CoverNote March 2021 issue

March 2021

Vero Liability hails retiring industry leader Raising a toast to Allan Cameron

www.ibanz.co.nz

The world may have changed.

Our appetite hasn’t.

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

Because for VL, it’s business as usual.

veroliability.co.nz

New Zealand’s leading liability insurer

Welcome

A year of change ahead W

ith summer continuing to put on a dazzling show, welcome to the first CoverNote of 2021.

It seems almost surreal that we are approaching the anniversary of our first Covid lockdown. There have been many new terms and lessons for all of us over the past 12 months and, despite a number of community outbreaks, we have enjoyed much more normality than most countries.

After having seen it deployed around the world, the rollout of our vaccination programme is finally underway, which brings with it much hope and expectation for a return to our pre-pandemic lives.

Those involved in providing financial advice will be consumed with ensuring they are making the necessary changes by March 15 2021, when the new Financial Services Legislation Amendment Act (FSLAA) Conduct Regime comes into play. Few, if any, escape its reach, with aspects applying to both retail and wholesale clients.

From the outset, Financial Advice Providers and Financial Advisers need to be very clear about their new obligations and new or altered processes.

Evidencing that obligations are being met is a key element to have in place. It is entirely likely that things will need to evolve which makes oversight and review crucial so that improvements or issues are captured with any necessary changes made.

Further legislative reform continues to be a big focus across our industry. The Reserve Bank has instigated an initial consultation on the Insurance Prudential Supervision Act. The elements they are reviewing include solvency, oversight, branches, reinsurance, and supervision of those carrying out business in New Zealand. IBANZ will be making a submission.

The Financial Markets Conduct of Institutions Bill (FMCIB) is currently awaiting its second reading and we watch the progress of this Bill with interest. There is significant and concerning duplication for those that also fall under the FSLAA Conduct Regime which comes into play this month. This is a cause of great concern as we have stressed to MBIE. While it is critical for intermediaries not subject to FSLAA to be captured under FMCIB there will be a significant imbalance and disadvantage for those subject to both.

Lastly, we expect an exposure draft to be released later this year on the Insurance Contract Law Review. This covers several areas across insurance law including insured’s disclosure requirements and remedies if they are not correctly made as well as the potential for coverage comparisons or summaries.

It is also expected to draw in other long-standing aspects of our sector, including the intermediary as an agent, Insurance Law Reform Acts, and the duty of Utmost Good Faith. IBANZ will be looking to provide a submission on the draft when it is released.

I am currently seeking introductory meetings with the Hon Dr David Clark, Minister of Commerce and Consumer Affairs and the Hon Jan Tinetti, Minister of Internal Affairs.

Despite it seeming to be widely accepted that insurance is not a suitable place for the collection of fire service levies (or tax as many refer to it) there sadly seems little appetite or impetus for moving it to the more obvious alternates. We will, however, continue to work towards this, given the greater fairness doing so would bring.

All the best for the remainder of this quarter and the year ahead.

Stay safe

Melanie Gorham CEO, IBANZ

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

IBANZ enquiries should be made to: Melanie Gorham, Chief Executive, IBANZ. Email: mel@ibanz.co.nz IBANZ National Office located at: Unit 4D, 2B William Pickering Drive, Rosedale, Auckland 0632 PO Box 302504, North Harbour, Auckland 0751 Telephone 09-306-1732.

Website: www.ibanz.co.nz

Advertising/Editorial: Robert Johnson, Benefitz Telephone 09 477 4702, Mobile 027 4970 712, Email: robert@benefitz.co.nz Design/Production: Craig Burkett, Benefitz Imaging: CTP by Benefitz Produced for IBANZ by: Benefitz, 5-11 Parkway Drive, Mairangi Bay, Auckland 0632.

PO Box 33-1630 Takapuna.

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

Features 6. D&O Insurance: Increasingly

costly and uncertain 12. New regime looms on

March 15 16. Why are insurance

costs rising?

18. Hard discussions in a

hard market 22. Virtual event tackles

climate risks 30. Profits grow at Suncorp

32. Are businesses prepared

for a claims surge event?

34. Former Lloyd's exec

joins Delta

Profile 10. Lee Garvey: Looking ahead

in 2021

4. COVER STORY Vero Liability hails retiring

industry leader

Regulars 42. Professional Development: Professional IQ 20. Humans of NZI College 40. Ask an Expert 44. IBANZ Contacts 1. Welcome to CoverNote

WANT YOUR VERY OWN COPY OF

COVENOTE?

March 2021

Opinion 26. The implications of England’s

business interruption ruling

See page 44 for details on how you can have your very own copy delivered directly to your door...

HOT OFF THE PRESS!

Vero Liab hails retir ility industry ing leader

Raising a toast to Allan Ca meron

www.iban z.co.nz

BE YOUR OWN BOSS

The Future is now If you want the freedom and flexibility to run your own General or Life Insurance Advisory Business, then speak to the team at PSC Connect NZ. Being part of PSC Connect comes with a range of benefits, including: • Buying power of the PSC Group which has a gross premium of $1.5b • Full administrative and compliance support • Access to all major markets and specialist underwriting agencies including Lloyds • Agile operating systems that will allow you to work from Home, Office or anywhere • Assistance with hard to place risks • Product and Professional training • Claims and Marketing support

Proud members of:

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

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

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

Proudly brought to you by

www.covernote.co.nz www.covernote.co.nz

3

Cover Story

Allan has always given young people time and explained insurance to them and given them a solid induction. He has always been there for his colleagues and has been a Sergeant at Arms for us.

4

March 2021

Cover Story

Vero Liability hails retiring industry leader nsurer Vero Liability has raised a toast to the retiring Allan Cameron, who has stepped down after 15 years at the company and 60 years in the New Zealand insurance sector.

At an industry event at VL’s Auckland office in February, VL managing director Adrian Tulloch thanked long-serving Cameron for his know-how, intellect and indepth knowledge of the insurance industry.

Tulloch remembered his early days in the insurance market and Cameron’s status as a “renowned” broker, known for his professionalism and meticulous attention to detail.

VL tempted Cameron out of retirement in 2006, hiring the industry veteran in a technical services role across the business.

Tulloch said: “It worked out well, probably even better than we both thought it might. While we both anticipated it might have been for a couple of years, it has lasted for more than a decade.

He has impressed everyone he has worked with, internally and externally.”

“We all know that liability insurance is complicated, but Allan has demonstrated his expertise time and again, helping to deliver results for clients. No one was left in any doubt that Allan was on the top of his game, and we have a lot of respect for his technical ability. We will miss him a hell of a lot, even though we have a lot of clever people here.”

“Allan has always given young people time and explained

insurance to them and given them a solid induction. He has always been there for his colleagues and has been a Sergeant at Arms for us.”

Adrian Tulloch (L) and Allan Cameron

I

“He’s someone that we are not going to be able to replace, so thanks Allan,” Tulloch said.

Originally from Glasgow, Scotland, Cameron has held a wide number of roles across the New Zealand insurance industry.

He arrived in New Zealand in 1965, working for companies including Lloyd’s of London broker Edward Lumley & Sons, Norwich Union, and Industrial and Commercial Insurance Brokers Limited, where he spent 25 years.

Cameron’s expertise later proved to be a valuable acquisition for VL, where he worked on technical services issues, including policy wording and the design of new products.

Reflecting on six decades in the insurance market, Cameron said the broking market had changed significantly during his career.

“I guess the main change in the market has been consolidation.

As the number of brokers grew, the number of underwriting entities shrank. While there were more than 25-30 conventional fire and general underwriters in 1965, there are probably only six or seven now.”

“The same thing is happening in the market with brokers now,” he added. “At the same time, consolidation and mergers create space at the bottom of the industry for smaller independent firms to fill the gap,” he said.

Cameron said he was proud to have served the insurance sector for so long.

“I know that we provide a product that supports businesses.

I’ve seen so many people, small businesses in particular, rescued by a well-structured insurance programme. I’m happy and proud to have played a part in this industry for so long.”

Cameron added: “My 15 years at VL have probably been the most fruitful and productive of my career in terms of the knowledge I gained. I gained a lifetime of knowledge in 15 years.

“The Vero Liability team are the most talented bunch of people I have come across in terms of brainpower, knowledge, and general know-how. Adrian Tulloch has retained a traditional self-constrained, self-governing business, without the corporate bureaucracy that tends to affect major insurance companies. It was refreshing to be part of that environment.” www.covernote.co.nz

5

Feature

D&O Insurance: Increasingly costly and uncertain

by Andrew Horne

M

any companies and their directors, particularly duallisted companies whose shares are quoted on both the NZX and ASX, have been astonished at the difficulty and cost of renewing their Directors and Officers (D&O) insurance in the past year.

This is a trend that we view as likely to continue, particularly at the top end of the market, as insurers face an uncertain and increasingly risky claims environment while at the same time, capacity in the London insurance market continues to tighten. We are working with large, listed companies that are actively exploring ways to manage or limit their D&O insurance expenditure.

WHAT IS HAPPENING Many companies are experiencing ‘shock’ D&O premium increases that in some instances have been many times multiples of their previous year’s premiums. Dual listed companies have been particularly affected and some are reported to have considered de-listing in Australia in order to bring their costs under control. Companies that are listed only in New Zealand are also experiencing substantial premium increases and some are having difficulty arranging replacement cover if their insurers are among those that have left the D&O market.

There are a number of reasons 6

March 2021

for this, which when combined create a ‘perfect storm’.

The first reason is the exponential growth in the number and size of funded securities claims that has been experienced in Australia in recent years.

Insurers rely upon historical trends and informed assumptions for actuarial calculations that inform their estimates of likely claims, to set premiums. They have been caught off guard by a sudden and exponential increase in the number of securities claims against directors brought as group or ‘class’ actions on behalf of large numbers of affected investors, funded by third party litigation funders and supported by specialist lawyers.

The cost of dealing with these claims has increased proportionately, as has, necessarily, premium costs.

The known rise in claims costs is exacerbated by insurers’ increasing uncertainty as to what the future holds, which has caused them to increase premiums further to guard against unknown further increases in the number and size of claims.

A second reason is a D&O premium base that historically has not kept up with claims costs.

D&O insurance was traditionally a relatively low-cost addition to a company’s suite of policies that was offered as part of an

overall package. In the distant past, directors were obliged to pay for the cost of this insurance themselves, which encouraged insurers to offer it at a very low cost on the basis that they would earn their profits from the

premiums for the wider policy suite. Insurers now have no option but to charge D&O premiums that fairly reflect the risk of claims and losses.

A third reason is insurers’ apprehension that the New Zealand legal environment is beginning to adopt some of the features of the Australian environment that has resulted in increased numbers of group litigation proceedings and securities claims. As we discuss further in the next article, the New Zealand Supreme Court has recently approved of ‘opt out’ representative or ‘class’ actions where a law firm and a litigation funder may act on behalf of

a large group of investors or other affected persons without their express consent, provided they do not object, thus making it considerably easier to bring a claim on behalf of a large number of people with the same interest in a claim.

These actions lend themselves particularly to securities claims where investors may have been misled, or continuous disclosure claims where investors may have overpaid or been underpaid for shares. In addition, litigation funding by third parties for a share of the proceeds of an action is increasingly accepted.

We are beginning to see professional litigation funders

being increasingly active, although we have not seen firms of class action lawyers emerge with the level of sophistication that exists in Australia.

While class actions in New Zealand remain relatively rare, they are increasing in number.

In recent years, there have been group actions against the directors of a carpet manufacturer, Feltex; an insurer, Southern Response; a building supply company, James Hardie; the Ministry of Primary Industries; the directors of Mainzeal and the former directors of CBL Insurance.

However, important differences remain between New Zealand and Australia. New Zealand is

www.covernote.co.nz

7

Feature

a much smaller market and claims are for the large part commensurately smaller, so they are less likely to justify an investment by lawyers and funders. New Zealand has activist regulators in the NZX and the FMA which investigate and seek remedies for continuous disclosure breaches and other securities breaches, rather than leaving them to the private funding market. This may have the effect of discouraging private litigants when the regulators do not view a case as worthwhile.

New Zealand does not yet have a sophisticated class action regime – the Law Commission’s reform project has been on the back burner for more than twenty years and recent efforts to revive it appear to have stalled repeatedly. Dual-listed companies are not as exposed to Australian litigation as it might appear, as they are obliged to comply with New Zealand laws rather than Australian laws and litigation against them is likely to need to be brought in New Zealand.

These and other features mean that New Zealand is less able to support a community of lawyers who specialise in claims of this nature. While there have been recent high-profile actions such as the proceedings against the Mainzeal directors, in which our firm acted for the successful plaintiffs (with the Court of Appeal decision yet to be released), they tend to be liquidators’ actions that have traditionally been pursued and funded in any event.

A fourth reason is the reduction in capacity in insurance markets for D&O risk. Lloyd’s of London has traditionally issued a large proportion of the higher ‘layers’ of high value New Zealand D&O policies, where the primary layer has been written locally and 8

March 2021

excess layers have been written out of London.

This capacity is reducing as Lloyd’s has increasingly required its syndicates to demonstrate their solvency and their ability to operate profitably, failing which their books have been closed.

This has resulted, inevitably, in a reduction of capacity and a corresponding reduction of availability of cover and increasing premiums.

It is also relevant that other liability risks are perceived as increasing. Regulatory actions against companies and directors appear to be on the increase, with the FMA being increasingly well-funded and well-staffed.

The FMA’s focus remains on the conduct of directors and senior management. Following its Bank Conduct and Culture Review in November 2018, the FMA and the Reserve Bank of New Zealand said that they would be: “.. expecting to see much deeper accountability of boards, executives and senior managers. We will be looking for progress and clear evidence of change and want to see this become part of the ethos of all banks in New Zealand.”

New risks are also emerging which are difficult to predict.

In a recent article, three judges of the New Zealand Supreme Court, writing on Climate Change and the Law, addressed directors’ risks with the following statement: ‘Directors have a duty to consider the “best interests” of the company in all of the colloquium jurisdictions. It remains to be seen how climate change impacts that duty. As we discuss below, there have already been cases in Australia and

the United Kingdom relying on corporate governance and company law to hold companies to account for their climate impacts and actions.’

While acknowledging that New Zealand companies legislation does not expressly require directors to consider the impact of operations upon the environment, the judges said that: ‘As a material financial risk, directors are accountable under care and diligence duties to take account of the financial consequences of climate change and this applies whatever model of corporate governance is subscribed to. Further, the “business judgement rule” would not protect directors where the legal risk stems from inadequate information or lack of inquiry.

WHAT COMPANIES MAY DO TO IMPROVE THEIR POSITIONS: Insurers need to understand the specific risks that a company and its directors face and how they are managing those risks, to build confidence that they may accurately assess the risk of losses. We find that insurers often assume initially that New Zealand companies face the same risks as their Australian counterparts when this is not the case. We have seen positive outcomes where companies and their directors have presented insurers with a well-considered statement of the risks they apprehend and how they are addressing them, with an explanation, if appropriate, of why those risks are not viewed as comparable with those faced by companies in Australia or elsewhere.

Andrew Horne is a partner at Minter Ellison Rudd Watts

COVER STORY Cover Story Cover Story

Your business may face cyber threats. It takes a partner at the forefront of the cyber curve to help you prepare, respond and recover from the attacks.

AIG can guide you through this ever-evolving, 24/7 world. A world that never sleeps. So, we’re always on.

Learn more at AIG.co.nz/cyberedge Insurance products and services are provided by AIG Insurance New Zealand Limited, a subsidiary of American International Group, Inc.

www.covernote.co.nz www.covernote.co.nz

www.covernote.co.nz

9

9

Profile

Lee Garvey:

Looking ahead in 2021 Lee Garvey, who has worked for all three major global brokers, was recently appointed as Willis Towers Watson’s head of financial solutions for Australia and New Zealand.

Garvey talks to Covernote about the credit, non-payment insurance, political risk and lenders’ insurance advisory markets, and his predictions for the wider market

What are the main challenges for insurance brokers in New Zealand at the moment?

Specialist brokers participating in the trade credit space, like Willis Towers Watson, are facing pressure to secure competitive new and renewal terms for clients, from participating insurers.

Covid-19 is still having an impact on the market. Insurers remain quite conservative in their approach and in the way they protect risk commitments to existing policyholders. We have also seen insurers seeking to increase premium rates and imposing more restrictive policy conditions – something which we are working very closely with our clients to address.

You are responsible for Credit and Non-Payment insurance, Political Risk insurance, Commercial Surety, Terrorism and Political Violence, and Lenders Insurance Advisory

10

March 2021

within the Financial Solutions line of the WTW business. Which of these lines are experiencing the greatest changes in the current market, and why?

Many insurers consider that more insolvencies will eventually come when government support measures are rolled back. As a result, some insurers in the Trade Credit space have stayed away from taking new risks in the industry sectors most affected by the crisis such as air travel, hospitality and the private obligors that have a noninvestment grade rating. Instead, they have focused on betterrated entities and sovereignowned entities.

How has the pandemic and economic downturn affected the Credit and Non-Payment insurance market?

Claims in the Trade Credit and Non-Payment insurance market have increased compared to

last year, as we have seen in loss ratios (measuring claims incurred against premiums) reported by the big three insurers.

In their 9M 2020 publications, Euler Hermes, Atradius and Coface reported loss ratios being 15 points higher than in 2019, at around the 60% mark.

To a great extent, this moderate increase has been achieved thanks to the government support measures implemented in various countries to avoid a massive wave of insolvencies, including providing reinsurance to these credit insurers through public schemes.

In Asia Pacific, trade credit insurers have experienced an increase in smaller frequency claims, but the level of large claims remains limited. Coface, for instance, has published a loss ratio of 51% YTD in Asia Pacific – a very healthy level.

As a result, trade credit insurers have remained profitable for most of 2020 in Asia Pacific and globally.

They have managed to maintain healthy top lines by increasing premium rates at renewal to reflect the deteriorating credit environment.

And they have withdrawn cover on the weaker portions of their portfolios, with overall exposure now being 10% lower than at the end of 2019. While these cuts have affected clients who rely on credit insurance coverage for managing risks or for financing purposes, some of the reductions were accepted as a reflection of lower overall trade volumes in 2020.

Will general insurance capacity and coverage narrow in the year ahead, and if so, in which lines?

The New Zealand insurance market is open for business and in good health.

The property market has been largely insulated from direct losses due to COVID-19 but insurers are increasing their scrutiny of risks. There is a focus on profitable underwriting because of the global economic uncertainty.

Increasing emphasis is being placed on risk control, safety, contractual risk management, cyber security and governance.

Core coverage terms and conditions that have been relatively stable are now also under the spotlight; it’s becoming commonplace for insurers to impose absolute communicable disease exclusions to avoid future debates over unintended cover.

We also see another year of challenging conditions for D&O capacity and rates, as well as reduced capacity and rate increases for larger Cyber placements, as claim frequency and severity continues to rise.

Apart from the Construction sector which faces its own set of challenges, General Liability rates remain stable in NZ compared to the rest of the world where rate increases and tightening of coverage is evident. We were expecting global insurers to push down rate increases to NZ insurers after their latest round of treaty negotiations, however this has not been as evident outside of the Construction sector.

When will the insurance market return to normal in the Pacific, assuming a vaccine puts an end to the year ahead?

Tourism has always been the lifeblood of Pacific Island economies. All of these countries

share similar challenges and opportunities and the abrupt end to visits by ships and planes carrying much needed economic input has had an impact. For obvious reasons, credit insurers have taken a conservative stance on credit risks associated with travel and tourism related industries, although guarded support remains across sectors that support local communities such as supermarkets, hardware and food retailing.

A phased approach to resuming international travel in the region is being implemented, but economic activity across the Pacific Islands could remain a challenge for another 12-18 months meaning insurers will continue to remain cautious.

What lessons have you learned during this economic downturn?

While 2020 will be remembered for the pain inflicted on populations by the pandemic, the economic disruption and the challenges to the insurance market, it is very encouraging to see that the credit insurance market has remained resilient and has continued to support clients throughout the crisis.

How do you view the outlook for the year ahead?

Positively, certain industry sectors have weathered the storm reasonably well.

The infrastructure and telecommunications sectors for instance, have proven extremely resilient and we hope this will continue for the year ahead.

And finally, some sectors have even emerged stronger, such as e-commerce and data centres.

Again, these continue to be well supported by insurers. www.covernote.co.nz

11

Feature

New regime looms on March 15 Following a Covid-related delay, the new financial advisers’ regime is finally here. Brokers are confident the changes will be good for the industry

By Sadie Beckman

A

fter a nine-month delay due to COVID-19, the financial advice industry is gearing up for the implementation of new regulatory requirements on March 15.

The new regulations have been implemented through the Financial Services Amendment Act (FSLAA), which passed into law in April 2019, and was due to come into play in June last year.

However, as the pandemic took hold, the decision was made to extend the timeframe — a move which has seen a mixed reaction from those in the industry.

The crux of the changes can be boiled down to the key aspects of licencing, the implementation of a professional code of conduct, disclosure regulation and oversight by a regulatory body, although it is a lengthy and intricate piece of legislation.

12

March 2021

For insurance brokers, licencing may be the big issue to consider.

From March 15, anyone giving financial advice to retail clients must hold either a Financial Advice Provider (FAP) licence or be covered under a FAP’s licence as a Financial Adviser or a Nominated Representative.

Both businesses and individuals can apply for a FAP licence under the new regulations, but which to choose depends on plans for the business. Holders of an FAP licence can engage others to work under the umbrella of their licence as Financial Adviser.

Either way, being registered on the Financial Service Providers Register will be mandatory.

Many advisers and businesses have been considering their options under the new legislation for some time. They have been

aware of the transitional nature of the regime’s implementation where both people and businesses have been able to apply for a transitional licence which lasts for two years, and enables them to continue legally practicing while moving towards meeting any new competence, knowledge and skills standards needed to comply.

There has been good uptake of this option in the broker industry, but applications for this ‘safe harbour’ close on March 15th, so anyone who hasn’t already completed their application for a transitional licence by then will have to immediately comply with the new legislation - by having a full licence, otherwise they cannot practice. The one workaround for this however, is providing financial advice under another provider’s full licence.

Steadfast CEO Bruce Oughton says the many brokers they look after have got through the transitional licencing phase and have everything in place.

“We gave them guidance on what was incoming, and produced guidelines for our brokers, not just on disclosure, but on all aspects of the legislation,” he says.

Oughton says the changes

provide some important safeguards for brokers and clients, including identifying vulnerable clients and transparency. He says most are supportive of the new regulations.

in brokers nearing retirement leaving the industry rather than go through the compliance requirements. However, he says this has not been the case to date.

“They understand what the government is trying to achieve,” he says.

“We didn’t see the retiring exodus in Australia [when regulatory changes were brought in] and we’re not seeing it here.

One broker in his late sixties rang me a couple of months back to say he was proud to be newly qualified under the new regulations, as his previous qualifications were very old and out of date.”

“Although this is legislation aimed at the financial services industry and we are just one arm of that. Our industry is slightly different and there have been some complications for us around what is required in terms of disclosure, such as implementing new computer systems and technology upgrades - but we can overcome it.”

Oughton says the government’s terminology and definitions of brokering in the legislation are slightly different to those used inside the industry, so matching those up will be important, however the result will definitely be an improvement.

“There will be a teething period but in six to 12 months after it’s implemented it will have settled,” he said.

Oughton said that when the FSLAA was announced there was concern that it would result

While the new regime aims to ensure a solid, credible and qualified workforce, Oughton believes his industry already has that.

“It’s about changing public perception,” he says.

“The public have to learn as well as us.”

Insurance Advisernet director David Crawford says the new regulation changes are actually long overdue.

“Our industry escaped in 2011 when the Financial Advisers Act came in - we thought that we’d be highly regulated then,” he adds.

Crawford says that prior to the www.covernote.co.nz

13

Feature

new regime, there had been little oversight of the industry.

“You could have been a plumber yesterday and an insurance guy tomorrow,” he says.

cracking ahead of time to prepare for the regulations. This may have left some early-movers frustrated, according to law firm Dentons Kensington Swan.

He says the aspects being put in place by the new regime are simply the things good businesses already did, so there should be little scope for those in the industry to be wary or opposed to the legislation if they were already operating with best practice.

“They will now need to put their planning on hold, and in some cases will need to reverse out systems changes and training programmes that are already in place,” the firm states in an opinion piece on the changes.

However, it may also be a case of an early investment taking more time to pay off, than an early investment being wasted, or causing more costs to be incurred, they say.

“Yes, there has been a cost burden on the industry and it has taken time and effort to get ready for the changes - which has been felt across the industry, but we were going to have to do it sometime,” he says.

Dentons also believed the Ministry of Business, Innovation and Employment (MBIE) which is the government department responsible for the new regime, needed more time to get the disclosure regulations right.

“There is enough guidance out there [on the new regulations] if you look for it. As with any change there will be the early adopters, the mass, and then some who come kicking and screaming.”

At the time the delay was announced MBIE reiterated that the draft regulations needed to have their ‘workability’ revisited, citing wide criticism at the time of their release last October.

As for the Covid-related delay in implementing the new legislation, there has been a mixed reaction from brokers.

However, at that time Dentons said the delay meant “all stakeholders have a one-off golden opportunity to ensure the new financial advice regulatory regime, and their participation in it, is optimal”. There seems to be little comment now on those

“Now the government has set the bar - but not so high that you can’t attain it.”

Before the pandemic and subsequent delay was known about, the financial advice industry was urged to get

NZ’s only medical malpractice policy to include commercial contract dispute cover including pursuit Covers exemplary damages and privacy breaches Caters for everyday risks practices face Local Claims team with 30+ years of MedMal experience

14

March 2021

disclosure regulations, indicating the delay was useful in that regard.

As the start date approaches, perhaps the best way brokers can get ready then, is to pause and evaluate the moves they have made towards compliance already, and consider their business planning in a world that now unfortunately knows the effects of Covid-19.

The industry’s leaders seem to agree there has been enough warning about regulation being brought in as well as precedentsetting in other places, such as across the Tasman and in earlier regulation moves.

There is also plenty of guidance and resources available to help with the transition. While the delay may have thrown some plans and scheduling, it has also been a chance for brokers to get all their ducks in a row and, probably, to have made some new decisions thanks to our unwelcome viral visitor.

Covid-19 leaves us in an uncertain world with a business environment that has been on a rollercoaster ride, but with the new regulations aimed at providing more security and transparency for both financial advisers and customers. That should be a welcome piece of solid ground.

Medical Malpractice & Legal Expenses Defence & Pursuit Cover

Feature

www.covernote.co.nz

15

Feature

Why are insurance costs rising?

Premiums are rising across most parts of New Zealand, and a multitude of factors here and overseas will determine how the trend plays out during 2021.

A

s a small island nation prone to natural disasters, New Zealand is a difficult place for insurance underwriters. Over the past year, insurance premiums have begun to rise across the country following a series of natural catastrophe events, as insurers seek to maintain their profit margins.

The Northland floods last winter, the devastating Lake Ohau bushfire, and Napier floods in November have all caused losses for insurers over the past years, leading to rising premium rates and a reassessment of underwriting books.

Across the globe, insurance commentators have declared the arrival of a long-awaited hard market, with demand still high but supply and appetite dwindling.

The conditions have made it challenging for brokers and risk professionals purchasing and renewing policies.

The outlook for the NZ insurance market is for more of the same.

According to analysts at Jarden Research, insurance premiums are poised to rise by between 3-5% in the first half of 2021, continuing a trend which has led to higher risk transfer costs for businesses and individuals across NZ. Insurance premiums are rising due to higher reinsurance costs, with the NZ market covered by relatively few reinsurers compared with most global markets. As the reinsurers pick and choose their exposures in this market, costs are passed through 16

March 2021

to insurers and ultimately, clients.

The investment landscape has also affected premium costs.

With interest rates plummeting to record lows following the Covid-19 pandemic and subsequent financial crisis, insurers are making less money on traditional investments such as bonds.

Higher prices are offsetting the shortfall.

The recent financial reporting season indicates that insurers are keeping their profit margins intact. IAG’s premiums increased by 2.8% to $1.47 billion, with increased rates and new business bolstering income. IAG said business premiums had risen by 4%, while consumer rates rose by 2%.

Rival group Suncorp, the owner of Vero and AA Insurance, increased profits by 19% in the six months to December. It said rates had risen by 4% for commercial customers, with individuals paying about 2% more over the period.

The figures back up claims of a hard market, a phenomenon seen across the world. As the pandemic bites and local loss events such as the Black Summer in Australia cause further damage, carriers here are likely to adapt accordingly.

Sam Kerr, an Auckland-based insurance broker at SHARE NZ, says some markets have seen rises of nearly 10%: “Where you are seeing premium increases, almost the whole market is moving, because there is a limitation of capital in that market

or significant exposures. Whole markets are rising 5-10%."

Kerr notes that insurance premiums have risen across material damage business interruption policies, body corporate insurance, and home contents policies, with increases “driven by natural disaster components”.

NZ insurance will continue to be volatile for natural disaster risks, he says. “We’re built on a series of fault lines, and that is significant, even with the EQC (Earthquake Commission) being the first line for insurance,” he says. ​ It’s easy to explain to clients why rates are rising when a large event like the Kaikoura or Christchurch earthquake has happened, whereas now we are explaining that it is aggregate losses, with smaller events,” Kerr says.

According to Kerr, there is a difference in pricing depending on where the client is based.

People based in the higher risk centres of Wellington and Christchurch faced a sharper rise in premium than other areas.

Granular factors continue to affect insurance premiums in the capital. The topography of Wellington, and the different soil quality across the city, can affect prices, Kerr says.

He says insurer competition has kept rates flatter in Auckland.

“On the flip side, Auckland has been quite soft,” he says.

“Auckland doesn’t necessarily

“We understand there is capital out there, however accessing such capacity can be challenging. We have to be wary where such capital is being deployed. High-risk material damage business interruption (MDBI) zones such as Wellington, high-risk occupancies such as food & beverage manufacturing, and use of high-risk construction materials (expanded polystyrene) are under closer scrutiny than ever.

have the same natural disaster risk as those other regions.

Insurers are competing for the Auckland business and see it as a safer risk for disasters. So Auckland and Northland aren’t seeing the same increases as other parts of the country.”

Meanwhile, external factors, such as construction costs, continue to dictate premium rates for home insurance, Kerr adds.

“Natural disaster drives the largest increases in New Zealand, but build costs also factor in.

You’d almost expect your house insurance to creep by 1-2% every year just to keep up with the replacement provisions.”

Megan Warner, commercial leader at Marsh New Zealand, says premiums have been increasing for several years across the Pacific region and beyond.

Warner said the rate increases were mainly due to “a higherthan-normal frequency and severity of natural catastrophes in our region than ever before”, along with other factors.

“Generally speaking most New Zealand portfolios have performed well over the past few years, while Australia and the Pacific Islands have suffered

significant losses from bushfires and cyclone events.”

The natural catastrophe shocks have prompted insurers to take stock and reposition their allocations, Warner says.

“Many insurers are stepping away from underperforming classes of business, and this creates pricing pressures on the available capacity in both the primary and reinsurance world,” she says. “ Large global reinsurers, as well as paying for the significant natural catastrophe events across the world, are impacted by the uncertainty that Covid-19 brings.”

She agrees that the low interest rate environment has made it tough for insurers to supplement underwriting performance.

“Persistently low interest rates are making it more difficult for Insurance carriers to balance diminished underwriting results.

Most in our market now accept rate increases in certain lines are necessary to remain sustainable.”

While rates continue to change, Warner says capacity remains strong in the NZ market. But some regions and commercial sectors are more difficult to cover than others in 2021.

“Indeed, coverage has certainly come under the microscope in recent years with insurers narrowing cyber, infectious disease and some contingent business interruption coverage,” she added.

Broader industry changes are set to impact pricing over the next few years. Leading insurers, such as Tower and IAG have moved to risk-based pricing for property insurance, due to the growing impact of climate change and dangers such as coastal erosion for many NZ homes.

Risk-based pricing is likely to see those on the coast paying more to insure their homes, as the effects of climate change deepen and insurers suffer more losses.

While current market trends aren't the best news for clients, several unpredictable factors, such as interest rates and natural catastrophe events, will shape where premiums go from here.

In the near-term, what will it take for rates to stabilise following a year of unprecedented volatility?

For Warner, premium rates will ultimately be determined by insurers’ bottom lines: “Consistent year-on-year underwriting profitability will be necessary to see insurance costs plateau,” she adds. www.covernote.co.nz

17

Feature

Hard discussions in a hard market When insurance premiums rise, brokers need to have some frank conversations with clients. It isn’t always easy, but communication is key.

I

nsurers in New Zealand, the Pacific region, and across the rest of the globe have increased premium rates in the past year due to a perfect storm of Covid-19, reduced investment returns, and natural catastrophe events. As rates rise and the market hardens, the burden falls on brokers to pass on the bad news to their clients.

Brokers are highly-skilled in dealing with the complex issues behind rate increases and capacity changes as they source insurance solutions for their commercial and individual clients. But what is the best way for advisers to handle the current market? How should brokers approach the discussion with key clients?

Risk managers, commercial insurance buyers, individuals and families are grappling with rising costs in New Zealand and overseas. Leading brokers say it’s important to communicate the reasons behind the market changes and how they have affected local capacity and coverage.

Megan Warner, commercial leader for Marsh in New Zealand, says brokers need to focus on their traditional role and be a clear communicator.

“The rising cost of insurance is a significant issue for commercial buyers, Warner says. “Explaining the dynamics of our local market, in context with the global market, helps aid customers’ understanding of cost levers.

More than ever, successful insurance brokers are the ones who can deliver a balanced

18

March 2021

outcome, whilst embracing our customers’ needs and motivators.”

Warner adds brokers should look for creative solutions when capacity is tight: “I believe it comes down to good old fashioned communication and forewarning. Innovative insurance solutions, such as utilisation of captive or self retention programmes, go a long way to demonstrating the value brokers deliver to customers.”

Dave Penfold, a director at PSC Connect Insurance Broker Services, says “it should always be part of the role of insurance brokers to keep their clients informed on how insurers and reinsurers’ capacity, climate change, local and international catastrophe losses, and local claims frequencies affect insurance pricing”.

He adds: “Clients never like hearing that their insurance premiums are increasing.

However if they are well informed as to how insurance pricing is affected and how the Insurers

manage these influencing factors to ensure they maintain a strong balance sheet it makes the rise in their insurance premiums a little more palatable.”

Penfold notes that some clients can get angry about profitable insurers increasing rates. He says brokers should stress the importance of a financially sound insurance sector.

“The ill-informed clients sometimes see their insurers making too much profit, but we always stress the value of being protected by a financially strong insurer and security. This was very evident following the Christchurch earthquakes.”

Lee Garvey, head of financial solutions at Willis Towers Watson, also says “communication” is key, regardless of the line of business or size of client a broker has. He says a clear dialogue with clients is “ even more important in this market”.

Sam Kerr, a broker at SHARE NZ, says it can be difficult to explain rising costs when there has been no major natural disaster event.

He says customers have experienced larger increases in the past: “Post Kaikoura, Wellington we saw a massive jump in premiums and it wasn’t uncommon to see 1520% increases in a single year.

There were horror stories of direct insurers pushing through increases and making it unaffordable to have insurance.”

“When we explain rising premiums to clients, we’re currently not talking about the impact of large quantum events, like Kaikoura or Christchurch, but a series of smaller events like the Timaru hailstorms. We’re starting to see those effects come through,” Kerr says.

He says the small size of the NZ insurance market, and underlying reinsurance support, mean the market is vulnerable to increases in premiums when market players adapt to changing market forces.

At the end of the day we’re a relatively small market and you may not have much to choose from. You’re talking four or five main “local” general insurers, and

some of those share common reinsurers. So really a small impact in the reinsurance layer that can drive significant change in how premiums are rated.”

What is best practice for brokers in 2021? Kerr says advisers need to be clear with their clients when markets are repricing and adapting.

“The biggest thing in explaining price changes is transparency.

Insurance is a risk transfer, and the insurer is saying, ‘we will take this risk, for this consideration’.

So they have to calculate what that risk looks like. When you recalculate risks, you are going to get changes. Prices are not meant to stay flat.”

“Pricing is not one dimensional, but that’s where the value of the broker comes into play. If a broker is transparent and shows how premium increases have come about, whether it’s because of a change in the region or particular market, that’s a core skill. Brokers need to be able to explain something complex in a way their client understands.” www.covernote.co.nz

19

HUMANS of

Compassion in spades NZI’s Richard Whitehead shares how his determination to get back on his feet following a cycle accident has provided a different lens when dealing with claims.

D

etermination, resilience and compassion are attributes that Richard Whitehead, Claims Relationship Manager for NZI, takes into both his personal and professional life.

Having recently celebrated his 20-year anniversary with NZI, Richard looks back at his career and shares some personal learnings along the way.

UK born and Dunedin-bred, Richard started in the insurance industry in 1994 and joined NZI in 2001. Since then, he’s had a variety of roles within the claims team, from the claim centre through to senior manager roles.

Since 2019, he’s been part of the broker claims partnerships team.

“It’s been such a joy to take 20 years of claims experience, and 26 years of industry knowledge, and wrap it all up in my broker claims relationships role. This is probably the most fulfilling job I’ve ever had; I love it.”

Richard recognises the importance of his role at a customers’ time of need.

“Claims; it’s where the rubber hits the road. When you are dealing with a broker or customer directly after they’ve experienced a personal or a business loss, we hope to help them overcome what they are going through. Basic compassion and understanding goes a long way.”

For Richard, the key for good customer outcomes starts with a good broker relationship that is built on communication and trust.

“You may have heard the cliché ‘partnership’, but it’s really a true partnership between us and our 20

March 2021

brokers that has been built over a considerable period of time, based on mutual respect and trust.

“It’s very important to have open and honest communication as well as being available, agile and responsive for our brokers.”

Richard’s determination to get positive outcomes aligns well to some of his personal experiences.

six months and I would be riding.

I did my first ride six months after the accident and my first mountain bike shortly after.”

Part of Richard’s recovery was going to his local pool each night for several months.

“I’m a pretty resilient individual and you had to be after what happened. I was focused on being able to come back from that and exceed my surgeon expectations. I had to have a positive attitude and work hard to train my body, as an injury like this wouldn’t fix itself.”

Richard remains an avid biker.

In January 2019, Richard went for his daily lunchtime bike ride.

“I did a 25km cycle, but on the way back I was hit by a car at a roundabout. I was 48 years-old, I’d never been in an accident, never broken a bone, never been in an ambulance, never stayed a night in hospital and I’d never had an operation. The accident did that all in one go.

“I was six days in hospital and about five months at home. As I’d smashed my ankle, I had to sit for five months with my foot elevated and was unable to walk.

Being extremely active prior to the accident and watching my muscle tone disappear was very hard to watch.”

But Richard’s determination to recover and be back on his feet was stronger than ever.

“The surgeon told me that I was not going to be able to bike for a year, but I told him to give me

“If you don’t find me biking in the Port Hills, trails or in Christchurch parks, you’ll find me doing jet ski or wakeboarding in the local lakes.”

Last month, Richard participated in the Aotearoa Bike Challenge 2021 and motivated his team in Christchurch to help reduce carbon emissions by riding a bike to work.

For Richard, his recent personal experience has provided a different lens when helping customers with their claims.

“When an unexpected event happens – whether a small personal one, or a larger business event – we can provide reassurance that we are here to help our customer, and we are going to help them get back on their feet.

“My aim is that we make their lives a little bit better in a very difficult time. We can’t change what happened, but we can make the road just that little bit easier to travel.”

Have the

right team behind you

Business is constantly evolving, and recently many Kiwi businesses have been adapting to new ways of working.

Despite the changes, one thing remains true: having the right team behind you matters.

NZI has been insuring Kiwi businesses for over 160 years. Today, nearly 300,000 New Zealanders choose NZI to have their back and protect what matters most to them.

Your success matters to us.

Talk to your broker about insuring with NZI.

Feature

Virtual event tackles climate risks S

ome of the risk and insurance sector’s leading voices met online to discuss the rising threat of climate risks and how to tackle the issue in New Zealand.

Research firm CoreLogic hosted a virtual event, ‘Moving ahead on climate change: tackling risks in financial services’, to discuss how the financial sector can assess and manage climate risks.

Milena Malev, CoreLogic GM of Financial Services & Insurance Solutions, said: “Climate hazards present systemic risks to the economy, strategy and governance. The increase in severity and frequency of natural disasters is no longer temporary, it’s close to permanent.

“There was consensus across our panel that cross-sectoral collaboration will be key to effective management of the impact of climate change.

Responsibility is shared. The flow of information between different collaborative parties, between research and scientific communities, industry including banking, insurance and investment, government and regulators, and even consumers, 22

March 2021

is what’s important,” Malev said.

The panel acknowledged that there were actions businesses can start taking to understand their risk exposure, including looking at the possible impact of climate change on real assets and portfolios down to the property level or at a less granular level, at postcode level.

“The panel acknowledged while there’s still some work to be done in transition risk and modelling compound events, tools, software systems and data is already available and being most effectively utilised by the insurance and reinsurance sector.

Now is the time for bankers and investors to follow suit.

“Many different outcomes can be achieved with the data; not just assessing a loan, but also to help comply with regulations, conduct portfolio stresstesting and follow it through time and ultimately, connect with customers to ensure their awareness of the risk exposure of their property or physical asset.

“For example, Munich Re’s knowledge of natural hazards combined with CoreLogic’s rich

property data and attributes is bringing the evaluation of property risks to life, enabling the industry to start evaluating the impact of climate change on their physical assets and portfolios in a very real, accurate and practical manor,” Malev said.

The panel agreed both Australia and New Zealand governments and financial sectors had made decent progress on the topic.

Malev said: “This is very encouraging and positive. It’s accepted by the industry that more needs to be done to integrate the discussion between government, regulators, industry and consumer; becoming more client-centric, understanding the problem but also sharing the knowledge if it exists.

“The community education piece is another important consideration in how we move ahead on climate change. The role should be shared between banks, insurers and customers.

Transparency between these three parties will provide stability for everybody.”

starinsure.co.nz

Our custom car insurance protects vehicles in an ever-changing world.

If your client’s vehicle is unique it deserves specialist insurance. As the industry-leading niche vehicle insurance specialist, we design extraordinary, custom policies for Kiwis with exceptional vehicles.

We do this by engaging in a deeper level of insurance analysis, and performing precise policy tweaks to craft custom insurance that protects your clients in an ever-changing world.

We never let algorithms determine the policy or its price, and we handle everything in-house so that you only deal with decision makers for everything from quotes to claims.

Star Insurance Enthusiast comes in five highly customisable insurance packages: Classic Car, Vintage Car, Project & Performance, Motorsport and Modern Hobby.

When you want superstar insurance for your client’s special vehicle, choose Star Insurance Specialists.

Find us online: starinsure.co.nz

Give us a call on: 0800

0800 250 600

Bailey CHO

(Chief Happiness Officer)

250 600

Caring for works of art and protecting them against physical risk E

very art collection faces a range of physical exposures, and natural disasters such as cyclones, earthquakes, and bushfires are all potential risks. However, most art losses are due to transit, water, fire, theft, inadequate storage, improper installation, accidents and lack of environmental controls.

To minimise the likelihood of damage, the insured can help protect their art by utilising some of these preventative measures: • Light damage is a common occurrence and shielding a collection from direct sunlight or other intense lighting sources is essential. Installing UVfilters on windows, or simply closing the curtains to reduce light levels, can limit the damage caused by direct sunlight.

• To limit deterioration from environmental conditions, maintain a steady temperature and humidity in rooms containing artwork. A constant relative humidity (RH) of 45-55% and a climate of around 22 degrees is recommended for most collections. However, it is important to note that certain materials require specific recommendations, e.g. pastels. While the insured can use a dehumidifier to adjust humidity levels, it is best to consult a conservator to determine an acceptable range.

• Never store items on the floor and avoid placing artwork in high-traffic areas.

24

March 2021

• Ensuring that artwork is correctly framed is also worthwhile. Framing helps to protect artwork from environmental conditions and also minimises the risk of damage from mishandling.

• Avoid hanging unprotected artwork above fireplaces or beneath air ducts, and engage a professional art handler to install artwork.

• Mount smoke detectors in every room that contains artwork. For high-value collections, consider installing moisture alert sensors in areas that may be potential sources of flooding.

• To avoid accidental toppling, consult a conservator if it would be appropriate to use museum wax or a similar product to secure objects to pedestals or shelving.

• Use archival quality materials to wrap artwork, and consult an art handler or conservator about which materials are best suited for the collection.

Since an object's condition affects its monetary, cultural and aesthetic value, it is worth consulting with a conservator regularly, but first, ensure that they are registered with the New Zealand Conservators of Cultural Materials. By taking some simple steps now, the insured can help preserve the integrity of their artwork.

In addition to the preventative measures summarised above, an accurate inventory management system also helps maintain an art collection. Inventory records reduce the likelihood of

a mysterious disappearance, eliminate misappropriation and lost provenance, and expedite the claims process in the event of a loss.

Some essential inventory management tips include: • Saving receipts and invoices and storing information about the collection in a secure off-site location.

• Maintaining a digital inventory with descriptions and images of each item, and organising data by date of last appraisal, location, genre and other relevant information.

• Request periodic updates on an appraisal when there is a significant change in the market. A good rule of thumb is every three to five years.

• If assistance is required with establishing a digital inventory system, consult an art professional with experience in collection management.

Ben Ashley is the director at Ashley & Associates, an art appraisal and consultancy firm based in Tāmaki Makaurau Auckland. www.covernote.co.nz

25

Opinion

The implications of England’s business interruption ruling

A

s readers now know, the test case brought by the Financial Conduct Authority in the English High Court challenging the declinature of many Covid-19 claims under Business Interruption Policies in England was largely successful.

Many of the insurers appealed by way of a ‘leapfrog’ provision allowing them to appeal directly to the English Supreme Court without going through the Court of Appeal first.

The Supreme Court unanimously dismissed the insurers’ appeals (The Financial Conduct Authority v Arch Insurance (UK) Limited and others [2021] UKSC 1). This is the end of the road for the insurers.

According to public reports, the insurers must now pay out claims totalling approximately £1.8 billion.

The insurers’ declinatures all related to claims under extensions in English business interruption policies. Most of 26

March 2021

these extensions differ from those commonly found in New Zealand business interruption policies and so the decision is of little help in this regard.

However, while determining the correct interpretation of the English extensions, the Supreme Court had to determine a causation argument that arises in all business interruption policies where multiple causes of an insured peril act in combination to bring a business interruption that might not otherwise arise.

The Supreme Court also had to address the correct application of the trend clause found in all Business Interruption Policies.

We address in this article the causation argument and the trend clause argument.

The relevant background facts are that the insurers’ extensions provided cover for the interruption to their policyholders’ business in consequence of

people suffering from Covid-19 within a defined vicinity of the business, which in most cases was a radius of 25 miles.

Causation argument The insurers argued that for there to be a valid claim it is necessary to show that the policyholder’s loss of profit would not have occurred but for the occurrence of the insured peril under the extension (people suffering from Covid-19 within a 25 mile radius).

They said that because of the widespread nature of the pandemic across the country, policyholders suffered the same or similar interruption to their businesses that they would have suffered if the insured peril had only occurred locally. This meant the policy did not respond because the insured peril occurring locally did not cause their loss.

The Supreme Court rejected

this approach to causation in the circumstances of the claims.

It said the ‘but for’ test was not determinative of causation. It said the causal connection required must take into account the nature of the cover provided.

It said causation can be satisfied where the insured peril (Covid-19 within the 25 mile radius), in combination with many other similar, but uninsured perils (Covid-19 outside the 25 mile radius), brings about a sufficiently certain loss, even where the occurrence of the insured peril alone would not necessarily have brought about the same loss.

The Supreme Court said there was no reason why this approach could not be applied to multiple causes that in combination bring about a loss. In other words, it could not be said that any individual case of Covid-19, on its own, caused the government to introduce restrictions that led to the business interruptions. Rather, the government measures were

taken in response to all the cases in the country as a whole and, as such, the situation was one in which all the cases were equal causes of the restrictions and resulting business interruptions.

This meant the extension could respond to cover losses resulting from localised occurrences of the disease, in combination with the impact of the wider pandemic across the country.

Trend clause argument The trend clause in a business interruption Policy is a clause that forms part of the quantification provisions in the policy. Its intention is to ensure that the claim payment reflects the level of cover provided by the policy; in other words, the payment is not inflated or reduced by factors unrelated to that cover.

A typical New Zealand trend clause says that the calculation of the insured’s loss of profit must allow for:

Any adjustments necessary to provide for: 1. the trend of the insured’s business operations, and 2. variations in the insured’s business operations, and 3. other circumstances affecting the insured’s business operations, that: (i) occur before or after the start of the indemnity period, or (ii) would have affected the insured’s business operations had the insured damage not occurred,

so that the final adjusted figures should represent, as close as is reasonably practicable, the results that would have been achieved during the relative period after the loss but for the insured damage. www.covernote.co.nz

27

Opinion

Insurers tried to draw a distinction between the impact on the business of only those people within the 25 mile radius suffering from COIVID-19, with the impact on the business of people throughout the whole country suffering from COVID-19. The insurers argued that because of the wider consequences of COVID-19 around the country on the business, they were not liable to indemnify policyholders for losses their businesses suffered beyond the impact of the people infected within the 25 mile radius.

This argument effectively gave the insurers a second bite of the cherry in relation to the causation argument. The Supreme Court noted that the effect of the insurers’ argument effectively transformed the quantification formula contained in the trend clause into a form of exclusion.

The Supreme Court said these principles apply to the trend clause: • It is part of the machinery of the policy to quantify the loss. It does not seek to delineate the scope of the indemnity, which is the function of the insuring clause.

• It should be construed consistently with the insuring clause.

•

This means it must be construed in a way that does not take away cover provided by the insuring clause, otherwise it acts like an exclusion.

Applying these principles and the causation principles referred to above, the Supreme Court said the aim of the clause is to arrive at the profit result that would have been achieved but for the insured peril and any circumstances arising out of the same originating cause.

28

March 2021

Hence, the Supreme Court said the trend clause should be interpreted so that the standard turnover derived from previous trading is adjusted only to reflect circumstances that are unconnected with the insured peril.

This had two consequences: 1.

Pre-trigger losses from the same insured peril are covered. For example, trading may reduce when public concern about Covid-19 increased but before the government ordered the lockdown, triggering the extension. The pre-trigger reduction caused by the same insured peril is covered because the trend cause can only take into account circumstances unconnected with the insured peril. Of course, the wording of the policy could be changed to expressly remove cover for the pre-trigger loss from the same peril if that is the underwriting intention.

2. The Supreme Court expressly overruled the previous controversial trend clause decision arising from Hurricanes Katrina and Rita descending on New Orleans (the Orient-Express Hotels Limited case). It said the case was wrongly decided.

combination, the ‘but for’ test for causation (e.g., but for X happening, loss Y would not have occurred) will not usually apply; it is too narrow.

• When applying the quantification exercise contained in the trend clause, only consider circumstances that are unconnected with the insured peril.

• Losses caused by the insured peril under an extension occurring before the cover under the extension is triggered cannot be excluded by the trend clause.

• The Orient-Express Hotels Limited case, where the court found there was no business interruption cover after a hotel damaged by a hurricane was repaired when the surrounding city remained damaged by the same hurricane and largely vacant, is no longer good law.

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

Crossley Gates cgates@keegan.co.nz

Summary: While an English Supreme Court decision is not strictly binding on a New Zealand Court, it would be unusual for a New Zealand Court not to follow a decision of England’s highest court.

We summarise the practical implications of the decision on business interruption claims in New Zealand: • When interpreting an insuring clause that covers multiple original causes of loss in

Frank Rose frose@keegan.co.nz

INSURANCE BUSINESS

awards

What a great day for the IANZ family we’re thrilled that IANZ broker Sherpa Insurance Brokers and Advocates in Canterbury won the Brokerage of the Year, 1-10 Staff category at the inaugural Insurance Business Awards New Zealand, and RIVAL Wealth from the mighty Wairarapa was named Best Customer Service from an Individual Office. Well done you guys – it’s thoroughly deserved, and we’re stoked for you!

To cap it all off, IANZ was named Broking Network of the Year. We’re only as good as the terrific people who make up the network, so well done team – this one’s for you!

Join Insurance Advisernet today. Visit insuranceadvisernet.co.nz/become-a-broker for more information.

Feature

Profits

GR

OW at Suncorp

S

uncorp New Zealand recorded strong profits in the six months to December and continues to support customers facing Covid-related financial hardship.

The insurance group announced a net profit after tax of NZ$129 million for the six months to 31 December 2020, up 19.3% on the prior corresponding period.

Its Australian parent company Suncorp Group announced an NPAT of A$490 million.

CEO Jimmy Higgins said the result demonstrated the strong performance of the business, despite the impact of natural catastrophe events.

“We’re seeing unit growth in both our direct channel and the broker-intermediated lines, alongside broadly flat operating costs,” Higgins said.

“The business is in a very strong position and we have the strategy and resources in place to focus on growth, as well as investing in technology and processes that will make our business more efficient and easier to do business with.”

Suncorp’s NZ general insurance business, comprised of Vero Insurance and AA Insurance, delivered a net profit of $100 million, 6.4% higher than the same period in 2019.

Higgins said the AA Insurance business achieved strong growth in the personal lines, and Vero experienced unit growth across consumer lines in the broker channel, with targeted pricing initiatives driving unit growth. Claims costs were 6.0% higher, mainly attributable to increased natural hazard claims.

“Over the period we saw significant weather events including floods in Northland and Napier and the fire in Lake Ohau, which contributed to natural hazard costs that were $19 million above the prior period,” said Higgins. “We continue to assess the resilience of communities exposed to natural hazards, and we have a strong focus on the sustainability of our own business.”

Suncorp said motor claims returned to more normal levels despite the regional lockdown in Auckland. It added motor repairs figures had changed, due to pressure on repairers’ supply chains.

“We’ll be keeping a close eye on this to see if it is likely to be the new normal, or whether claims costs in motor return to previous levels when global supply lines improve,” Higgins added.

While Vero will no longer distribute construction or consumer insurance products via intermediated partners in Australia, that decision will not affect Vero NZ. “Vero New Zealand operates as a standalone business that is committed to growing its consumer book through its New Zealand distribution partners.

The intermediated consumer insurance book is strategically important to our business and we have no plans to exit that market,” Higgins added.

The group continues to support people struggling following the Covid lockdowns.

Higgins said that the hardship fund established by Suncorp New Zealand last year continues to be available to customers experiencing financial vulnerability.

“Insurance plays a big part in New Zealanders’ financial resilience, and we want to help customers maintain cover through these uncertain

economic times. We also continue to look for new ways to provide products and services that meet different views of value and accessibility.”

In November, the group unveiled a new partnership with non-profit group Good Shepherd NZ to trial an affordable car insurance product for those “who might be excluded from the traditional car insurance market”, as part of its “financial inclusion plan”.

Higgins said: “We are hoping that this trial will deliver some insights into how easier access to appropriate insurance might help New Zealanders to develop greater financial resilience.”

The group is also making progress in its aim to become a more sustainable business.

In 2020 Suncorp New Zealand was shortlisted for the Sustainable Business Network’s Climate Action Leader Award, for “its commitment to renewable energy generation and reducing emissions”.

“Our investment in renewable energy certification is an important step towards meeting our greenhouse gas emission reduction targets and demonstrates our commitment to supporting energy generation that aligns with our company’s values,” said Higgins.

Suncorp New Zealand is aiming for net-zero emissions by 2050 in line with the New Zealand’s Zero Carbon Act. During the six month period, the group also announced it had increased its partnership with the TupuToa programme, with seven new Māori and Pasifika interns “In partnership with organisations like TupuToa, we are striving to grow opportunities and create employment pathways for the next generation of Māori and Pasifika business leaders,” Higgins added. www.covernote.co.nz

31

Feature

Are businesses prepared for a claims surge event?

By Jon Winsbury and Craig Furness, Gallagher Bassett

T

he topic of climate change is rapidly rising in prominence on the global public agenda And, as the world experiences endless parades of catastrophes and significant events on top of the pandemic, claims surge events have become increasingly frequent.

We’ve seen a variety of insurable events, from catastrophes, weather events, travel interruptions, volcanic eruptions, fuel contamination events, recessions, and even the collapse of major insurers.

Disasters are going to happen, and now more than ever people are finding themselves in the path of nature’s wrath – and it’s up to the insurance industry to be ready.

Having the right people with the right training ready is critical for protecting your business and your customers – as is approaching

32

March 2021

every surge event with a growth mindset.

ahead of, the next high-pressure surge event.

A current example of ‘being ready’ is EQC’s recently announced partnership with insurers that will provide an improved, more collaborative approach to supporting New Zealanders through natural disasters in the future.

Preparation - know your team

Under the new partnership, from the second quarter of 2021 anyone with home insurance whose home or land is damaged in a natural disaster will only need to lodge one claim through their private insurer.

Preparation before the event is paramount and businesses can manage this risk by partnering with specialists.

Gallagher Bassett calls on insurers to get ready for increased claims capacity and has outlined a roadmap for staying above water in, and

• Team hours and flexibility - Are you appropriately resourced for a surge? Do those surge teams have the right training and the right level of empathy to support your customers – and your business?

• Talk to your customers - In the Covid climate, people are tuning out, so you’ll need to work a little harder for customers to hear your warnings about emergency preparedness. But pre-event communications are critical, and never a waste of time.

Always take the opportunity when talking to your customers to check-in – is their level and type of coverage appropriate?

It’s not always about selling your latest package, but about listening to ensure their

package is the best fit.

• Capability - understand your team, and your technology.

Make assessments of your people and their capability to support your business and your customers – audit their empathy, skill, and knowledge.

Understand if they have the expertise, experience, and the right stance to cope in a highpressure environment. Equally, appointing battle-tested leaders with experience in a surge response ahead of time will pay off in the long-term.

Manage the moment • Manage expectations communicate early and often.

• Keep it personal – understand that this is often a highly stressful time • Offer Expertise – know what you are talking about. Guide, Guard, Go Beyond.

• Understand Claim Flow – explain and set expectations as to claim process and next steps • Stay close to the supply chain - keep communication open and cultivate relationships with suppliers to keep the supply chain flowing, right down to availability of materials for reparations.

• Stay ahead of bottle necks they can happen anywhere so keep your eyes open and train all levels of your team to do the same.

Be pragmatic, not expedient There’s a tendency in the surge environment to become expedient in decision making, which can lead to trouble down the road. There’s a difference between being pragmatic to get things done and being expedient to get things done.

While it’s important to be

agile, in high-pressure moments it’s critical to stick to what you know works for the business.

Streamlining procedures is possible, but don’t go against proven processes.

Capture the learnings • Capture live, dynamic learning - It’s critical to take note of learnings throughout the surge process. Make sure your team knows where to catalogue actions that worked, or didn’t work, well.

• Don't let the issues control you - learning from mistakes is the best way to ensure those issues don’t control how your business is perceived, or responds, in the future.

• Make time for the future - if you don’t start preparing for a better future now, your business could face more challenges in the long-term. www.covernote.co.nz

33

Feature

Former Lloyd’s exec joins Delta K

iwi underwriting agency Delta Insurance Group has hired Kent Chaplin, a former senior executive at Lloyd’s of London, as its chief operating officer.

Chaplin is a former chief executive and regional head for Lloyd’s in Asia-Pacific, and has sat on the firm’s advisory board since 2019.

Delta Group managing director Ian Pollard says the decision to create a COO role came as the company reviewed its long-term strategy and the future of the insurance sector.

“Last year, we saw very positive growth for Delta here – almost 25% - and double that in the AsiaPacific region, despite the impact of COVID-19,” he says. “That growth has encouraged us to significantly broaden our footprint in Asia-Pacific and beyond – becoming more global in our outlook.”

Pollard says the appointment signals the insurer’s ambitions to grow its international footprint.

“When we looked at the long-term directions and needs of the business on the global stage, what he offered was a perfect fit. We see his appointment in this more direct, full-time role as a key to taking us to that next level and we’re thrilled to have him on the team.”

“In particular, he brings a familiarity with the 34

March 2021

global insurance world and culture – regulatory, technical and claims knowledge – from his time with Lloyd’s that will be invaluable to Delta as we grow.

We feel a bit like a football team that has signed a marquee player who will help us reach the Premier League.”

Chaplin adds: “We share a view on the vast opportunities for the industry and a desire to provide industry leadership in a complex and risky world where the pandemic is one of many challenges and where the continued protection of customers is paramount.

“We also share a passion for specialist insurance, such as the niche products and services Delta has become well-known for, as well as a heritage for those products, which were, in many cases, founded

by Lloyd’s.”

Chaplin believes there are three main challenges facing the industry.

“How to remain relevant to society in a rapidly changing risk and regulatory environment; how to ensure our products are fit-for-purpose for customers and optimise customer outcomes when requirements often change unpredictably; and how to embrace the global technology revolution to ensure the business is easy to access, responsive and efficient.”

FSCL Case Study

Insurer wins out on handbag dispute A

couple were travelling by train through Europe. In a crowded train station, they needed to transfer trains and the woman accidentally left her handbag on the luggage rack.

They did not realise she had lost her handbag until they arrived at the airport, just before boarding the plane to fly back to New Zealand.

The man contacted the lost baggage office at the train station, but the handbag was not there. He lodged an insurance claim for:

• the handbag, purchased in 2013 for $920 but now valued at $1,150 • the wallet, a new similar wallet cost $688 •

perfume, $219

• a driver’s licence, $38.20 •

cash, $300.

rather than depreciated in value over time. The man felt the insurer should compensate them for the $688 it cost to buy a new wallet.

The man also complained that the insurer had not accepted the perfume claim. The woman had purchased three bottles of perfume on their way to Europe and only had one combined receipt for all three perfumes.

They were unable to identify which item on the receipt related to the lost perfume, but said this should not have affected the claim.

The man accepted the assessment of the perfume, the driver’s licence, and the cash but continued to dispute the assessment of the handbag and wallet. He complained to FSCL.

• the wallet because there was no proof of the original purchase price and

FSCL agreed the insurer had correctly assessed the claim.

The dispute resolution service explained to the man that although the handbag might have increased in value, the insurer had correctly assessed the claim. The policy clearly explained that if an item is more than two years old, the insurer will apply depreciation at the rate of 20% per annum from the date of purchase.

the cash, because the policy only covered lost cash if stolen directly from the person or from a locked safe.

The husband did not accept the depreciation on the handbag was reasonable. They had provided proof to the insurer that the replacement handbag now cost $1,150, indicating that this was an item that appreciated

The man accepted FSCL’s view that the insurer had correctly assessed the claim.

The insurer took another look at the claim and realised they had accidentally omitted the perfume from the claim and agreed to pay $219 for the perfume.

However, the insurer maintained their calculation of the handbag claim was correct and explained how the depreciation had been calculated.

The insurer accepted the claim for the handbag and the driver’s licence but depreciated the handbag by 20% for every year since its purchase in 2013. The insurer declined the claim for:

•

for items worth more than $500.

Because the husband had submitted a claim of $688 for the lost wallet the insurer was entitled to ask for the original purchase receipt. As he could not locate the receipt, the insurer could decline the claim.

The policy also stated that proof of purchase was required www.covernote.co.nz

35

FSCL Case Study

Bahamas blunder I

n November 2019, a woman booked a trip to the Bahamas.

She was scheduled to fly from New Zealand to Houston on 12 April 2020, and then onwards to Nassau, the capital of the Bahamas. The following day, she would fly from Nassau to Freeport, where she would stay for a week, before returning to New Zealand on 20 April 2020.

On 1 April 2020, the woman’s travel agent informed her that her flights between New Zealand, Houston and Nassau had been cancelled, but the airlines had issued her a refund.

She lodged a claim with her travel insurer for the Freeport flights, which hadn’t been cancelled, but couldn’t be used since she couldn’t get to Nassau.

The woman’s insurer declined her claim due to an exclusion in her policy for claims arising from government interference.

The insurer said New Zealand’s lockdown, which began on 25 March 2020 and continued throughout April 2020, would have interfered with her trip.

The insured complained to FSCL because she thought the government interference exclusion shouldn’t apply to her claim.

She said the laws in place in New Zealand on 1 April 2020, that were enforcing New Zealand’s lockdown, had been determined as ‘unlawful but justified’ by the courts following the ‘Borrowdale case’ about the legality of New Zealand’s lockdown.

She argued that since the government restrictions stopping her from travelling were technically unlawful at the time her trip was cancelled, there was no government interference with her trip.

36

March 2021

The insured also thought it was unfair for the government interference exclusion to apply in the absence of a pandemic exclusion, since ultimately her trip was cancelled due to Covid-19.

When investigating the complaint, FSCL found that the airline operating the New Zealand-Houston-Nassau flights had issued a press release on 16 March 2020 publicly announcing an 85% reduction in their international network due to reduced demand. In this announcement, the airline confirmed they would not be operating flights between New Zealand, Houston and Nassau in April 2020.

Although the airline didn’t formally cancel the woman’s flights until 1 April 2020, FSCL thought the disruption to the trip rose when the airline issued their press release on 16 March 2020, at which time New Zealand’s lockdown hadn’t been announced.

FSCL issued a preliminary decision upholding the complaint, because it thought the government interference exclusion shouldn’t apply to exclude the insured’s claim.

In FSCL’s view the claim for the George Town flights arose from the airline cancelling her flights from New Zealand to Nassau due to reduced demand on 16 March 2020, not government interference with her trip.

FSCL said the media release was clear and detailed about which flights were being suspended in April 2020.

It thought it was unlikely the airline would reverse their decision, and, even if they did, it was unlikely that the situation would change for the better so they could expand their network again by April 2020.

FSCL found it was reasonable that the formal cancellation was slightly delayed, since the airline would have had thousands of passengers to contact.

FSCL thought it would be unfair for the outcome of the complaint to turn on the length of the airline’s delay, as it would come down to luck whether the airline notified the insured of the cancellation before or after any government interference arose.

FSCL issued a final decision upholding the complaint.

FSCL Case Study

Cancer not a pre-existing condition A

woman had suffered from indigestion for years and had, from time to time, taken prescription medication to relieve the symptoms. In November 2019, she went to her doctor because she was experiencing heartburn and pain on her first mouthful when eating.

The woman’s doctor prescribed the same medication, ordered some blood tests, and told her to come back if she did not improve.

The blood tests returned a normal result.

About a week later, the woman and her husband booked a trip to Europe and purchased travel insurance.

Towards the end of December 2019 the woman found that food was ‘sticking’ when she tried to swallow.

She returned to her doctor who immediately referred her to a specialist, concerned that she might have cancer. In January, the specialist unfortunately diagnosed her with cancer, and she started treatment.

On her doctor’s advice, she cancelled her trip. She submitted an insurance claim for the lost accommodation and travel costs.

When the claim was declined, she complained to FSCL. The insurance policy excluded cover for loss caused by a preexisting medical condition. The insurer said that, because she

had been to her doctor with signs or symptoms that later proved to be cancer, this was a pre-existing medical condition and not covered by the policy.

The woman said that when she went to the doctor in November, she thought she had indigestion.

Although the doctor had told her to come back if the symptoms did not improve, she said that doctors always say that, and there was no suggestion that her doctor thought she might have cancer.

As she had had indigestion in the past, the medication she had been prescribed was not new for her. She did not think there was any reason to tell her insurer about what she considered to be a routine visit to her doctor that satisfactorily resolved her problem.

FSCL looked at the woman’s medical records and could not see any suggestion that the doctor thought her symptoms were anything more than a reoccurrence of her indigestion.

FSCL also looked at the questions the woman was asked as part of the medical questionnaire in the insurance application process.

She was asked: “Do you have any undiagnosed signs or symptoms where you have yet to seek medical opinion, or are under investigation, or are awaiting specialist opinion?”

She had answered, “No”, and the dispute resolution service considered this was the correct answer.

FSCL asked the insurer to reconsider the claim.

The insurer decided to overturn their decision to decline the claim and to pay the woman for her loss.

The insurer considered there was enough doubt around her visit to the doctor in November for them to be satisfied that both the patient and doctor believed the symptoms were a recurrence of indigestion, which would be covered by the policy.

FSCL said: “It is often difficult to know how much an insurer wants to know about any pre-existing medical conditions you have. It is best to err on the side of caution and tell insurers about any recent visits to your doctor, any medical appointments you are waiting for, and any medications you are taking.”

www.covernote.co.nz

37

IFSO Case Study

Storm claim upheld M

r and Mrs A had cover for their house with the insurer.

In January 2018, a significant storm event caused damage to the house. A couple of weeks later, a toilet at the house overflowed, associated with the cleaning of the septic tank after the storm.

Mr and Mrs A made a claim with the insurer for the damage.

The insurer accepted the claim.

Between February 2018 and February 2019, there were ongoing communications and discussions between Mr and Mrs A and the insurer about the required scope of works to repair the damage.

Mr and Mrs A made a complaint on the basis that the insurer’s scope of works did not cover all the storm related damage. They also complained about the delay in settlement.

The case manager’s assessment The policy specified that the insurer would pay Mr and Mrs A the estimated reasonable cost to repair the damage.

The case manager spoke to Mr and Mrs A and supported them to obtain a builder’s report and quote to repair the storm related damage. The builder’s quote was significantly higher than the cost estimate the insurer had relied on to cash settle the claim.

The insurer reviewed Mr and Mrs A’s builder’s report and quote.

On the basis of the quote, the insurer agreed to increase the claim cash settlement payment by a further $62,994.97.

38

March 2021

However, there remained outstanding items in dispute.

Based on the available information, the case manager determined that the insurer was required to cash settle the claim based on Mr and Mrs A’s builder’s quote, less deductions for the fences, beach hut and septic tank.

The insurer was required to include temporary accommodation and cleaning in the cash settlement. This amounted to $30,134.90 in addition to the $62,994.97 already offered by the insurer.

The insurer was not required to contribute more than 50% of the fence cost, or survey report cost, because Mr and Mrs A had not established the brick fence was located independently within their

boundary, and was not subject to the Fencing Act 1978.

The case manager outlined the process Mr and Mrs A and the insurer should follow to finalise the claim. This included the appointment of an independent builder to conduct a site inspection of the house when repairs had commenced, to determine if there was any hidden storm damage.

The builder would also provide an opinion on the required repairs to the beach hut and fences.

THE CASE MANAGER'S ASSESSMENT: The policy specified that the insurer would pay Mr and Mrs A the estimated reasonable cost to repair the damage.

IFSO Case Study

Covid travel dispute settled I

n January 2020, Mr B arranged cover for a trip to Bali, between 5 April 2020 and 17 April 2020.

In February 2020, Mr B cancelled the trip, due to the outbreak of Covid-19.

Mr B made a claim to the insurer for reimbursement of his airfares and accommodation costs.

The insurer relied on the pandemic exclusion in the policy to decline the claim. Mr B made a complaint on the basis that he arranged the policy before he was aware of the Covid-19 pandemic.

THE CASE MANAGER’S ASSESSMENT: The case manager reviewed the wording of the pandemic exclusion and noted that it was broad.

The pandemic exclusion included claims related to both a “likely pandemic” and “the threat” of a pandemic.

The case manager explained to Mr B that the pandemic exclusion applied to the circumstances of his claim.

The cancellation of the trip was due to Covid-19, which was a “likely” pandemic in February 2020 and officially declared a global pandemic on 12 March 2020.

Following discussions between the Case Manager and the insurer, the insurer offered to cancel the policy and reimburse Mr B’s premiums. Mr B accepted the offer in full and final settlement of the complaint.

39

Ask an Expert

To bailee or not to bailee?

My client runs a small self-storage facility, mainly made up of shipping containers. The terms and conditions of storage that he requires all clients to sign state:

"The service provided to you, the storer, by the owner is the right to use a space provided by the owner for the sole purpose of storing goods. No other goods or services are provided by the owner."

"Goods are stored at your sole risk. The owner is not liable for the loss or damage to any goods stored on its premises."

My client is not involved in the process of moving goods in or out of the facility. Storers provide their own padlock and are able to come and go as they please to remove or add things to the containers.

In a recent renewal discussion I explained that CROSSLEY GATES At law, a person is a bailee if he or she has possession of goods belonging to someone else. The key is possession.

Here your client has possession on his or her land goods belonging to someone else - your client is a bailee of the goods. The obligations of a bailee at common-law apply to your client.

In the light of this, I suggest it would be wise to arrange bailee's liability cover. For some reason that

QUESTION property in care, custody and control was excluded under his public liability policy which led to a discussion around bailees cover.

After speaking with a colleague he suggested that bailees was not required as all my client is doing is providing space to store items, rather than managing the facility. They see this more as a property owner/landlord type risk as my client has clearly stated in the terms and conditions that goods are stored at their own risk.

I am not sure that this would stand up if my client was sued for damage to storers property, say from a leak in a container which caused damage to the goods stored.

Any advice on this would be much appreciated.

I have never understood, the insurance industry refuses to call the nature of the liability covered by its correct legal name. Instead it refers to it as cover for property in the insured's care, custody or control.

A bailee can limit or exclude his or her legal liability as bailee in the contract of bailment. I suggest your client takes legal advice about whether its terms are worded sufficiently widely to achieve this.

Tenant breaches warranty If a tenant breaches a warranty under a material damage policy which gives rise to a claim, will the landlords’ policy still respond?

Providing that the landlord has provided the CROSSLEY GATES Who are the insureds under the policy?

If the tenant is not included then your client is okay as long as he/she hasn't breached the warranty.

If the tenant is an insured, then you need to see whether the insureds are covered jointly or severally (separately).

QUESTION tenant with a copy of the warranty and has done all they can to make sure it’s being followed.

What is the legal precedent?

If severally, the legal effect of this is that each insured has his/her own separate policy. Therefore a breach by one insured is not a breach by the other insureds (under their separate policies) unless they have separately breached also.

Do you have a question for our experts?

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

40

March 2021

Ask an Expert

Solar struggle The claimant was engaged by a TP to install a solar array on the roof of their home.

The insured is a solar installation company. The company made an inspection of the internal roof void but only identified building paper.

The property is two-storey, and an external survey was not carried out prior to the day of installation.

The installers erected scaffolding and immediately began the installation. During the installation they damaged/ deformed the decramastic / pressed metal roofing tiles and made holes in the roof for conduit channels and cabling.

The installers did not stop, nor did they take measures to avoid damaging any further tiles as the installation progressed, the deformed tiles would be concealed by and the holes sealed once the solar panel array installation was completed.

Having almost completed the installation the team 'discovered' the decramastic tile roof was overlaid onto the original roof.

The array had not been anchored directly to the roof trusses and as a result the entire installation had to be removed further damaging the roof and CROSSLEY GATES I am afraid the insurer is correct.

A general liability policy insures accidental property damage during the period of insurance for which the insured is legally liable.

The trigger for the cover is the accidental property damage, not the negligent act.

QUESTION revealing the damaged tiles and the holes made during the installation .

The claim submitted is for the costs of remediating the roof.

The homeowner is not insured.

The insurer has declined the claim on the basis that the damage to the roof was not unexpected from the insured’s standpoint. In fact, the employees knew it was occurring as the works were being done.

They also declined to cover any additional damage sustained to the roof by having to remove the installation after it was determined that the roof was unsuitable for the solar panel array as this would also fall outside the scope of cover, given the insured knew that the damage was occurring simultaneous to the installation.

It is our contention the policy should be triggered because the negligence took place prior to the work commencing in that the installation team had the opportunity but failed to inspect and confirm the roof was suitable for the installation once the scaffold was erected and before they started the installation . What do the experts think ?

It is fundamental to insurance that it insures a fortuity, not a certainty. All the 'damage' you describe was intentional work done by the client.

Unfortunately for the client, the work was all in vain because it had negligently inspected the job before commencing it. That doesn't change the fact that the damage was not accidental for the insured's point of view, and therefore not covered.

Covered by the EQC? The local hospice has a stand-alone dwelling on the grounds of the hospice which is used by relatives of patients for short-term stays. Multiple parties use the dwelling over the course of the year and for some periods it is unoccupied. The dwelling has its own kitchen and bathroom.

EQC For it to be a residential building for the purposes of EQCover, you must establish the existence of a Dwelling.

The premises must:

• be self-contained; and either

• be the home or holiday home of at least one person; or

• be capable of being the home or holiday home of at least one person and be intended by the owner of the premises to be the home or holiday

QUESTION The hospice buildings (including the dwelling) are insured commercially, it is assumed the dwelling is covered by EQC and a levy should be charged accordingly. Please can you confirm?

home of at least one person.

A home is defined where a person chooses to live (whether alone or with others) on a more than temporary or transient basis and the prime purpose of the premises is to serve as somebody’s home, then this will constitute a home for EQCover purposes.

The property described as used by relatives of patients for short-term would not meet the definition as home and unlikely to be seen as a holiday home either so an EQC levy should not be collected.

www.covernote.co.nz

41

Professional

College

Professional Development

Time is ticking F

or those of you that attended the recent Financial Services Council Get in Shape Advice Summits, I recall Sharon Corbett from MBIE commenting on the fact that the first meeting she had to start the review of the Financial Adviser Act was in late 2014.

I remember being at that meeting with Angus Dale-Jones, both of us representing the Professional Advisers Association at the time. Of course, Angus moved on to be the Chair of the Code Committee and eventually created a lot of the code we have today in the new Act. I cannot believe how much time has gone by and how much has changed since then. This Act is about to kick in on March 15.

You should all be ready to give advice under your or someone else’s transitional licence now. Failure to do so will mean you cannot provide advice in New Zealand.

Another significant impact to business on this date is that anyone new to the financial services sector and is not on the FSPR by March 15 means they cannot give advice until they are qualified.

Whilst the NZQA recommended time to complete Level 5 is 10.5 months, we are finding the average completion time is around six months. But this is for experienced (albeit working full time) advisers.

For new to the industry, the recommended time frame is much more realistic. This will be an impost to many groups who suddenly find their pool of potential new employees and advisers dramatically reduced. The College is working hard to find a solution to this issue and will hopefully be able to announce something shortly.

Pastoral care is proving to be an extremely useful tool currently offered by the College. Every time someone enrols with us, they are assigned two permanent people from the College to assist the student right through their course studies.

Firstly, a Student Liaison Team member is assigned. Their role is to be available five days a week to answer any queries or questions to do with study, course material, keeping to the timetable, or other matters.

42

March 2021

Secondly, we also assign an assessor from the beginning of the course. The assessor is there to assist with assessment queries or issues, how to respond to questions effectively, and give feedback to the student after each assessment submission. The SLT member also contacts the student monthly to ensure that everything is okay.

This permanent assignment really aids in establishing a relationship whereby the SLT member, assessor and student get to know each other over the course of their studies. The feedback has been positive in helping keep the student on track, reducing stress and improving motivation.

We have seen a big uptake in enrolments as advisers look to undertake their qualifications. If you have not started yet, or are unhappy with where you are currently studying, give us a call. We are here to help.

So, as we come out of our third lockdown in Auckland, remember to distance (socially that is!) yourself, especially from your fridge. Be kind, keep washing your hands, (my body has absorbed so much hand sanitiser I clean the bowl when I pee!) and stay well.

Happy studying, Rod Rod Severn is the chief executive of Professional IQ College.

DATE

TITLE

PRESENTER

WHERE

TIME

COURSE DESCRIPTION

4

Write More Business and Keep On Top

Debbie Mayo-Smith

Webinar & Auckland

2.003.00

Very often Outlook Contacts, Calendar and Tasks play second fiddle or aren’t even looked at. Yet they offer stunning integrated benefits with all of MS Office.

Wouldn’t you like to learn how you can better use these three programs with the direct benefit of strategies to never lose an opportunity and create systems to write more business?

9

Are you ready for 15 March?

Trevor Slater

Webinar & Auckland

10.3011.30

There are a number of conditions and requirements for a transitional licence for Financial Advice Providers (FAP). One of these is that a FAP must have an internal process for resolving client complaints.

10

The Numbers You need to grow and thrive

Clifton Warren

Webinar & Auckland

2.003.00

Any financial services professional can build a successful business and have a career and lifestyle that few other occupations provide, however many, struggle to reach the top.

17

Business Interruption Insurance for beginners – Part 2

Mark Anderson

Webinar & Auckland

10.3011.30

This is Part 2 of a 2 Part presentation for those new to commercial broking and who have had little to no exposure to business interruption insurance.

18

Marine 101

Pauline Davies

Webinar & Auckland

10.3011.30

Marine insurance is the oldest form of insurance in the world, with its principles being formed over centuries and largely adopted by the other insurance sectors. Yet, it remains an area that is often not well understood, made worse by the wide range of activity that it covers.

24

Trends in ethical and responsible investing – what clients want to know.

Barry Coates

Webinar & Auckland

2.003.00

This seminar will look at the typical issues that retail clients and a growing number of wholesale clients want to know about ethical and responsible investing. The presentation will draw from annual surveys of the public and interviews across the finance sector, focusing on Environmental, Social and Governance (ESG) issues.

Brokers Liability

Michael Robertson & Nicola Faulkner

Webinar & Auckland

10.3011.30

The March session will focus on Broker’s liability and in particular the extent of a broker’s duty of care to its client to warn of the duty of disclosure and the importance of ensuring that their clients understand the requirements of disclosure. The session will also look at when a broker will be considered to be a representative of the insurer rather than the insured and the implications of this, with specific reference to s10 of the Insurance Law Reform Act 1977.

7

Successful Email Marketing – Strategy. Planning. Content.

Debbie Mayo-Smith

Webinar & Auckland

10.3011.30

How can you improve your value add to your clients? How can you easily bring in more business and spur referrals? You need a thoughtful communication strategy that will talk to, educate and keep track of your clients and prospects.

8

Niche marketing: Identifying and penetrating your ideal markets

Clifton Warren

Webinar & Auckland

2.003.00

If you want to build a successful career and become a top producer, you must develop an effective marketing process.

14

Jail time for breaching NZ’s cartel laws from April 2021 – what you need to know

Anna Ryan

Webinar & Auckland

10.3011.30

Join Anna Ryan from Lane Neave’s business law team for an overview of the new criminal penalty regime being introduced for anticompetitive collusion from 8 April 2021.”

15

Building online funnels to attract new clients

Leanne Costa

Webinar & Auckland

2.003.00

How are you attracting and nurturing leads online? As 80% of sales are made on the 7-12 contact with a company, funnels are essential to nurture leads to turn them into paying clients.

20

Complaint Handling Process and Skills Session 1

Trevor Slater

Webinar & Auckland

10.3011.30

What does a compliant internal complaint process look like and why is it important (besides being a FAP licence requirement).

21

Business interruption natural disaster claims and issues

Mark Anderson

Webinar & Auckland

10.3011.30

In one hour we share some of the actual issues we experience and how we resolve differences to get to a fair claim settlement.

4

Timing saving online tools

Leanne Costa

Webinar & Auckland

2.003.00

Need more time in your day? We all have the same amount of time – it comes down to how we use it! There are so many online tools to increase productivity, in this presentation Leanne will share some of her favourites.

5

What differences will climate change make to financial services?

Barry Coates

Webinar & Auckland

2.003.00

Over the forthcoming decade, risks and opportunities associated with climate change are likely to be significant for companies, financial services providers and their clients. This seminar will not only look at the physical risks, but less obvious issues of business disruption, regulatory change, pricing and economic change, reputation and brand value, and strategic risks and opportunities.

6

Generating leads to maintain an overflowing pipeline

Clifton Warren

Webinar & Auckland

2.003.00

To achieve your business and financial goals you need a constant flow of prospective client leads.

13

Claim v circumstance

Whitney Robertson & Helen Twomey

Webinar & Auckland

10.3011.30

The May session will focus on the differences between a claim and a circumstance. It will provide an overview of some of the key terms in a Professional Indemnity Policy. It will address the importance of notifying a claim or circumstance to the insurer and the consequences of late notification. The session will also discuss some useful case scenarios.

18

Do You Know Your Legal Obligations as an Agent?

Crossley Gates

Webinar & Auckland

10.3011.30

Insurance brokers are legal agents. They act for principals. This seminar will explore the law of agency as it applies to insurance brokers. You might be surprised!

19

Complaint Handling Process and Skills Session 2

Trevor Slater

Webinar & Auckland

10.3011.30

Complaint handling skills – interest based negotiation for early resolution

20

Gross Profit: Don’t get it wrong (Calculating business interruption sums insured)

Mark Anderson

Webinar & Auckland

10.3011.30

This session will cover the importance of gross profit when putting a business interruption programme together.

March

25

April

May

www.covernote.co.nz

43

IBANZ Board Roger Abel

Tony Bridgman

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

(Vice President)

Craig Buckle

Neil Cousins

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

National Manager, Corporate Risk Solutions Willis New Zealand Ltd PO Box 369 Auckland 1140 Tel: 09 356 9347 Fax: 03 358 3343 craig.buckle@willistowerswatson.com

David Crawford

Duane Duggan

Samuel Kerr

(President)

Jill Comley-Forbes

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

Ramesh Mavani

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

Director NZ Insurance Advisernet NZ Ltd PO Box 37670 Market Road Auckland 1151 Tel: 09 926 2062 Mob: 021 905 537 dcrawford@ianz.co.nz

Jo Mason

(Vice President)

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

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

Head of Insurance Legal Crombie Lockwood (NZ) Ltd PO Box 91747 Victoria Street West, Auckland Tel: 09 3574805 Mob: 021 833 286 duane.duggan@crombielockwood.co.nz

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

Angus McCullough

William O’Brien

(Immediate Past President)

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

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

PIQ Board Neil Cousins

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

David Crawford

Director NZ Insurance Advisernet NZ Ltd PO Box 37670 Market Road Auckland 1151 Tel: 09 926 2062 Mob: 021 905 537 dcrawford@ianz.co.nz

Andrew Gunn

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

Angi Mann

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

Gary Young

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

Staff Mel Gorham

Sylvia Heywood

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

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

Robyn Gosden

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

Lisa Herbison

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

Karen Scard

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

Marianne Taljaard

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

June Wang

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

Rod Severn

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

IBANZ Physical address:

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

Toll free: 0800 306 173 44

March 2021

Mailing address:

PO Box 302504, North Harbour, Auckland 0751

www.ibanz.co.nz

WANT YOUR VERY OWN COPY OF COVERNOTE?

March 2021

Vero Liability hails retiring industry leade r

Raising a toas t to Allan Cameron

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 www.ibanz.co.n z

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

IBANZ CORPORATE COMPANY LIST Abbott Group

Christchurch

Insurance People (Fire & General) Limited

Auckland

Adams Trimmer Insurance 1992 Ltd

Whangarei

Insure 247 Ltd

Auckland

Advance Insurance Services Ltd

Paeroa

JRI Limited

New Plymouth

Affiliated Insurance Brokers Ltd

Wellington

Luxor Insurance Brokers Ltd

Auckland

AIB Group Insurance Ltd

Lower Hutt

Malcolm Flowers Insurances Ltd

Taupo

AIM Associates Ltd

Auckland

Marsh Ltd

Auckland

Albany Insurance Services Ltd

Albany Village

Matt Jensen Insurance Brokers Ltd

Taupo

Amicus Brokers Ltd

Christchurch

McDonald Everest Insurance Brokers Ltd

New Plymouth

Aon New Zealand

Auckland

Moneybox GI Limited

Wellington

Apex General Ltd

Auckland

Montage General Insurance Ltd

Auckland

Atlas Insurance Brokers Ltd

Christchurch

Multisure Ltd

Auckland

Austinsure Ltd

North Shore City

MW Insurance

Auckland

Avon Insurance Brokers

Christchurch

National Credit Insurance (Brokers) NZ Ltd

Auckland

Baileys Insurance Brokers Ltd

Auckland

Bay Insurance Brokers Ltd

Tauranga

Nelson Marlborough Insurance Brokers Ltd (NIB)

Nelson

Bridges Insurance Services Limited

Hamilton

Neville Newcomb Insurance Brokers Ltd

Auckland

Broker Direct Services Ltd

Christchurch

Northco Insurance Brokers Ltd

Masterton

BrokerWeb Risk Services Limited

Auckland

Northcrest Insurance Brokers Ltd

Auckland

Builtin Insurance Brokers Limited

Tauranga

O'Connor Warren Insurance Brokers

Tauranga

Builtin New Zealand Ltd

Tauranga

OFS Insurance Brokers Ltd

Dunedin

Cambridge Insurance Brokers Ltd

Cambridge

Omni Fire & General Ltd

Auckland

Capital Risk Solutions Limited

Wellington

Paramount Insurance Agencies Ltd

Auckland

Card Marketing International Ltd

Wellington

Partridge Advisory Limited

Auckland

Cartwrights Ltd

Ashburton

Paterson & Co NZ Ltd

Auckland

Certus Insurance Brokers NZ Ltd

Auckland

Penberthy Insurance Ltd

Auckland

Coast Insurance

Whangaparaoa

PIC Insurance Brokers Ltd

Manukau

Coastal Insurance Brokers (TGA) Ltd

Tauranga

Primesure Brokers Ltd

Auckland

Commercial & Rural Insurance Brokers Ltd

Alexandra

Property and Commercial Insurance Brokers

Feilding

Crombie Lockwood (NZ) Ltd

Auckland

Protekt Insurance Brokers 2008 Ltd

Auckland

Dawson Insurance Brokers (Rotorua) Ltd

Rotorua

Provincial Insurance Brokers Limited

Masterton

Edward Ruys & Co Ltd

Hamilton

PSC Connect NZ Limited

Auckland

Emerre & Hathaway Insurances Limited

Gisborne

River City Insurance Brokers 2000 Ltd

Wanganui

Frank Risk Management

Hamilton

RMA General Ltd

Warkworth

FundAGroup Insurance Brokers Limited

Auckland

Rothbury Group Ltd

Auckland

Grayson & Associates Ltd

Auckland

Runacres Insurance Ltd

Christchurch

Gregan & Company Ltd

Papakura

SHARE

Auckland

GSI Insurance Brokers

Waitakere

Sit & Blake Limited

Auckland

GYB Insurance Brokers Ltd

Lower Hutt

South Pacific Insurance Brokers Ltd

Auckland

Hazlett Insurance Brokers Ltd

Christchurch

Sweeney Townsend & Associates Ltd

Rotorua

Honan Insurance Group (NZ) Ltd

Auckland

Thames Valley Insurance Ltd

Thames

Hood Insurance Brokers NZ Ltd

Auckland

The Advisers 1 Limited

New Plymouth

Hurford Parker Insurance Brokers Ltd

Hastings

Thorner General Insurances Ltd

Upper Hutt

Hutchison Rodway Ltd

Auckland

Towes Insurance Brokers Ltd

Te Aroha

ICIB Limited

Auckland

Trevor Strong Ins Ltd

Auckland

ILG Insurance Brokers

North Shore City

Vercoe Insurance Brokers Ltd

Morrinsville

Ingerson Insurances Ltd

Wellington

Vision Insurance (S.I.) Ltd

Ashburton

Insurance Advisernet NZ Ltd

Auckland

Wallace McLean Ltd

Auckland

Insurance Brokers Alliance Ltd

Invercargill

Wanganui Insurance Brokers Ltd

Wanganui

Insurance Design Limited

Warkworth

Willis Towers Watson

Auckland

www.covernote.co.nz

45

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

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

Because for VL, it’s business as usual.

veroliability.co.nz

New Zealand’s leading liability insurer