. We believe that it is unrealistic to expect that occupational regulation will materially change the business case that governs decisions about the demand and supply of financial advice.”

The Insurance Council (ICNZ) agreed that companies should take responsibility for their own staff and agents and the FAA should make a clearer distinction between advice and sales.

“Good insurance brokers provide a valuable service to the insured by accurately assessing their risks and recommending a suitable insurance product to manage those risks,” ICNZ said.

“They create efficiencies for insurers’ benefit for the same reason.

Brokers are particularly valuable to the insurance market for their ability to handle riskier, more unusual, higher value, higher volume or complex insurance arrangements between insurer and insured. Given these factors, in our view any regulation of insurance brokers through the FAA should promote, not distort, the quality of advice about insurance products in the market.”

The Insurance Brokers Association (IBANZ) said terms such as registered financial adviser (RFA), authorised financial adviser (AFA) and qualifying financial entity (QFE) adviser were not understood by consumers. “Our members’ preference is to be called insurance brokers as this is the term in common usage within the industry and with their clients.”

IBANZ argued that RFAs should be regulated in a way that was relevant to the sector of financial services in which they were operating in.

A CLEAR DISTINCTION IS NEEDED BETWEEN ADVICE AND SALES. “The requirement to individually register RFAs working for a single entity which is not a product provider, is cumbersome and doesn’t recognise that the employment entity or responsible organisation is responsible for the advice and compliance requirements of the RFAs.” It said the public was also confused by their dealings with QFEs. “Members believe the average consumer does not differentiate between class and personalised advice. When QFE advisers are selling their entities product we believe the consumer believes they have received advice on that product, there is no independent advice in such circumstances and the client is not made fully aware of the limitations of the advice they receive. Consumers do not understand the distinction between selling and advising. “ Commissions were a key theme noted by submitters.

Consumer NZ said commission payments should be phased out and the industry should move to fee-based remuneration for advisers.“Commission payments have been shown to lead to poor advice in the financial service

provider industry,” it said.

The watchdog argued that commissions created a conflict of interest and managing it was problematic. “Merely disclosing the commission does not resolve the conflict as consumers may not read disclosure documents.

When they do, they may not understand the significance of the disclosures being made. “ IBANZ said the regulation needed to reflect the fact that remuneration models for general insurance advisers were quite different to those operating in life insurance.

Tower said it did not support a ban on any type of commission in the general insurance space but did support full disclosure. “Commissions in the fire and general insurance industry are materially lower than they are for the life insurance industry, at 5% to 20% versus 80% to 250% in life insurance.”

It said banning commissions could lead to under-insurance.

Advisers’ disclosure requirements were also a point of contention.

ICNZ said without disclosure consumers were vulnerable to influences on their brokers’ recommendations, were uninformed about the real cost of insurance and New Zealand would lag behind international best practice.

But it said disclosure could have some unintended consequences. “A consumer may turn down a product that best meets their needs, simply because a higher commission attaches to that product across a range of products advised on by the insured’s independent financial adviser. But in our view an informed consumer that makes poor decisions is better off than an uninformed consumer making uninformed decisions.”

ICNZ said: “We also suspect it is unlikely this unintended consequence will eventuate, given consumer trust in advisers seems to be driven more by personal relationships than the quality of regulation. Finally, behaviouroriented market failures like poor consumer decision-making can be remedied through other measures like improved financial literacy.”

IAG said getting it right was key. “Calibrating this type of obligation will be critical to achieving the benefits from a clearer distinction between advice and sales and a tighter definition of who is and is not a financial adviser. Too onerous a disclosure obligation will exacerbate the current cost-to-serve issue and act against the sought-for change in the ‘business case’ for giving advice.”

IAG said: “We contend that an agency-based definition of financial adviser will allow a lighter form of disclosure to be implemented. There is less need to explain that which accords with consumer expectations and experiences of receiving independent financial advice or simple being sold a financial product or service. “ The disclosure regime would need to reflect the changing distribution channels, IAG said.

“It is neither sensible nor possible for disclosure to fully educate consumers about the different obligations due to them by their salesperson or adviser. Any disclosure must have a simple aim, be achieved quickly and easily, and leave the consumer in no doubt as to what they have been told and what it means. Overall we think a simple statement alerting the consumer to the fact they have not received independent financial advice and may wish to do so is sufficient to put them on notice and take action if necessary. “ The Commerce Commission said: “We find it anomalous that RFAs are not actively required to disclose conflicts of interest, and note that this may contribute to the risk of consumer confusion between pure sales arrangements and pure advice arrangements. Many RFAs will be finance brokers who operate in the consumer credit markets. The lack of a requirement for these advisers to disclose their interests appears to run counter to the purpose of recent amendments to the Credit Contracts and Consumer Finance Act.” Final recommendations will be given to the Commerce Minister in the middle of next year. www.covernote.co.nz

21

OUT AND ABOUT

ICNZ TAKES CONSUMER FOCUS This year's Insurance Council conference put a consumer-centric magnifying glass on the industry.

24

December 2015

FEATURE

Under the microscope: Canterbury earthquake decisions A

ndrew Horne and Toby Gee, from Minter Ellison Rudd Watts, examine Newbery v AA Insurance, a colourful example of policy interpretation, which may give comfort to contents insurers but serves as a salutary warning to insureds and brokers in relation to sub-limits and the importance of specifying valuables in contents policies.

Are mass-produced porcelain collectables “ornaments” or “sculptures” for the purposes of a home and contents policy?

“Yes” and “no” were the High Court’s answers when a Mr Newbery sued AA Insurance seeking a declaration that policy limits did not apply to his collection of 30 Lladro pieces with a combined value of $210,065, some of which suffered damage in the Canterbury earthquakes.

Lladro is a Spanish company which produces porcelain figurines in its factory in Valencia.

Many of Mr Newbery’s Lladro pieces were of vintage cars, a particular interest of his.

The policy limited cover for jewellery and works of art to $5000 per item, capped at $20,000 for any one event.

Works of art were defined as “pictures, paintings, prints, sculptures, ornaments, tapestries, antiques (other than furniture), hand-woven mats or rugs”.

As the policy was a standard form agreement, the Court proceeded on the basis that it needed to focus upon the language of the policy and that context and background were of no assistance to its interpretation.

THE JUDGMENT Justice Nation held that Lladro pieces, even very large ones, fell within the term “ornament”.

The Court held that it was appropriate to interpret the term widely.

WORKS OF ART WERE DEFINED AS PICTURES, PAINTINGS, PRINTS, SCULPTURES, ORNAMENTS...

There was no reason to depart from the ordinary meaning of the word, which imposed no size restriction.

The Court rejected the argument that ‘ornament’ had to be confined to small items and trinkets of low value: “I consider that, having regard to the terms of this policy, a reasonable insured would have understood that the term ‘ornament’ would apply to an item which had no practical use but which was owned and on show for display because of the value which the owner placed on the appearance and design of the item.”

Although this finding put an end to Mr Newbery’s claim, Justice Nation also discussed whether or not Lladro pieces were sculptures under the terms of the policy.

He held that a narrower meaning of “sculpture” was appropriate given his earlier finding that “ornament” had a wide meaning: “Lladro is most commonly known and described as associated with the business and factory that produces it.

As Lladro, it will not be commonly seen as an item which has been created or fashioned by the original creator. I do not consider… that a porcelain piece, reproduced on a repetitive basis from a factory, sold and marketed primarily under the name of that business, would be considered a sculpture in the way that term is used in the policy.”

A REMINDER OF THE EFFECT OF SUBLIMITS Apart from any philosophical interest as to how it relates to the question, “What is art?”, this case serves as a reminder of the potentially significant effect of sub-limits. Insurance industry participants, including brokers, must consider their ambit carefully. www.covernote.co.nz

25

COVER STORY

EQC Reform: ICNZ View

By Tim Grafton, chief executive of the Insurance Council of New Zealand

S

ome reinsurers have mentioned that the earthquake recovery is right up there among the most complex natural disaster insurance recoveries ever. There are many reasons for this, but prominent among them is the existing Earthquake Commission Act 1993 (“EQC Act”). It provides that EQC covers land damage and the first $100,000 plus GST of building damage, and $20,000 plus GST of contents damage for each event.

The current Act caused problems of duplication and inefficient use of resources in Canterbury as well as contributing to delays.The fact that EQC cover reinstates after each event requires the complex calculation of damage to be apportioned for each of the major earthquakes for each claim. Issues with privacy slowed down the sharing of EQC data with insurers, and differences between the cover under private insurers’ policies and the EQC Act caused inconsistencies in repair strategies. EQC also had difficulty in quickly determining whether some properties were over cap. From 2014 to June 2015, private insurers have received over 2,500 over-cap properties from EQC, between three and a half to four and a half years after the first earthquake. In the last quarter, 467 properties were handed over to insurers as over cap.

The EQC Act needs to be amended in light of the lessons learned from the extreme stress testing brought by the Canterbury earthquakes.

TREASURY EQC ACT REVIEW In July 2015, Treasury published a discussion document seeking submissions on how EQC should be structured in the future.The discussion document sought stakeholder input on how EQC should operate and outlined a number of scenarios for comment.

The ICNZ gathered together a group of experts from throughout the industry – from the fields of underwriting, claims, legal, and reinsurance – to examine the Treasury suggestions and bring together the industry response.

PRINCIPLES FOR AN EFFICIENT RECOVERY FROM NATURAL DISASTER

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December 2015

The ICNZ submission adopted a principlesbased approach. At its heart, it sought to ensure as far as possible that anyone who has insured a residential dwelling can be re-housed after a natural catastrophe. Consistent with that, it also sought a scheme that keeps natural catastrophe cover affordable and available to all who choose to insure their residential dwelling.

The submission outlined a large number of recommendations for efficient recovery from natural disaster. The aim was to eliminate factors that led to duplication of effort, inefficiencies, additional costs and delays with the residential recovery.

The principal recommendations that would make the most immediate difference following a natural disaster, include: »» Lodgement and Assessment of Claims ICNZ strongly supported the discussion document proposal to legislate that all EQC claims should be lodged with property owners’ private insurers. However, this does not go far enough.To address the problems of duplication of resources, and the long tail of claims being transferred to insurers years after a disaster, legislation should also require claims to be assessed by insurers.

ICNZ also advocates for all under-cap as well as over-cap claims to be managed by insurers to the point of settlement or reinstatement.

This would be managed under a commercial arrangement between insurers and EQC. Claims would be audited by EQC and their re-insurers.

This change in the claims process would remove duplication of costs, confusion for the insured, provide one point of contact for the insured and a faster recovery process. An important point in the ICNZ submission was that insurers have significantly more qualified resources and better systems in place to respond to a major disaster vis-a-vis EQC. »» Land Cover ICNZ’s submission did not support the discussion paper’s proposal to combine site-works into a single building cap. This was because of the significant risk of under-insurance and the potential reduction of insurance coverage rates.

Land repairs are notoriously difficult to price; and

in the current fixed-sum insured environment, a large proportion of the sum insured amount could be eaten up with additional land -foundation repair costs over and above what would be required to build or repair the house today. This would leave insufficient funds to repair the building.

ICNZ proposed that the discussion document’s combining of site-works into a single building cap be disbanded and replaced with two separate covers: land works and building cover. Land works would cover all land and enhanced foundation work required to create a building platform. This would include the additional foundations/land works needed above the standard foundation costs of the house were rebuilt to today’s, prequake building requirements – due to land damage from an earthquake or other natural peril – in order to provide a building platform to rehouse people.

Building cover would be the costs for building repair or replacement, up to the EQC cap. »» EQC Cap Cover ICNZ proposed that the building cap be set at $150,000 rather than $200,000 because of the cost allocated to land works. The current cap for contents of $20,000 plus GST should be removed, leaving private insurers to manage all contents claims. This removes another source of duplication of resources and associated inefficiency issues that contributed to delays in the Canterbury earthquake recovery. »» Reinstatement of EQC Cover ICNZ’s submission proposed a different cover

by EQC, where EQC’s cover would only fully reinstate, once the cap was reached, following the completion of repairs during the period of insurance. For example, if earthquake damage to a property was $250,000, EQC would pay up to its cap, say $150,000 and the private insurer, $100,000. If a further $50,000 damage was caused by a subsequent event before repairs were completed, these additional costs would be met by the private insurer. EQC has no further liability once their cap is reached until the repairs are completed. This is an important change in approach which significantly reduces EQC’s exposure and avoids the major problem of EQC and insurers having to apportion losses between events. It also preserves the principle of indemnity, encourages repairs to be undertaken in a timely fashion, and removes incentives to under-insure for catastrophic events. »» Standard of Cover ICNZ submitted that EQC building cover should follow that of the insurer, so all assessments and repair standards would be based on the homeowner’s private insurance policy.

This eliminates any bias in assessments, whether the losses are under or over the EQC cap and

COVER STORY

policyholders get the standard of reinstatement they purchased from the ground up. »» Need for Flexibility The current EQC Act and other legislation like the Privacy Act are too restrictive to enable catastrophe situations to be dealt with efficiently and effectively. ICNZ’s submission sought greater flexibility around sharing of information and the ability for EQC to deal directly with third-party interests like those of insurers. »» Transition ICNZ advocated in the submission that at least 18 months needs to be allocated to phase in the new scheme. Apart from changes to policy wordings, systems changes and the need to develop the commercial contracts with EQC, annual reinsurance arrangements will need to

transition through to new covers during the 12 months following enactment.

CONCLUSION The Canterbury earthquake experience has shown that New Zealand is very fortunate to have such a comprehensive natural disaster support structure as the Earthquake Commission. Of the $40 billion cost of the earthquake recovery, EQC is contributing $12 billion and private insurers over $20 billion. Without this, the New Zealand economy would have been severely affected at a time when the world was in the grip of a global financial crisis.

The Canterbury experience has shown that the EQC Act was not designed with such a major catastrophe in mind; and many of the well-publicised problems of the earthquake

recovery stem directly from the shortcomings of the EQC Act. The Treasury review of the EQC Act gives an opportunity for the shortcomings to be put right. The ICNZ submission and recommendations on the Treasury discussion paper is based on its insights from the front-line work it has undertaken with private insurers and EQC. It recognises the need for the future shape of EQC to be affordable for government, as well as the costs of the scheme being affordable for consumers.

If the ICNZ recommendations are adopted, we will have a more economic and efficient natural disaster scheme – one that promotes the world-leading levels of insurance penetration that New Zealand currently enjoys. www.covernote.co.nz

27

FEATURE

Competition drives consumer benefits I ncreasing competition and diversity in New Zealand’s insurance industry is good news for consumers, the chief executive of the Steadfast group says.

Steadfast Group acquired Allied, New Zealand’s second-largest broker network, in August last year.

At the time, Bruce Oughton, Allied’s chief executive, said it would give his broker members the benefit of Steadfast’s scale and strength.

“Steadfast New Zealand will become a natural acquirer of our businesses should our brokers want to sell equity stakes,” he said.

“We also look forward to finding ways to bring the best of both Steadfast and Allied service and product offerings to our clients, via Steadfast New Zealand, and I am happy to continue heading up the new group.”

Steadfast now has 30 members across 57 offices around New Zealand and generates $320 million in gross written premium across the network.

Steadfast Group chairman and chief executive Robert Kelly said the Allied brokers were a diverse group of people.

The acquisition came about because they were in need of some of the support and resources that Steadfast could offer them. “They brought distribution and we brought policy wordings, IT systems, all the services.”

He said most of the systems were customised for the New Zealand operations and had enabled brokers to elevate their position in the Kiwi marketplace.

Steadfast also acquired an equity stake in Rothbury.

Kelly said it had an underwriting agency presence in New Zealand through Protecsure and UAA and there are plans for more agencies to move into the Kiwi market.

“Did we ever aspire to be the number one broker group in New Zealand? No. But we didn’t aspire to it in Australia either, it just happened,” he said.

Kelly said potential growth was limited in New Zealand because it was a fiercely competitive market that was well services by a number of distribution firms.

“When you think it’s a population of roughly 4.5 million people, that’s fewer people in New Zealand than in Sydney. The chances for expansion are not really dramatic.”

He said the focus was on refining the distribution networks the group had in New Zealand and providing support to those brokers.

“We’ll let them build the markets themselves, we want to consolidate what they have got there and enhance that and give them an opportunity to increase the spread of insurance.”

Kelly said the fact Steadfast and Austbrokers had entered the New Zealand market over the past year had opened it up.

He said it had previously been very tightly held by the larger companies.

“They really dominated the market and the majority of insurers tended to support them against all other distribution [channels], it isolated the market into two or three channels but then Austbrokers

DID WE EVER ASPIRE TO BE THE NUMBER ONE BROKER GROUP IN NEW ZEALAND? NO.

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December 2015

FEATURE

visique.co.nz

has done an acquisition and we have done an acquisition and it’s opened the market up dramatically for the bread-and-butter indigenous brokers. We are really happy.”

While the distribution space has been fiercely fought by big operators, New Zealand’s market has also been controlled by a small number of big insurers.

Kelly said that dominance could lead to less robust competition.

But he was optimistic that there were signs of that changing with more market entrants coming in.

“New Zealand’s market is opening up a bit more, there is a diversification of insurers wanting to coming in, to New Zealand and fresh people coming, in, it’s opening up the market in a good way. Consumers will benefit from the fact we are competing in distribution and new players are creating more competition in product manufacture.”

New Zealand was less regulated than Australia, Kelly said. “It’s sometimes geographically insular; people will tend to work in their local area. In saying that, it’s part of the appeal. We have 700 offices across New Zealand and Australia and new like local people serving their local areas. They can use the strength of Steadfast to cement their position in the local market.”

New Zealand and Australia were otherwise culturally similar, he said. “We’re fairly aligned with what we think about the world and find it works really well for us, it’s not like it’s another planet… unless it comes to sport.”

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29

FEATURE

Lessons learnt from Canterbury

by Gerry Brownlee, Minister of Canterbury Earthquake Recovery and Minister Responsible for the Earthquake Commission

T

Over the past five years New Zealanders have seen the massive value of having insurance against natural disaster damage.

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here is no doubt insurance is an essential part of any economy - a point now understood by New Zealanders more widely than before the Christchurch earthquakes.

This country has absorbed an impact of about 20% of GDP from the Canterbury earthquakes without having to impose additional taxes or levies, and without cutting important public services because of good insurance cover.

With a small population and exposure to almost every natural hazard, we have also seen the value of our public-private residential insurance model.

In the wake of the Canterbury earthquakes, when making the Government offer to purchase damaged residential red-zone land and buildings, we were pleased to discover more than 98% insurance penetration, which meant almost every Canterbury home repair or rebuild had some form of insurance protection.

The importance of keeping insurance affordable and available for all by reducing risk is well demonstrated by Lloyd’s, the world’s specialist insurance market, which calculated that for every 1% increase in insurance penetration, there is a 22% decrease in the taxpayer contribution required post-disaster.

In New Zealand’s case, about 75% to 80% of losses arising from Canterbury are being met from insurer and reinsurer balance sheets.

The Earthquake Commission (EQC), as you know, provides “first loss” cover against damage to residential homes from earthquake, natural landslip, volcanic eruption, hydrothermal activity,

FEATURE

I DO BELIEVE THERE NEEDS TO BE MORE COLLABORATION WITH EQC TO ENSURE THE BEST RESULT ACROSS EVENTS OF DIFFERENT SIZES AND TYPES TO DELIVER A BETTER CLAIMS EXPERIENCE FOR HOMEOWNERS... tsunami or fire caused by any of these natural disasters.

Private insurers provide residential cover above the capped EQC cover. This arrangement was put in place in 1993 at a time when New Zealand was becoming more aware of the risk we live with and private insurers less willing to take all that risk alone.

This arrangement has kept natural hazard insurance affordable for homeowners and created a viable residential insurance market for insurers and reinsurers.

So we have become something of an international example for the value of an holistic approach to natural hazard risk.

The value of EQC cover has been well demonstrated, and there is considerable international interest in the role insurance plays in the Canterbury rebuild and beyond.

Internationally, private markets for catastrophe insurance tend to be marked by low rates of insurance uptake and fluctuations in supply of this type of cover.

This results in significant levels of underinsurance or non-insurance among property owners.

Only about 10% of Californian homeowners have earthquake insurance, despite California being very seismically active. In Japan, 25% to 30% of homeowners have earthquake insurance.

It is worth reflecting on the position Canterbury homeowners and the Government would have been in if only 30% or less of earthquake affected homeowners had insurance

compared to the 98% who did.

That does not mean we haven’t seen room for improvement.

Treasury is leading a review of New Zealand’s future natural disaster insurance cover, which currently comes under the Earthquake Commission Act of 1993.

EQC ACT REVIEW Treasury received about 60 submissions on the review discussion document.

Of these, about half are from organisations and half from individuals with specialist expertise, ranging from academics to industry practitioners.

There is clear support for retaining the broad structure of the current co-insurance model with EQC acting as the first loss insurer, but with a raised first-loss cap.

Submitters also identified difficulties associated with interaction between land and building cover.

This is an area that needs to be improved.

There was also near-consensus that EQC should no longer offer contents insurance. On both these points the Government agrees.

It is important to note that EQC’s mandate goes wider than running an insurance scheme and maintaining the New Zealand Natural Disaster Fund to mitigate the financial impact of natural disasters on homeowners.

As a public entity, EQC takes an holistic approach to natural hazard risk which includes funding research to understand and reduce New Zealand’s vulnerability to natural disasters; and public education to reduce the impacts of natural

disasters on individuals and communities.

Many submitters see that work as valuable, and want EQC to continue to do it. We agree EQC should keep these roles.

Knowledge about New Zealand’s natural hazards informs pricing of New Zealand risk by international reinsurance companies. And private insurers benefit from this risk profiling, as well as EQC. Submitters have expressed concern about the proposals to change the EQC building cover to include site works, and have made alternative proposals.

The insurance industry will continue to be consulted through the review process.

I know there is support for insurers managing EQC claims beyond claims lodgement and for this to be made explicit in the legislation.

It already possible under the current Act for EQC and insurers to reach such an agreement.

However I am cautious about this.

In the days immediately following September 4, 2010, and February 11, 2011, there was a need for some very clear indication that claims would be dealt with as expediently as possible.

Despite the view of some media commentators, EQC did a very good job of organising a large assessment and repair programme that created confidence that equity would be maintained for homeowners and inflation would not run away to predicted high levels.

Taking hold of the repair programme was important and I’m not keen to legislate for what could be a more diffused approach in a big event.

That said, I do believe there needs to be more collaboration with EQC to ensure the best result across events of different sizes and types to deliver a better claims experience for homeowners, and to better support the recovery of affected communities.

As we have seen in Canterbury, a lot hinges on assessment of natural hazard damage by assessors on behalf of insurers.

The EQC reforms are designed to ensure the scheme remains focussed on insuring homes; resolve the difficulties experienced in Canterbury with the interaction of land and building cover; better integrate EQC and private insurers’ claims handling processes; and ensure the ongoing financial sustainability of the scheme.

Agreement on how that can best happen will need to be reached well in advance of any future natural hazard event.

I would like work to progress to the point where I can introduce a new Bill early next year, with a view to passing any changes into law – after the appropriate Select Committee consultation – before the end of 2016. www.covernote.co.nz

31

FEATURE

BROKERS HAVE AN IMPORTANT ROLE AS INSURERS IN HELPING BUYERS TO MAKE GOOD DECISIONS.

SENDAI COMMITMENTS New Zealand hasn’t been alone in recovering from a devastating natural disaster in the past five years.

With the number of large-scale events globally, there is increasing international recognition and awareness of the role that insurance and reinsurance markets play in supporting disaster risk reduction.

Earlier this year, I attended the third United Nations World Conference on Disaster Risk Reduction (WCDRR) in Sendai, Japan.

There, the Sendai Declaration was agreed by the Heads of State and Government, Ministers and delegates.

The Declaration is implemented through the Framework for Disaster Risk Reduction 20152030 (Sendai Framework), endorsed by the UN General Assembly.

The Sendai Framework has four priorities for action to prevent new, and reduce existing disaster risks.

These priorities are: understanding disaster risk; strengthening disaster risk governance to manage disaster risk; investing in disaster reduction for resilience; and enhancing disaster preparedness for effective response and to “Build Back Better” in recovery, rehabilitation and reconstruction.

I made it clear to the conference that New Zealand could only sign off on the framework if insurance was included as a tool to reduce the financial impact of disasters on both Governments and communities.

It surprised me that this is the first time the word insurance has appeared in such a framework

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December 2015

document.

It is under Priority 3: Investing in disaster risk reduction for resilience, which says (Section 29): “Public and private investment in disaster risk prevention and reduction through structural and non-structural measures are essential to enhance the economic, social, health and cultural resilience of persons, communities, countries and their assets, as well as the environment.

These can be drivers of innovation, growth and job creation. Such measures are cost-effective and instrumental to save lives, prevent and reduce losses and ensure effective recovery and rehabilitation.”

Specifically it says to achieve this it is important: (Section 30 (b)): “To promote mechanisms for disaster risk transfer and insurance, risk-sharing and retention and financial protection, as appropriate, for both public and private investment in order to reduce the financial impact of disasters on Governments and societies, in urban and rural areas.”

In signing up to this agreement New Zealand has both domestic and international obligations.

Outside New Zealand, our key disaster risk reduction focus is with the Pacific Island countries, followed by South East Asia.

Our Pacific Island neighbours are among the world’s most vulnerable to natural hazards like tropical cyclones, earthquakes, tsunamis and volcanic eruptions.

In the Pacific, natural disasters have resulted in enormous losses with disastrous economic, human, and environmental consequences.

For several of these countries, the total monetary losses caused by natural disasters in the

past 50 years are several times higher than their GDPs. As part of the international donor community, New Zealand will continue to work with Government, Non-Government, regional and multilateral partners to prioritise practical activities that will help countries and communities to better withstand the impacts of disasters and to recover more quickly.

In New Zealand, the Sendai framework is proving influential and under development is a programme of work to better understand the range of risks New Zealand faces, including the drivers of risk; a national resilience strategy; and a governance arrangement for disaster risk reduction.

All of these are in formative stages but are intended to proceed with a government-led and a whole-of-society approach - in keeping with the Sendai Framework.

It is important that the private sector remains actively involved in this work giving valuable insights and access to information and data where possible.

THE VALUE OF SHARING DATA AND INFORMATION – LESSONS LEARNED On the subject of data and information sharing, this has been one of the successes of our lessons learned from Canterbury.

EQC has captured a lot of data, information and evidence to inform better asset management, land use and infrastructure planning.

And that has been centralised in the Canterbury Geotechnical Database with information from other sources to give the big picture and overall understanding of land

FEATURE

damaged caused by the earthquakes which is required for recovery, as well as property-specific information for insurance purposes.

The EQC-led international research programme in Canterbury – the Ground Improvement Programme launched last week – has identified affordable and practical solutions to improve or strengthen residential land vulnerable to liquefaction.

The science behind this has informed building regulations for Canterbury and this information will be applicable to anywhere with a similar geological environment.

CERA’S ONGOING ROLE The Canterbury Earthquake Recovery legislation expires in April next year – five years after it was initially passed.

In October this year, the Greater Christchurch Regeneration Bill was introduced to the House and received its first reading.

The new Bill will enable the Government to work in unique collaboration with local leadership organisations to ensure regeneration of the region beyond emergency response and recovery, with a clear future focus.

When we passed the CER Act in 2011 we were responding to a national disaster, with significant loss of life and massive damage to houses, commercial buildings and infrastructure.

As the Government we urgently needed to find ways to help thousands of people who had their lives turned upside down. But almost five years on it is time for this form of extraordinary legislation to be replaced, so that we can continue to progress in a new way.

We have moved on from emergency and

recovery to a time of regeneration, and this needs to be appropriately reflected.

This bill will allow the Government to continue the process of stepping back and enabling local leadership to take more control of planning and decision-making required for regeneration.

The bill allows for the preparation of Regeneration Plans, which will become statutory documents setting out the direction and detail for addressing the regeneration requirements of particular areas of greater Christchurch.

This bill reflects the draft Transition Recovery Plan released in July, which set out proposals for the new legislation and invited public comment.

It was developed in consultation with the Advisory Board on Transition, central government agencies and CERA’s strategic partners.

Their advice is clearly reflected in the Greater Christchurch Regeneration Bill.

I also considered the written comments made by the public on the draft Transition Recovery Plan when making decisions about the new legislation.

The bill will enable establishment of a new organisation, Regenerate Christchurch, which will focus on the regeneration of specific areas of Christchurch City not necessarily connected to earthquake recovery – initially the central city, the residential red zones, and New Brighton.

Regenerate Christchurch will be jointly run by the Crown and the Christchurch City Council, and will exist until June 2021, after which time it will transition into a solely Council-owned organisation.

An independent board of seven will oversee Regenerate Christchurch, with three members each appointed by the Crown and the Council, and one appointed following consultation with Te Rununga o Ngai Tahu.

We have achieved a significant amount of progress in Christchurch and its outlying areas, progress which would have been impossible without the CER Act. The Greater Christchurch Regeneration Bill enables collaboration in a form that has not been proposed anywhere else in New Zealand, but which we hope might provide a template for other areas dealing with other challenges.

I look forward to working with our strategic partners, the Christchurch City Council, Waimakariri District Council, Selwyn District Council, Environment Canterbury and Ngai Tahu as we create a vibrant, regenerated greater Christchurch.

Insurance is an important component of the economy.

There are many many good stories that have come out of the disaster in Canterbury entirely due to insurance and your industry – but perhaps the most important future-focussed insurance lesson for consumers is to read your policies.

Know what you’re covered for and how the covers trigger.

In that regard, I am concerned to see that the move to sum-insured residential cover is better understood by households.

Brokers have an important role as insurers in helping buyers to make good decisions.

Gerry Brownlee addressed the Insurance Council’s November 2015 conference.

www.covernote.co.nz

33

ASK AN EXPERT

Theft problem

Tenant liability QUESTION… We have a client who accidentally broke a window in the house they are renting.

They were sent the invoice for the breakage by the property managers, paid it, and then lodged a claim under the liability section of their contents policy.

We are being told that the landlord needs to lodge a claim under the policy on the dwelling, and that the Standstill Agreement will apply, and our client won't have to pay their excess.

The implication is that this agreement works in the same way as the Knock for Knock Agreement, and that the house insurer would waive their client's excess too - which I didn't think was correct.

I've had trouble finding any information about exactly how the Standstill Agreement works - can anyone help me with an explanation please?

QUESTION… I have a courier customer (sub-contractor to a main courier company) whose employee has been stealing packages. Some were packages the sub-contractor was contracted to carry and others were not. The sub-contractor’s employee has gone into the bins at the main courier company's warehouse and helped themselves. The indication is that our Couriers Liability cover will only respond to the packages my sub-contractor was contracted to carry. It's not a PL claim as there are exclusions relating to this incident.

I've since heard of cases where the employer (sub-contractor) is not liable for the actions of employees in this situation. The employee was not acting on behalf of the insured when they were searching the other bins and taking items for themselves.

Can you comment on your understanding of this type of situation?

REPLY… CROSSLEY GATES, DLA PIPER The general rule is that an employer is vicariously liable for an employee's actions. So long as those actions occurred in the course of normal employment activities (albeit they were not authorised by the employer), the employer remains vicariously liable.

The only exception to this is when the employee is “on a trip of his or her own” and does something (maybe in the weekend) which is not workrelated at all. In this situation the employer is not vicariously liable.

From your summary of the position above it sounds like the thefts occurred in the normal course of the employee's daily work activities for the employer. If so, your client is likely to remain vicariously liable even although he did not approve of the actions and was unaware of them.

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December 2015

REPLY… STEVE WARDLEY Would think that the landlord may or may not lodge a claim under ther policy depending on the excess and policy coverage.

Either way if the tenant is legally liable for the damage, and their policy provides cover for that legal liability then the tenants' policy should respond accordingly.

I am not a legal professional, however I would think that any standstill agreement is between the insurers that are party to it, in the event of recovery of costs. Neither the landlord nor the tenant are party to the standstill agreement and I suspect each party’s policy will not mention it.

REPLY… RACHAEL GREER Is this domestic or commercial? The Property Law Act 2008 will apply probably in either situation and the tenant may have the right to claim on the LL's insurance but may be liable for the excess depending on what the lease says.

The PLA 2008 stops the landlord holding the tenant liable for accidental damages and I believe a case recently extended this ruling to domestic properties.

ASK AN EXPERT

Warrants of fitness QUESTION… If a car is not currently warranted but is involved in a not-a-fault accident, should the claim be declined due to the car not being warranted even though there are no issues with the car that resulted in the accident?

Fraudulent claim QUESTION… I have been approached by a client who requires insurance for his home as a condition of finance from a bank. The issue is that the client has been branded with a fraudulent claim almost seven years ago. The claim stemmed from a cellphone the client believed he left on his car’s rooftop, for which a claim was made and duly accepted and claim paid. He found out later that his exwife had stolen this phone. On its return, it was damaged and he made inquiries to have it fixed thinking it was broken and useless to the insurer. Needless to say, the ex-wife notified the insurer, which resulted in a fraudulent claim being levelled at our client.

He has worked his way through the disputes resolution process, yet did not fully complete this with the ISO. We have advised he will need to engage the ISO again. Would such a claim, being seven years old, still prevent him from having his home insured?

I understand there are insurance principles here, yet the inability to insure can affect him for life.

REPLY… CROSSLEY GATES, DLA PIPER You can’t demand insurance as of right. It is an inherently discretionary product. Prior fraudulent claims are high on the list of material facts.

I don’t think seven years is long enough to ignore it. The fraud is a disputed allegation arising from a domestic dispute. I would disclose the whole thing and insist on being wrongly accused.

REPLY…ALEX BARBER Whilst there is probably a condition or exclusion that has been breached (driving legally or something) it is my understanding of the Insurance Law Reform Act an insurer can only rely on a condition or exclusion to decline a claim if the breach of that condition/exclusion caused the claim.

In your example there should be no issue proceeding with the claim as the WOF certificate has no effect on the accident occurring.

Peter Matheson responds: Unless there is a specific exclusion in the policy or as is sometimes included in the general wording of the policy and the incident/claim is a result of a negligent or criminal act, the policy should respond.

There are many rules and regulations that society asks for or requires in our daily life, but to apply them in general to insurance policies and any resultant claims would most likely be a litigation nightmare. The NZ Building Act and consequent building warrant of fitness is a classic example.

REPLY…CROSSLEY GATES, DLA PIPER In the circumstances you describe, section 11 of the Insurance Law Reform Act 1977 will save the claim even although an exclusion may technically apply.

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.

www.covernote.co.nz

35

by Adrian v

an Hest

FEATURE

A

s the profile, volume and impact of cyber risk continues to grow, there has been a corresponding increase in cyber insurance policies worldwide. In fact, PwC estimates that annual gross written premiums are set to increase from around US$2.5 billion today to reach US$7.5 billion by the end of the decade. The problem, however, is that many organisations are viewing policies as a mitigation strategy, rather than a piece within a holistic strategy.

In New Zealand, the uptake and maturity of the offerings are on the rise, yet still low when compared to global benchmarks. Our 2016 Global State of Information Security Survey showed that just 37% of New Zealand respondents have cyber insurance, compared to 59% globally and 56% in Australia.

As we have highlighted in our recent report, Exploring the insurance industry’s top risks: A New Zealand perspective, only a few providers are offering cyber insurance locally, although this is expected to grow alongside responses to threats, client demand and competitors bringing offerings to market. Demand is also expected to grow given the planned changes to the Privacy Act, which will require organisations to disclose breaches, meaning organisations will increasingly look to mitigate the costs of incident management, recovery costs, reputational impact and potential fines with cyber insurance.

For both insurance providers and their clients, the newness and lack of maturity of the current offerings does come with some risks, in particular: • the uncertainty regarding the definition of just what a cyber incident is and what it covers, given the evolving and diverse nature

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December 2015

recovery phase, but does need to be considered and purchased when preparing for such an incident.

For more on cyber risks, incident response and the five big business questions you should be asking about cyber risk, see our full report available at pwc.co.nz/gsiss2016.

Adrian van Hest is a PwC Partner and the firm’s Cyber Practice Leader.

of the causes and impacts • the corresponding risk of overlaps and gaps when it comes to other policies such as business continuity insurance and public relations, a lack of clarity on the pre-policy status and time limitations associated with detection and duration of an incident • just what the clients' obligations are when it comes to taking preventative measures and just how this impacts on their ability to make a claim • how clients calculate the cost, particularly consequential impacts and just what can be claimed for.

This is a problem that requires a response grounded in strategy and judgement, and is why cyber insurance should not be considered in isolation.

Effectively managing cyber risk is based on a strategy of identifying what it is important, taking steps to protect it, then proactively looking to detect and respond to events. When crafting a strategy, clients should recognise cyber insurance does nothing to prevent, address or help recover from an incident - it simply allows the insured to claim some of the cost associated with it.

Cyber insurance is just a component of the

FEATURE

From Powerswitch to Insuranceswitch?

A

consumer advocacy group wants to work with the insurance industry to develop a comparison website that would allow customers to quickly compare policies and prices.

Aggregator and comparison sites have been successful in other markets around the world, such as Britain, but have not been able to launch in New Zealand.

Several attempts have been made but the major players have blocked them by refusing to offer their data.

Consumer NZ chief executive Sue Chetwin said insurance companies would have to cooperate with a comparison site eventually and the industry should consider the best way to do that.

She said consumers were used to being able to access information quickly and to make comparisons easily. But they did not yet have that ability with insurance. “The industry cannot keep its head in the sand and hold back the tide,” she said.

Insurers did not want to get stuck in a drive to the bottom as they were forced to compete on price, she said.

“But unfortunately being able to compare things, from an industry perspective, is the way of the world. For consumers, it’s fantastic. It would be far better for the industry to work with an organisation like ours that is only interested in consumer benefit than for an international aggregator

site to come into the market, I’m sure that is not far away.”

She pointed to Consumer NZ’s experience running the Powerswitch website, which has been embraced by the electricity sector as an impartial tool to showcase their products to customers.

That site’s Government funding is under threat and the industry has been lobbying for it to continue.

Chetwin said there was a lot of consumer interest in insurance but many of the stories that came out about the industry were negative.

She said the move to sum-insured house policies had been difficult.

“There’s nothing necessarily wrong with that [move] but it has been a change for consumers.”

It was hard for them to work out how their houses would be insured, industry calculators were not easy to use and when Consumer had sought experts to help, the valuations they delivered varied a lot, she said.

“How do people know they’re getting adequate insurance? It’s been particularly hard for the ordinary consumer. If the figures aren’t reliable, what happens when people come to make a claim? It’ll be the consumer who suffers because they are under-insured or because the insurer potentially disputes the claim.”

Chetwin said while the industry was probably doing well by most of its customers, it was those who complained who got the most attention.

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37

FEATURE

SOUTH AFRICAN BUT

BACKING BLACK

T

here aren’t many people who would have found a South Africa versus New Zealand Rugby World Cup final more awkward than Mike Raines.

He is chief executive of AIG, the insurer which has its brand name emblazoned on the All Blacks’ jerseys. But he is South African and his heart is still with the Springboks. Fortunately for him, the World Cup draw made a South Africa versus New Zealand game unlikely from the outset.

Raines has been in the top job at AIG New Zealand since February, after three and a half years at the helm of the company in Singapore, and five years before that in Hong Kong.

But his insurance career started about 30 years ago in South Africa. He had been working for a commercial bank in foreign exchange trading before moving into credit and political risk insurance.

Raines said insurance was a huge change from banking. “I didn’t know the first thing about insurance. I remember being asked in a banking context to explain the difference between insurance and assurance and that was as much 38

December 2015

as I knew. I said ‘you don’t necessarily have to insure things, that’s a risk you can take or leave.

But one thing you can be assured of is you are going to die’.”

He worked in that arena, including as a broker, for a number of years until he was approached in 1998 to comment on what the potential would be for AIG to set up a trade credit and political risk profit centre in South Africa.

He volunteered, tongue partly in his cheek, to run the operation himself and was snapped up for the job. Five years later, he was offered the opportunity to move overseas, to take the role of regional vice president commercial lines for the AIG companies in Japan and Korea.

Then, at the end of last year, he was asked whether he would go and “look after” New Zealand. “I jumped at it,” Raines said.

Although the New Zealand operation is smaller than the Singapore company he previously headed, Raines said there were a number of things that drew him to New Zealand. “Each market has its own dynamic and I had always had a longing to get back to the Southern Hemisphere.”

AIG chief executive Mike Raines is keen to build local capability.

With his children in their 20s, and graduated from university, the family was free to move.

The adjustment from Singapore’s weather has not been easy but Raines says New Zealand is similar to South Africa in a lot of ways. “In Cape Town we also get a couple of seasons in a day.

There isn’t anything about New Zealand I don’t like. People say ‘do you like it over there?’, I say ‘what’s not to like?’”

New Zealand AIG is very efficient, he said.

“It’s only 100 staff for a US$160 million business.”

Raines said one of the things he noticed about the New Zealand market was that while it was well regulated, the regulation was not intrusive.

“The Reserve Bank does an excellent job in the way it regulates the industry. In other markets, regulation can be quite intrusive.”

Another point of difference he has encountered is that while many of the big international brokers are represented in New Zealand, there are also a number of local brokers doing well in the market. “The sheer size of them, it’s very positive to have large local players in a market the size of New Zealand.”

The amount of co-insurance being done also

FEATURE

NEW ZEALAND IS SIMILAR TO SOUTH AFRICA IN A LOT OF WAYS. IN CAPE TOWN WE ALSO GET A COUPLE OF SEASONS IN A DAY. THERE ISN’T ANYTHING ABOUT NEW ZEALAND I DON’T LIKE.

came as a surprise. “There are lots of big insurers with lots of capacity but brokers tend to place their risk on a co-insurance basis so the risks are shared. In other markets there might be one or two main players with reinsurance behind them.”

Raines said that could be because the brokers had a “lot of mouths to feed”, which could be challenging. Many were using a panel model to place their business, he said. They would conduct interviews with insurers to determine what their capacity was and map the insurers against their clients’ needs. “[They’ll say] on this risk needing this capacity this insurer is the best.

They can run a test across 20 different insurers and end up with a panel of no more than six or eight. It allows a broker to be more effective to deal with a smaller panel.”

He expects insurance brokers to have a place in the market for some time yet. “The broker channel will be around as long as I will be but it has changed a lot. Speaking as an ex-broker, too, the amount of technology available to insurers to work directly with customers is increasing.”

That was evident in the Christchurch earthquakes when lots of insurers worked

through claims directly with the client, sometimes excluding the brokers, he said. “The brokers’ position is not threatened but it has changed.”

Raines said declining insurance rates were affecting income for insurers and brokers. "They are having to come up with ways to look for alternative income. That’s as challenging for them as it is for us.”

AIG offers a strong history in New Zealand and global reach, he said, with the ability to offer large capacity on single risks. It is focusing on getting closer to clients and developing a new platform for commercial business products, to allow brokers to arrange cover for their clients more easily.

Raines is happy to have made the move to Auckland. He lives in Remuera, a short commute from work and says he plans to see out the rest of his career here.

“I’m acutely aware that I am number five or six in a short period of time and I don’t think that’s good for the business. Brokers like to get comfortable with a CEO. One of the conditions I asked for to come here was that it was considered

long-term.”

He said he wanted to be in the role long enough for the company to bring in some local talent for the future. “It has been a long time since we have had a local as a CEO. I would like to see someone local take over from me. I’d like to spend some time with them. I’m five years away from retirement so it could work out.”

In that time, he hoped to see AIG diversify its business mix so it was not so heavily commercial.

“We’ve never been in the residential property insurance market and we are going to enter that market in a segment.”

It will also look for acquisitions where possible and work to increase its geographic footprint.

But don’t expect him to start supporting the All Blacks ahead of South Africa any time soon, despite the logo on their chests. “It’s head and heart thing.

My heart is always with my home country but looking at the way they had played up till the World Cup I didn’t hold out hope. Even in the semi I didn’t think South Africa were in the game so I was relieved I could focus on the All Blacks in the final.” www.covernote.co.nz

39

BIGGEST

WORLD’S INSURANCE PAYOUTS

9/11 Almost 3000 people died on September 11, 2001, when planes struck the World Trade Center. Insurers paid out US$40 billion, one third for business interruption policies.

SARS Severe acute respiratory syndrome (SARS) broke out in China in 2003.

Within weeks, it had spread to 37 countries. Insurance payouts for loss of life were compounded by business interruption and other claims and resulted in an insurance payout of almost US$1 billion.

POWER BLACKOUT In August 2003, a massive power cut affected 10 million people in Canada and 45 million across eight states of the US. Insurers paid out US$6 billion for business interruption, travel cancellations, looting and other claims.

TSUNAMI The December 2004 Indian Ocean tsunami killed hundreds of thousands of people.

Insured losses for property alone were estimated at over US$1billion. Losses for life and health reached $250 million.

Travel losses hit $50 million.

Which global disasters have been the priciest for insurance companies?

We examine some of the earthquakes, pandemics, tsunamis, terrorist attacks and financial crises of this century to determine which have handed insurers the biggest bill.

SOURCE: https://www.easylifecover.ie/.

SWINE FLU Swine flu broke out in 2009 and killed 18,000 people. The costs associated cut GDP in the countries affected by one percentage point.

VOLCANIC ERUPTION The 2010 Icelandic volcanic ash cloud cancelled flights for almost a week. Airlines lost millions a day during the crisis.

EARTHQUAKE AND TSUNAMI A huge earthquake hit Japan in 2011, causing insured losses estimated at more than US$100 billion.

EARTHQUAKE

HURRICANE SEASON The hurricane season in the US in 2005 killed almost 4000 people. Damages hit US$130 billion.

FINANCIAL CRISIS The 2008 financial crisis was the worst since the Great Depression. Insurance losses were estimated to exceed US$100 billion.

EARTHQUAKE China’s 2008 earthquake in its Sichuan province killed 68,000 people and caused US$20 billion in damage. Insurers did not pay out much because most people did not have cover.

Christchurch’s earthquakes were the third-most expensive insured natural disaster in history. New Zealand’s high insurance coverage rate meant insurers picked up much more of the bill than they would have in other countries. They have now settled almost $16 million in claims, which represents 70% of overcap residential Canterbury earthquake claims in what reinsurers have termed as one of the most complex natural disaster insurance recoveries ever.

FEATURE

Proposed reforms to the EQC Act: A different approach to claims management?

by Jane Parker and Wade Pearson, Minter Ellison Rudd Watts

F

ollowing the Canterbury earthquakes, the Earthquake Commission (EQC) completed almost 70,000 home repairs, settled more than 500,000 claims and paid out over $8.5 billion.

As a result of the Christchurch experience and other events since the introduction of the Earthquake Commission Act 1993 (EQC Act), proposed reforms of the EQC Act are currently under consideration.

What is the focus of the review, what are the proposed reforms, and what do they mean for insurers?

The reform proposals are directed at: • ensuring the EQC scheme remains focussed on insuring homes; • resolving difficulties experienced in Canterbury in relation to the interaction of land and building cover; • better integrating EQC’s and

42

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private insurers’ claims handling processes • ensuring the ongoing financial sustainability of the scheme.

One of EQC’s roles is to support research and education about natural hazards and how to reduce their impact. Under the proposed reforms, that role would continue.

What are the proposed reforms?

The nine key reforms proposed include: • requiring claimants to lodge their EQC claim with their private insurer (not EQC); • restricting EQC’s land cover to situations where rebuilding is not practicable, to focus more on building cover; • increasing the EQC monetary cap on building works cover (EQC cap) from $100,000 to $200,000 (each plus GST) • retaining the Natural Disaster Fund and Crown guarantees;

• expanding the EQC building cover to include site works and access ways; • removing EQC’s provision of contents insurance changing the variable excess ($200 to $1000) to a standard $2000 per claim; • aligning EQC’s scheme terms more closely with those of private insurers, and clarifying and simplifying some terms; • implementing pricing principles and reviewing provisions for EQC to improve the scheme’s sustainability.

The review will not change any claims entitlements from events that have already happened.

The Government called for submissions, which closed in September.

More detail is contained in the Treasury paper, available online.

What might it mean for insurers?

Should the EQC cap be

increased to $200,000?

Private insurers can be expected to charge higher premiums for homeowners in higher-risk locations.

A higher EQC cap for a flatrate premium nationwide would effectively make homeowners in lower-risk locations subsidise homeowners with dwellings in higher-risk locations.

On the other hand, the current nationwide flat-rate model, at relatively low cost, has advantages.

Without that model, the take-up of natural disaster insurance could decline, creating uncertainty for homeowners, communities and the government if a natural disaster were to strike.

Would a higher EQC cap have an effect on attracting and retaining insurers to the New Zealand market, particularly if more claims would be met under EQC’s first loss

FEATURE

insurance cover and would need to be handled by private insurers?

Should there be regional variations? How would a higher EQC cap affect the premiums charged by private insurers – would that help or stunt the take- up of natural disaster insurance?

It is to be hoped that such issues will be carefully considered by the government in evaluating the responses to the proposed reforms, and in progressing the proposals towards implementation if adopted.

Should private insurers control the claims handling process?

After the Canterbury earthquakes, EQC needed to scale up its operations rapidly to deal with large numbers of claims.

The need for claimants to make separate EQC claims and private insurance claims, separately handled, has also been seen to be inefficient.

The proposal to make private

insurers the first point of contact for lodging claims seems to have been generally well received.

The proposed reforms would also allow (but not require) EQC to outsource other areas of claims handling. Some suggest that private insurers could be better equipped to take on this role after a substantial natural disaster, given their existing capability to scale up claims handling by drawing on internal global resources to deal with large numbers of claims.

A single point of contact could also help simplify a claimant’s claim handling experience. The proposed reforms for managing claims envisage an agreement between each insurer and EQC. A number of operational, commercial, regulatory and legal issues would need to be addressed: • Which technology and operational changes would be

AFTER THE CANTERBURY EARTHQUAKES, EQC NEEDED TO SCALE UP ITS OPERATIONS RAPIDLY TO DEAL WITH LARGE NUMBERS OF CLAIMS. required to each other’s systems?

• How would claims handling be funded?

• How would performance be measured?

• Would a private insurer’s reputation and marketing capability provide sufficient protection for EQC around the quality of claims management service if private insurers have less “skin in the game” due to a higher EQC cap?

• How would data be shared and claimants protected?

• What level of discretion would private insurers have to settle claims?

• How would the risk of delay due to disagreement between EQC and the private insurer on the treatment of a claim be managed, particularly for a revised EQC Act

with less supporting case law?

• How would claims and relationships be managed where multiple private insurers are involved?

• How would the need for flexibility (to keep up with current practice) and certainty over the longer term be balanced?

Depending on how exactly the reform is implemented, insurers may also need to consider their obligations from a public law perspective, for example, under the Official Information Act and Public Records Act. Insurers may wish to consider such issues now so as to be in a position proactively to engage with government as to how the proposals are implemented, if they are adopted. www.covernote.co.nz

43

OPINION

New Fair Insurance Code comes into effect

By Crossley Gates, DLA Piper

O

n January 1, the Insurance Council of New Zealand's new Fair Insurance Code comes into force. The Code applies to all insurers who belong to the Insurance Council. However, it does not apply to all business placed with one of those insurers.

It only applies to consumers and businesses that have not more than 19 full-time equivalent employees.

The new Code's most significant change is to the duty of disclosure.

CURRENT LAW In summary, the current law requires insureds to disclose to insurers all material facts.

A material fact is a fact that would influence (without necessarily being determinative) a prudent insurer in deciding whether to accept the risk and, if so, on what terms. Where questions are asked in a proposal, the duty is not necessarily limited to those questions. Where a fact is not disclosed, the insurer must not only prove the fact is a material one, but also that it would have changed its position in some way if the fact had been disclosed (e.g. imposed a higher premium or excess, or it wouldn’t have underwritten the risk at all). The law calls this reliance.

The only remedy is to avoid the policy retrospectively. The remedy is the same whether the non-disclosure is innocent or deliberate.

THE NEW CODE The new Code changes the current law. The relevant parts of the Code say: 19. You must tell us any facts that may affect our decision to insure you and on what terms, whether we ask a specific question or not. You must do this: • when you buy insurance from us 44

December 2015

• during the term of your insurance with us, and • when you renew your insurance with us.

20. If you do not tell us something that would have affected our decision to insure you or the terms under which we insure you, we may refuse to pay all or part of your claim, or we may even cancel your insurance from the start date of your policy. We will respond reasonably in relation to what you did not disclose.

There are two main changes: 1. The influence test has changed from an objective one to a subjective one. In other words, it is no longer a matter of what the objective prudent underwriter would have taken into account; it is what the actual underwriter says it would have taken into account that matters.

2.

The remedies available for a breach have broadened to include not paying part or the entire claim, as well as avoiding the policy retrospectively. The insurer's decision about this must be reasonable.

The first change is, arguably, helpful to insurers. Underwriting is not a positive science and risk appetites vary around the edges of established products.

Therefore, while a prudent underwriter may not be troubled by a particular fact, a cautious one might. The new Code will enable the cautious underwriter to rely on a particular fact troubling it to establish a breach of the duty, when the same fact wouldn't have troubled the prudent underwriter. Having said that, establishing what a prudent underwriter would have done is troublesome in itself. While a court usually hears evidence from one or two independent underwriters as to what they would have taken into account, ultimately the

court decides what a prudent underwriter would have done. In one New Zealand decision, the court refused to accept the evidence of the independent underwriters as being prudent and substituted its own decision.

Increasing the remedies available to insurers is welcome and should allow more scope for the “punishment fitting the crime”. The reality is that non-disclosures can vary greatly from minor inadvertence about a small matter to serious fraud. The requirement that the insurer must act reasonably in determining the remedy should result in an element of proportionality.

This is similar to the Australian law. In the absence of fraud (which entitles the insurer to avoid retrospectively), the insurer must take the position it would have taken about a claim if it had known the material fact.

The reliance requirement in the existing law is not expressly included. However, the requirement for the insurer to respond to a breach reasonably should, in practice, address the reliance point to some extent.

CONCLUSION From January 1, the duty of disclosure varies depending on whether the insured is, on the one hand, a consumer or a small business, or, on the other hand, a large business.

It will be interesting to see how the dispute resolution services apply the new test of subjective influence. Will they accept what the actual underwriter says would have influenced it without reservation, or will they try to add an element of objective reasonableness to this?

The rationale for a proportional remedy is compelling and applies equally to large businesses. However, large businesses will have to wait for a law change before they can catch up.

FSCL CASE STUDY

Inflated claim leaves liquor store dry LIQUOR STORE BURGLED In August 2014 Exquisite Liquor Limited (“Exquisite Liquor”) took out business interruption insurance with BIZ Insurance (“BIZ”). Brendan was Exquisite Liquor’s sole director and shareholder.

In October 2014 Exquisite Liquor’s premises were burgled.The burglary was recorded on security CCTV camera. Brendan reported the burglary to the police. He told the police that four bottles of alcohol and an unknown quantity of cigarettes had been stolen.

Brendan then filed Exquisite Liquor’s insurance claim with BIZ for $8349.49 of lost stock. Brendan claimed 21 bottles of alcohol and 331 packets of cigarettes had been taken.

In March 2015, BIZ advised Brendan that his claim had been declined because of fraud. BIZ also cancelled Exquisite Liquor’s business interruption policy.

BRENDAN’S POSITION Brendan complained that BIZ incorrectly declined his claim for loss of stock and unreasonably cancelled his insurance policy. Brendan said that the claim for $8,349.49 was an honest estimate of loss based on the difference between an end-of-month stock take completed on 30 September 2014 and a stock take completed following the burglary on 4 October 2014.

Brendan said if BIZ had an issue with the quantum of his claim, BIZ should have made him a reasonable settlement offer rather than decline his claim and cancel the insurance policy.

Brendan wanted BIZ to make a reasonable offer to settle the insurance claim and reinstate the insurance policy, and complained to FSCL. BIZ’S POSITION BIZ relied on its fraud clause in the policy to decline Brendan’s claim and to cancel the policy.

BIZ accepted that Brendan had suffered a loss. However, BIZ alleged that Brendan acted fraudulently by significantly inflating his loss.

FSCL’S POSITION BIZ’s fraud clause states: “If any claim under this policy is in any respect fraudulent or if any fraudulent means or devices are used to obtain any benefit under the policy, or if any loss, destruction or damage be occasioned by wilful act or with the insured’s connivance, all benefit under this policy shall be forfeited.”

To exclude Brendan’s claim and to cancel the policy under the fraud clause BIZ had to prove that Brendan’s claim was fraudulent or Brendan used fraudulent means or fraudulent devices to obtain a benefit under the policy.

A fraudulent claim is where the insured submits an insurance claim but has not suffered a loss, or the insured has suffered a loss but claims for a larger loss. A fraudulent device is used when the insured has suffered a loss but lies to improve or embellish the facts surrounding the claim[1].

1. DID BRENDAN MAKE A FRAUDULENT CLAIM? “Fraudulent” and “fraud” were not defined in the terms of the policy.

New Zealand courts accept that a claim is fraudulent only if the insured is dishonest or reckless as to honesty[2].

Brendan attributed $8,349.49 of stock to the burglary, while BIZ estimated the actual loss to be $1,502.28. The fact that Brendan’s claim appeared inflated was not conclusive evidence of fraud. However, the greater a claim has been inflated, the more likely it is there has been fraud.

BIZ said that Brendan had been fraudulent because he made a claim that: • relied solely on the stock take records of questionable validity and accuracy

• did not consider the security CCTV footage although this was the most reliable account of the burglary – the CCTV footage showed the burglar putting the goods into a small backpack • was markedly different to the police report • failed to take into account Exquisite Liquor’s sales between 30 September 2014 and 4 October 2014.

We considered that Brendan was dishonest or at least reckless in not taking into consideration the security CCTV footage in determining Exquisite Liquor’s loss.We also considered that a reasonable, honest person would take into account sales when using stock take records to determine loss.

In the circumstances we were of the view that Brendan was aware he was acting dishonestly and he purposely did not take into account sales that occurred between the 30 September 2014 stock take and the burglary.

We found that Brendan made an exaggerated claim with the intent to defraud BIZ. 2. DID BRENDAN USE A FRAUDULENT DEVICE? If Brendan had not acted fraudulently when he made his claim, his claim could still be declined for fraud if he used fraudulent devices to further his claim.

Our case manager watched the security CCTV footage and agreed with BIZ’s observations. The footage did not show the exact amount of alcohol and cigarettes the offender stole from Exquisite Liquor. However, it was clear that the offender stole significantly fewer than 21 bottles and 331 cigarettes.

Our case manager listened to the interview between BIZ and Brendan after they had watched the security CCTV footage. We considered that a reasonable, honest person would have accepted that the video footage was more accurate than the stock take records and would have amended the claim when presented with the discrepancy.

3. WAS BIZ ENTITLED TO DECLINE BRENDAN’S CLAIM AND CANCEL THE POLICY? We found that BIZ had correctly applied the fraud clause in Exquisite Liquor’s business interruption insurance policy. We accepted that BIZ was entitled decline to pay the claim and to cancel the policy.

LESSON It doesn’t pay to over-inflate an insurance claim as you could find that you are accused of fraud. If the insurance company believes on reasonable grounds that fraud has been committed, it is entitled not to pay the claim and to cancel the insurance policy. If you have had an insurance policy cancelled because of fraud, you will find it very difficult to obtain alternative insurance cover with another insurer. www.covernote.co.nz

45

ISO CASE STUDY

LOST IN TRANSIT

Who should take responsibility for ensuring customers get their insurers' mail?

BACKGROUND n April 2011, C emailed her broker (P), notifying him that she was collecting a new leased vehicle and arranged for insurance cover to be put in place.

The application gave P’s address for the insurer to send notices for the policy.

On receipt of notices, P followed a system where the mail was checked and recorded, then forwarded to C by mail.

A direct debit payment was put in place for the policy but, on many occasions, there were insufficient funds available and premium payments were in default.

On some occasions, C paid the arrears using manual direct credit payments using internet banking.

The insurer (D) notified C in writing when policy premiums were in arrears and warned that the policy would cancel if the outstanding

I

46

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premium was not paid at the expiry of 32 days from the date of D’s notification.

Each of the premium payments due between January and August 2012 defaulted.

C paid some manually through direct credit payments.

However, the policy remained in arrears and D cancelled the policy in September 2012, effective from July 2012.

C checked her bank statements in September 2012 and realised the policy was in arrears. She made a further payment of policy premiums in October 2012, but D was not able to apply it to the policy.

In December 2012, D refunded the premium to her. C telephoned P and asked him to arrange to have the policy reinstated.

D organised “hold” cover with D for the vehicle over the Christmas period. However, on December 27, 2012, D emailed P indicating that

it was withdrawing the “hold” cover, because C had been cancelled for non-payment five times both on commercial and domestic policies and had defaulted on her existing house policy as well.

D required C to complete a new proposal and pay the full premium amount.

P forwarded D’s email to C and asked her to complete an application form and provide the premium. As P could not access email over the Christmas break, he sent C a series of text messages to check if she had completed the application and paid the premium.

C confirmed by text that she had not and would consider it in the New Year.

P confirmed C understood she currently had no insurance in place.

On January 3, 2013, the vehicle was written off in an accident.

ASSESSMENT

ISO CASE STUDY

THE FAA REQUIRES FINANCIAL ADVISERS TO MEET A SET OF STATUTORY CONDUCT OBLIGATIONS WHEN THEY PROVIDE A “FINANCIAL ADVISER SERVICE."

C complained that P had failed to provide D’s notices of premium arrears and cancellation to her, with the result that the policy was cancelled in 2012.

She claimed she suffered financial loss as a result of P’s negligence.

The main issues for consideration were whether P owed C a statutory obligation in respect of forwarding notices from D to her and, if he did, whether he met that obligation.

Under paragraph 3.1(a) of the ISO Scheme’s Terms of Reference (“TOR”), the ISO Scheme may consider “... Complaints arising out of the provision of Financial Services by a Participant”.

In this case, C’s complaint was that P failed to pass on policy notices that were sent to him

by D, resulting in the policy being cancelled for non-payment.

P was a Registered Financial Adviser under the Financial Advisers Act 2008 (FAA).

The FAA requires financial advisers to meet a set of statutory conduct obligations when they provide a “financial adviser service”.

However, as the arrangement for the provision of notices from D to C did not fall within the definition of “financial adviser service” under the FAA, the FAA statutory obligations did not apply to the notice arrangement.

The case manager believed the notice arrangement constituted a service arising out of the provision by P of a “Financial Service” to C in terms of paragraph 3.1(a) of the ISO Scheme’s TOR. As the FAA statutory obligations did not apply, she considered whether any general statutory obligation applied in the circumstances.

The Consumer Guarantees Act 1993 (“the CGA”) establishes a set of statutory obligations relating to the provision of services.

In particular, section 28 of the CGA requires services supplied to consumers to be carried out with reasonable care.

The case manager considered that the notice arrangement P provided was a service provided to C, as a consumer, in terms of section 28 of the CGA. Accordingly, she believed P owed C a duty under the statutory obligation set out under section 28 of the CGA to provide that service with reasonable care.

The question the case manager had to consider was whether P provided the notice arrangement service with reasonable care.

P provided evidence that showed he operated a system to ensure that mail received from D about C’s policy was recorded and mailed to her.

Even though C stated she did not receive the notices of unpaid premium D sent her in 2012, the case manager believed the documentary evidence available supported the conclusion that P did forward that mail to her, at the correct address.

On that basis, she believed the evidence supported the conclusion that P met the statutory standard required by section 28 of the CGA. C also indicated she considered P’s obligation was two-fold, to pass the notices on to her and to follow it up with further action if she did not pay the amounts owing and the cover was lapsing.

The case manager did not agree. She believed the statutory obligation under the CGA was for P to take “reasonable care” and that did not require him take steps to ensure C made the payments owing.

Further, whether or not C received notification of premium defaults through the notice arrangement, she was aware of the fact that at least some of the direct debit payments for the policy had not been successful in 2012 because she made manual direct credit payments to D to cover some of them.

Therefore, her complaint that the policy was cancelled because she did not know it was in arrears, as P failed to pass on D’s notifications, was not supported by the facts available.

Finally, C was aware in December 2012 that she no longer had cover for the vehicle and her deliberate decision not to put cover in place in January 2013 contributed to the loss she suffered.

Result: Complaint not upheld www.covernotemag.co.nz

47

Professional

College Professional

Professional Development: Professional IQ College Professional Development: Professional IQ College

College

Principal’s Update

A

s we steamroll into the Christmas season it is time to reflect on an action-packed year for the sector. With the continuation of the acquisition programmes and merger programmes of both the broking and insurance sectors a feeling of uncertainty has emerged as a theme for 2015. This has been reflected in the training space also. As employers restructure and change organisational shape less emphasis is put on training and this is reflected mostly in the uptake of the New Zealand Qualifications, which, while steady hasn’t accelerated as expected this year, with the implementation of a more appropriate qualification for brokers in particular. However for those who have taken the step the new qualification is proving to be an improvement on the national qualification, with completions beginning to be seen quicker than in the past.

For the College we have continued with our innovation programme which is beginning to bear fruit with a 60% increase in participation in our webinar professional development programme. We have continued to increase our use of technology with the development of quizzes online for some online courses and for webinars which is proving popular. This month has seen the development of several recorded

48

September 2015

webinars so you can access professional development 24/7.

As the broking sector settles we have begun to see a more structured approach to training and professional development with several organisations developing learning plans for the next 12 months to guarantee their staff the professional development they require.

I continue to be mindful of the world we live in and the ever-present threat from extremist fanaticals’ and the increase (or so it seems) of environment-related disasters, and the impact these people and events must have on the insurance sector and on our thinking.While this ever-changing political environment challenges some of our beliefs it also allows us to grow as people. The options paper recently released by the FMA on the review of the Financial Advisers Act will challenge the sector to be seen to be more professional.

As a College we too challenge ourselves daily to provide more interesting and better-quality professional development courses that challenge your thinking and challenge your skill base so that you might grow as professionals also. Our Build Me, an insurance programme that Kevin Allen delivers, delivers challenges for both young and old to think about. Next year we have some exciting new programmes for you that will both challenge your thinking and help

you grow as professionals.

Finally, thank you for your support of the College through what has been a challenging year for us all. A year that has seen the All Blacks win the World Cup again, Richie retire (how can we ever replace him?), the broking and insurance sector consolidate and Paris brought to its knees. But despite all the highs and the lows the College and the sector continues to thrive. It has been a good year for the College with the introduction of two new qualifications and three new broker professional development qualifications and many new webinar topics seeing participation increase.

I’d like to thank Sylvia Heywood, our Student Liaison Manager, for the great job she has done this year in encouraging you all to get going on your qualifications.Also to the IBANZ Board and staff for their continued support and professionalism. The new College Board has continued to develop the strategic direction of the College and has provided me and the team with the thought leadership needed to make your College the best it can be. So thank you all and have a Merry Christmas and Happy New Year. Be safe.

Step aside technology; people are making a comeback in 2016

T

ake the All Blacks as a prime example: where would they be without consistent and effective coaching?

Winning the World Cup didn’t happen because the All Blacks started coaching last month. They had a long-term strategy and regular coaching to get to where they are today. High-performing teams are such because they train and address their performance in a consistent way. They have a team strategy, they are connected to their passion for what they do, self-manage and are held accountable for the success they want. Many writers have identified characteristics of high-performing teams but three stand out and are apparent in the All Blacks as well. These are: • A Shared Vision. Having a clear goal for the team allows the individuals to establish personal goals that allow them to perform at their best, which allows the team to perform at their best • The Right Mix. Having the right mix of skills, technology and people allows teams to address complex problems from different views • Commitment to quality and results:.High-performing teams are results-focused and quality-focused. Aligning quality standards and results to the goals will see the team perform to its optimum.

The All Blacks' focus isn’t just on the physical skills required for performance but also how to perform at their peak mentally. Their coaching ensures they are physically and mentally flexible, resilient, goalorientated, driven. Following through on strategy is key to increased DATE

TITLE

PRESENTER

WHERE

Kevin Allen

Auckland & webinar

performance and the All Blacks epitomise the value of strong personal coaching and team coaching. Ensuring your team has the skills and knowledge and the mental aptitude to achieve, can be a challenge.

Many organisations are taking a leaf out of the sporting arena and providing coaching for their staff both individually and as a team.

In any coaching it is not a oneoff intervention. It is a process of empowerment so that the team knows the best action required on the field when they are in the flow of the game. Likewise in business knowing the best action to take in a negotiation, for example, and being empowered to follow through will increase performance.

Ngaire Newlands from Be More Now suggests you take the All Blacks' approach to developing your team in 2016 in which you: • Set strategy, and monitor progress as a team • Define and monitor professional and personal goals • Focus on strengths and use everyone in team • Addresses individual challenges • Empower staff to be innovative and creative • Hold everyone accountable for the success they want Only through implementing behaviour change can performance increase, so in 2016 consider getting the best from your training dollar by embedding behaviour change to increase performance and improve your workplace.

TIME

COURSE DESCRIPTION

1.00-2.30

Knowing the origins of insurance and how it's evolved over time can be helpful to the insurance professional because it gives context for all we do. The World of Insurance workshop goes further, however. It takes the participants to the Christchurch earthquake and examines the huge impact it had on the global insurance market.

9.3011.00

Where do we draw the ethical line? It can be like finding a needle in a hay stack or drawing a line in the sand. What are ethics? What are the ethical challenges in the insurance and financial services industry? Conflicts of interest arise daily in some instances so how do we identify the difference between morals and ethics? How do your personal values and morals influence how you react to the ethical dilemma in the workplace?

8.45-4.30

This module provides the knowledge and skills required to understand residential property lending concepts and the legislative and regulatory environment in which a mortgage adviser operates. You will learn the relationship between residential property lending products and individual needs, and the ability to provide fit-for-purpose solutions for borrowing.

February 10

The World of Insurance

18

Ethical Dilemmas Conflict of Interest and more

29 -1

2-day Module 6 Approved Mortgage Advice Course

Ngaire Newland

John Melton

Auckland & webinar

Auckland

March

9

Build Me an Insurance Programme

Kevin Allen

Auckland

1.00-4.00

This module provides the knowledge and skills required to understand residential property lending concepts and the legislative and regulatory environment in which a mortgage adviser operates. You will learn the relationship between residential property lending products and individual needs, and the ability to provide fit for purpose solutions for borrowing.

10

Effective Business Writing: Emails, Letters and Presentations

Ngaire Newland

Auckland

9.3012.30

Written communication - in our business you can't avoid it, but how good are you? Full of practical tips and help, this workshop focuses on emails, letters and presentations. It will put you on right track to confidence and competency in the effective use of written communication.

31 - 1

Two-day Module 6 Approved Mortgage Advice Course

8.45-4.30

This module provides the knowledge and skills required to understand residential property lending concepts and the legislative and regulatory environment in which a mortgage adviser operates. You will learn the relationship between residential property lending products and individual needs, and the ability to provide fit-for-purpose solutions for borrowing.

John Melton

Auckland

With more to be scheduled………. www.covernotemag.co.nz

49

Professional

Professional Development: Professional IQ College

College

Conveyancing insurance Simplifying the risks of buying a residential property

by Jeff Williamson

P

rofessional indemnity claims – An adversarial approach Lawyers’ professional indemnity premiums for residential conveyancing are high because of the high incidence and quantum of professional indemnity claims in this area.

The main reason is the cost of legal costs associated with finding whether they are at fault.

When a claim is made on the lawyer or a complaint to the New Zealand Law Society, the client must be provided with independent advice and their insurer employs another lawyer to ascertain culpability and conduct the defence.

The cost of this erodes the lawyer’s PI excess and the lawyer’s time and this adversarial nature does nothing to solve the client’s problem.

CONVEYANCING INSURANCE - A SIMPLE SOLUTION With conveyancing insurance the insurer just gets on and fixes the problem. It doesn’t cover everything but it does go a long way to reducing the professional indemnity risk. If the problem gets fixed then there is no professional indemnity

50

September 2015

claim or NZ Law Society complaint.

Conveyancing insurance has been successfully developed in the United Kingdom where it is now integrated into the conveyancing process.

Lawyers obtain conveyancing insurance for a buyer or seller if they discover a legal property law issue.

The conveyancing landscape in New Zealand is different to the UK as virtually all properties are registered at Land Information New Zealand (LINZ). This records the property boundaries and defines those interested.

Many “off-title” risks remain and many are difficult to identify. For this reason a policy covering matters that can’t be identified is equally as important in New Zealand as specific risk cover for the known risks.

RISK MANAGEMENT TOOL FOR LAWYERS A lawyer helps manage the client’s legal risk and their knowledge manages the transactional risk. But there are other risks the lawyer can’t identify and other legal risks that are present

regardless of what the lawyer knows or does.

Generally speaking, many of these risks are not explained, nor does the client expect the lawyer to do so.

If one of these risks materialises, the client may well look to the lawyer to compensate them for not managing their risk. The lawyer may have done a good job but the risk is outside the lawyer’s scope to identify or manage.

If conveyancing insurance is taken on every transaction conducted by a lawyer it reduces the chance of a professional indemnity claim or a complaint to the NZ Law Society without the adversarial approach and improves the relationship between the lawyer and their client.

BENEFITS TO THE LAWYER In short: Improved management of residential conveyancing risks and the quality of their client offering • Less time on adversarial claims • If all transactions are covered, their PI risk reduces, as should their premiums

CONVEYANCING INSURANCE HAS BEEN SUCCESSFULLY DEVELOPED IN THE UNITED KINGDOM WHERE IT IS NOW INTEGRATED INTO THE CONVEYANCING PROCESS. • • • •

• •

They are seen to provide the solution Insurers may pay the lawyer to sort the problem • If caused by the lawyer’s error or omission, insurers waive subrogation rights • Provides a competitive advantage.

Note that there is legal precedent where if a lawyer doesn’t advise their client of a solution that is known in the profession, a PI claim could ensue.

RISKS COVERED The insureds are the lawyer, the purchaser or vendor for whom they are acting and the mortgagee.

Matters covered include: • Adverse matters not revealed or identified by searches and enquiries (including fraud) • Prior non-compliance with registered covenants/encumbrances • Lack of building consent or unauthorised additions

Boundary disputes Seller misrepresentation Unknown rights over the property Lack of access or access over property not owned.

Don’t think the Government guarantee of title will remove the title risk either. An elderly Tauranga couple found the guarantee left them with only half the amount required to repay a bona fides mortgage registered against their title by fraudsters.

The potential change to deferred indefeasibility in the Land Transfer Bill will make this cover even more valuable.

CONVEYANCING INSURANCE POLICY TYPES • Purchaser’s Full Value Policy for Unknown Risks For unknown risks at settlement covering the full purchase price adjusted over time up to 200%. The one- off premium with no excess lasts for as long as the purchaser or family trust or family member owns the property.

• Purchaser’s Specific Risks Policy for Known Risks Covers risks identified in the due diligence process and added to a full value policy with one-off premium and no excess. This covers them and all future purchasers taking the issue off the table in any future sale process.

• Vendor’s Specific Risks Policies for Known Risks The vendor can insure specific risks on their own to take the issue off the table in the sales process for them and all future purchasers.

Exclusions The main ones are: • Any known defect not disclosed • Claims you assist to materialise • Leaky homes SOME CLAIM EXAMPLES: 1.

Cross-lease flat’s plan Additions to a cross-lease flat extended the flat’s plan footprint of a building into an exclusive-use area, therefore the extension was not included in the lease. The other owners ask for it to be removed because it was not erected with the consent of all lessors. The insurers paid to solve the problem.

2. Adverse circumstance on public

record Six months after moving into their house, the owners were issued with a council notice asking them to either move out or prove that the property was safe. When they purchased, the police had advised the regional council that the property had been raided as a “P” house but the information was not on the council records when the insureds bought the house.

The insurer covered the cost of obtaining a lab report which confirmed the house was safe and the drop in value of the property when the insureds came to sell given the information was now on council records.

3.

Non-compliant retaining wall A driveway was held up by a 2m retaining wall which collapsed damaging half the drive.

The council’s rules stated that walls above 1.5m required a building permit, which this did not have. The insurer covered the cost to rebuild and obtain the permit for the new wall only limited by the sum insured.

4. Encroachment The insured purchased a property without a mortgage. When they subsequently applied for a mortgage they were refused by the lender as the valuer had commented that the building was either on or over the boundary.

The insurer covered the cost of a survey to determine the exact location of the house which was close to, but not over the boundary.

As the property abutted a reserve, the insured required consent from the council to retain the house as is. The insurer paid for the survey and cost of consent.

5.

Identity fraud The mortgagee was prevented from selling the property when it was discovered that the real owner was unaware of the mortgage obtained by fraud.

The Government guarantee only contributed 50% so the insurer covered the lender for the balance.

Brokers need to ensure that their lawyer clients are aware of conveyancing insurance and the benefits for their clients.

Failure to do so could create a professional indemnity claim on the lawyer if a coverable issue arises in the future. www.covernotemag.co.nz

51

CONTACTS: IBANZ CORPORATE COMPANY LIST

PIQ BOARD

IBANZ BOARD

Richard Russell

Roger Abel Managing Director Rothbury Group Limited PO Box 1596 Shortland St, Auckland 1140 Mob: 021 852 230 roger.abel@rothbury.co.nz

(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 Ruth Steele Brokerage Manager, Seneca Group Ltd

Auckland Tel: 09 476 1670 ruth@senecagroup.co.nz Gary Young CEO IBANZ

Auckland DDI: 09 306 1734 gary@ibanz.co.nz Andrew Gunn Consultant CIFA Training Manager

Wellington Ph: 04 815 8007 andrew@ifa.org.nz Bruce Howat CEO World Skills NZ

Auckland Ph: 021 671 566 bruce@thethinkingcompany.co.nz Rod Severn PAA CEO

Auckland Ph: 09 600 5171 rod.severn@paa.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 David Crawford Chief Executive Officer Insurance Advisernet NZ Ltd PO Box 74557 Market Road Auckland 1051 Tel: 09 926 2062 Fax: 09 524 2226 Mob: 021 905 537 davidc@insuranceadvisernet. co.nz Angus McCullough Chief Broking Officer / Marketing Manager Aon New Zealand PO Box 1184 Shortland Street

STAFF

Auckland 1140 Tel: 09 477 0277 Tel: 09 3629000 Fax: 09 3092536 angus.mccullough@aon.com

Stuart Speirs Director Abbott Group PO Box 3086 Christchurch 8011 Tel: 03 366 7536 Fax: 03 379 5395 Mob: 021 358341 stuart@abbott.co.nz

Allan Daly Managing Director Avon Insurance Brokers PO Box 3923 Christchurch Mail Centre Christchurch 8140 Tel: 03 3710301 Fax: 03 3666589 Mob: 0275 358128 allan@avoninsurance.co.nz

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

Duane Duggan (President) Head of Insurance Legal Crombie Lockwood (NZ) Ltd PO Box 91747 Victoria Street West Auckland Tel: 09 3574805 Fax: 09 623 9901 Mob: 021 833 286 duane.duggan@crombielock wood.co.nz

Ruth Steele (Vice President) Brokerage Manager Seneca Group Ltd PO Box 305415 Triton Plaza Auckland 0757 Tel: 09 476 1670 Fax: 09 4761679 Mob: 021 590 698 ruth@senecagroup.co.nz

Craig Buckle Willis New Zealand Ltd PO Box 369 Auckland 1140 Tel: 09 356 9368 Fax: 03 358 3343 Mob: 021 909 148

WANT YOUR VERY OWN COPY OF

Gary Young CEO DDI: 09 306 1734 Mob: 027 543 0650 gary@ibanz.co.nz Robyn Gosden Finance & Office Manager DDI: 09 306 1733 Mob: 027 275 2477 robyn@ibanz.co.nz Karen Scard Membership & Secretarial Support DDI: 09 306 1738 karen@ibanz.co.nz Steve Wardley Technical Support DDI: 09 306 1736 steve@ibanz.co.nz Lesley Southwick Principal Professional IQ College DDI: 09 306 1735 Mob: 027 459 9804 lesley@professionaliq.co.nz

Sylvia Heywood Student Liaison & Compliance Manager DDI: 09 306 1737 Mob: 021 152 7174 sylvia@professionaliq.co.nz

COVERNOTE? Each issue of CoverNote is packed with vital information, news, commentry and advise for the insurance industry from experts within the industry. To keep abreast with all the issues affecting New Zealand’s insurance broking industry just email robyn@ibanz.co.nz EQC REFORM

: REGULATION

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

TO ADVERTISE...

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

by IBANZ, the Insurance Brokers Association of New Zealand.

All correspondence should be addressed to: CoverNote, PO Box 33-1630 Takapuna, North Shore City, Auckland.

Next issue is due out: MARCH 2016

52

bucklec@willis.com

December 2015

December 2015

A YEAR IN REVIEW

SET FOR OVER

The professionals’

Insurers reflect what might lie on 2015 and ponder ahead next yea r.

HAUL

magazine from

IBANZ

CONTACTS: IBANZ CORPORATE COMPANY LIST

IBANZ CORPORATE COMPANY LIST Abbott Group Adams Trimmer Insurance 1992 Ltd Addex Ltd Advice First Limited Affiliated Insurance Brokers Ltd AIB Group Insurance Ltd AJIB Insurance Brokers Ltd Albany Insurance Services Ltd 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 Bill Boyd & Associates Ltd Boston Marks Group Ltd Bridges Insurance Services Limited Broker Direct Services Ltd BrokerWeb Risk Services Limited Card Marketing International Ltd Cartwright General Insurance Limited CBA Insurances Limited Certus Insurance Brokers NZ Ltd Commercial & Rural Insurance Brokers Ltd Crombie Lockwood (NZ) Ltd Dawson Ins. Brokers (Whakatane) Ltd Dawson Insurance Brokers (Rotorua) Ltd Edward Ruys & Co Ltd Elders Insurance Limited Emerre & Hathaway Insurances Limited Frank Risk Management FundAGroup Insurance Brokers Limited 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 Hazlett Insurance Brokers Ltd Hood Insurance Brokers Ltd Hugh Vercoe and Associates Ltd Hurford Parker Insurance Brokers Ltd Hutchison Rodway Ltd I C Frith (NZ) Ltd Ian K Everett Ltd ICIB Limited ILG Insurance Brokers Inbroke Ltd Ingerson Insurances Ltd Insurance Advisernet NZ Ltd Insurance Brokers Alliance Ltd Insurance People (Fire & General) Limited JLT Holdings (NZ) Limited JRI Ltd Ken McNee Family Trust Lifetime Insurance Brokers Ltd Lloyd East & Associates Insurance Brokers Ltd Lowe Schollum & Jones Ltd Luxor Insurance Brokers Ltd MA Risk Solutions NZ Limited Mainprice King Chartered Brokers Ltd Malcolm Flowers Insurances Ltd

Christchurch Whangarei North Shore City Wellington Wellington Lower Hutt Lower Hutt Albany Village Manukau Auckland Auckland Auckland Manukau Whangarei Christchurch North Shore City Christchurch Auckland Waitakere Tauranga Christchurch Palmerston North Auckland Hamilton Christchurch Auckland Wellington Ashburton Tauranga Auckland Alexandra Auckland Whakatane Rotorua Hamilton Auckland Gisborne Cambridge Auckland Auckland Thames Waitakere Auckland Auckland Papakura Auckland Christchurch Auckland Morrinsville Hastings Auckland Auckland Auckland Auckland North Shore City Auckland Wellington Auckland Invercargill Auckland Auckland New Plymouth Christchurch Christchurch Auckland Hamilton Auckland Auckland Auckland Taupo

Marsh Ltd Auckland Matt Jensen Insurance Brokers Ltd Taupo McDonald Everest Insurance Brokers Ltd New Plymouth Montage General Insurance Ltd Auckland Multisure Ltd Auckland Nauman Insurance Brokers Ltd Dargaville Nelson Bays Insurance Brokers Ltd (NIB) Nelson Neville Newcomb Insurance Brokers Ltd Auckland Nexus Insurance Brokers Ltd Auckland North Harbour Ins Services (1985) Ltd incl Northsure Group Limited Orewa Northco Insurance Brokers Ltd Masterton Northcrest Insurance Brokers Ltd Auckland Oamaru Insurance Brokers Oamaru O'Connor Warren Insurance Brokers Tauranga OFS Insurance Brokers Ltd Dunedin Omni Fire & General Ltd Auckland One 50 Group Insurance Limited Auckland Paramount Insurance Agencies Ltd Auckland Paterson & Co NZ Ltd Auckland Penberthy Insurance Ltd Auckland Peter C Cranshaw Insurance Broker Ltd Levin PIC Insurance Brokers Ltd Manukau Primesure Brokers Ltd Auckland Property and Commercial Insurance Brokers Feilding Protekt Insurance Brokers 2008 Ltd Auckland Provincial Insurance Brokers Limited Masterton PSC Connect NZ Limited Auckland Pulsar Insurance Agency Auckland Reid Manson Ltd Timaru River City Insurance Brokers 2000 Ltd Wanganui RMA General Ltd Warkworth Rothbury Group Ltd Auckland Runacres & Asssociates Limited Christchurch Seneca Insurance Brokers Ltd Auckland Sit & Blake Limited Auckland South Pacific Insurance Brokers Ltd Auckland Sweeney Townsend & Associates Ltd Rotorua Thames Valley Insurance Ltd Thames The Advisers 1 Limited New Plymouth The Stoneman Group Wanganui Thorner General Insurances Ltd Upper Hutt Towes Insurance Brokers Ltd Te Aroha Trevor Strong Ins Ltd Auckland Vision Insurance (S.I.) Ltd Ashburton Waikato Insurance Brokers Limited Hamilton Wallace McLean Ltd Auckland Wanganui Insurance Brokers Ltd Wanganui Wholesale Insurance Brokers Ltd Papakura Willis New Zealand Ltd Auckland Yesberg Insurance Services Ltd Christchurch

www.covernote.co.nz

53

CONGRATULATIONS TO THE 2015 RUGBY WORLD CHAMPIONS.