Covernote March 2013 by mediaweb

AUTO REPAIRS: A RISKY BUSINESS? P14

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covernote March 2013 ...for insurance professionals

THE BEST THINGS ABOUT

TIPS FROM FOUR INDUSTRY LEADERS P22

MARCH – MAY 2013

PLUS

IBANZ COLLEGE – CPD CHANGES & NCFS OVERVIEW P42

www.ibanz.co.nz

NZ5861 03-13

Leading the change. It’s our rule of sum. The move to Sum Insured policies is big for our industry and we’re working hard to ensure a smooth transition. In fact, we’re front-footing this move through practical communications with our broker partners and their clients, and for good reason: to ensure the change is a success from the word go.

Photo: thinkstockphotos.com

covernote ...for insurance professionals

MANAGING EDITOR Reg Birchfield editor@covernotemag.co.nz PROJECT MANAGER & COPY EDITOR Kate Meere CONTRIBUTORS Crossley Gates, Jacqui Madelin ADVERTISING MANAGER Kelly Davison, 09 529 3000, 0275 204 507 admanager@covernotemag.co.nz DESIGNER Melissa McGregor PRODUCTION MANAGER Fran Marshall franm@mediaweb.co.nz SUBSCRIPTIONS subs@mediaweb.co.nz

PUBLISHER Toni Myers Phone 09 529 3000, Fax 09 529 3001 enquiries@mediaweb.co.nz www.mediaweb.co.nz PO Box 5544, Wellesley Street, Auckland 1141 Covernote is the official publication of IBANZ and is distributed FREE on a quarterly basis (March, June, September, December) to members throughout New Zealand and associated companies. Additional copies are available at a cost of $7.50 per copy, or 12 month (4 issue) subscriptions at $30.00 inclusive of postage and packaging. The articles or opinions featured within this magazine are not necessarily the opinions of the publisher or IBANZ, and they do not accept responsibility for the content of articles featured within the publication. Copyright © 2013: Mediaweb Limited. All material appearing in Covernote is copyright and cannot be reproduced without prior permission of the publisher. The publisher does not accept responsibility for loss or damage to unsolicited photographs or manuscripts. Editorial contributions are welcomed. Letters to the editor are also welcomed, but pen names are not acceptable. Covernote is printed by PMP. Subscriptions: One-year NZ subscription (4 issues) $30.00 (GST incl). IBANZ Enquiries should be made to; Gary Young, Chief Executive, IBANZ. Email: gary@ibanz.co.nz IBANZ National Office located at: Level 5, 280 Queen Street, Auckland 1010 (PO Box 7053, Auckland 1141) Telephone 09 306 1732 Website: www.ibanz.co.nz

WELCOME

n this issue of Covernote we focus on both the characteristics of good insurance brokers and their continuing professional development. As you would expect to be a true professional in our sector, a broker requires relevant skills, knowledge and an overall professional approach. This is a timely debate as we are currently discussing the role of insurance broking professionals with those who regulate our sector. It seems a divergence of opinion is emerging, with one view being that a broker’s key role is as an adviser, and the alternative view as a salesperson. One thing we agree on is a broker’s role is to help a client achieve the best possible protection for their assets. Indeed our Code of Professional Conduct states a broker will act in the best interest of a client. Recently an opinion has been put to Government that promotes a sales rather than adviser perception of the insurance broker’s role. This has been raised because of a concern that the public is confused by the various types of financial advisers – AFA, RFA and QFE. It is not surprising therefore that those responsible for financial services legislation are seeking to clarify the situation given the ultimate goal is consumer protection. A proposed solution is to have Registered Financial Advisers (RFAs), renamed as salespeople. In other words insurance brokers would no longer be able to call themselves advisers. This would not however take away the need to be registered as a financial adviser because advice is still being given. It seems insurance brokers would continue to be advisers in all but name. Why should we be totally opposed to such a proposition? Because I believe that the future for our members is in being professional advisers not insurance salespeople. The rise of online sales, aggregator sites and other forms of direct selling means that there is no future in just selling insurance products. The true value of an insurance broking professional is in adding value through providing specialist advice where the procurement of insurance may be one possible outcome. To legislate that a broker’s role is as an insurance salesperson removes any recognition of them as professional advisers. If anything it is the role of an agent selling a single product line with little or no advice either at the point of sale or when a claim arises that should be acknowledged as sales. An insurance broker wanting a future will not survive on such a business model. We must insist on the recognition of insurance brokers as professionals who provide specialist advice to protect clients from significant financial disaster. Their area of expertise is complex and is increasingly sought after as the effects of recent disasters impact on society. They should be recognised for what they are, professional advisers. Gary Young CEO, IBANZ March 2013 | covernote

EDITOR’S MESSAGE

THE YEAR OF THE CUSTOMER?

he customer is, or should be, in the ascendancy in the insurance world in 2013. Actually, the customer should always rank ahead of almost every other consideration when it comes to servicing and supporting the insurance industry marketplace. But we decided to make more of an issue of the need to be comprehensively customer conscious in this edition of Covernote. With so many residual process issues to implement post-Canterbury earthquake, so many regulatory changes to grapple with, so much new technology coming on stream and so many global economic aftershocks still compromising commercial confidence, it’s easy to lose sight of who and what really matters. Insurance buyers now need more professional support – so we asked some leading brokers what being professional really means. The broking industry, like the insurance sector generally, is changing. Gearing up to meet the demands of change is a professional priority. It won’t happen without education and a commitment to personal development. Understanding that there is a need to think and act more professionally is a good indicator of the level of an individual

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broker’s appreciation of just how comprehensively the industry is changing. Insurers too must grapple with changing customer needs and demands. They must forge new and more effective relationships with both brokers and clients, including the public at large. For that reason, we’ve asked some industry leaders what they believe are the issues facing their companies in 2013. We asked how they plan to meet the demands of the rapidly evolving marketplace; how they feel about and plan to adjust to new and more regulatory changes and, to outline the ramifications of implementing strategies based on the innovative utilisation of new back office and database-driven technologies. The Christchurch earthquakes have, along with the global financial crisis, new technologies and a raft of new regulatory requirements, changed New Zealand’s insurance industry for ever. How the industry responds to those changes will be reflected in customers’ responses. Reg Birchfield

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2 covernote | March 2013

CONTENTS

COVER STORY

22 THE BEST THINGS ABOUT BROKING Tips from four industry leaders

FEATURES 6 THE INSURANCE INDUSTRY’S YEAR OF THE CUSTOMER?

Reg Birchfield talks to industry insiders about key issues ahead for 2013

13 BROKERS AT RISK?

What are the implications of the new Anti-money Laundering and Countering Financing of Terrorism?

14 AUTO REPAIRS: A RISKY BUSINESS?

Jacqui Madelin takes a look at the car repair business and some of its potential pitfalls

REGULARS 1 4 10 12 31

View from the CEO News & Analysis News & People Out & About Legal: Crossley Gates

33 34 35 37 38

Technical Insight: AIG Technical Insight: NZI Technical Insight: Marsh Ask an Expert Technical Insight: Lumley

39 41 42 48 49

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

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NEWS & ANALYSIS

No spark of logic

in fire services review

The independent panel appointed by the Government to review the New Zealand Fire Service delivered its recommendations last month. Reg Birchfield spoke to industry experts to gauge their reactions.

Photo: thinkstockphotos.com

rom an insurance industry perspective the report was, as past reviews have been, a damp squib. The review recommends that fire service levies used to fund the Service remain insurancebased. It suggests a few variations on levy levels and how they might be struck, but nothing that seriously addresses the anomalies and inefficiencies inherent in the existing system. The insurance industry favours a shift from insurance-based funding models to a property-based model as has been adopted in Australia and other economies. “The outcome was predictable given the Terms of Reference,” said IBANZ CEO Gary Young after the report was released. Successive New Zealand governments have been reluctant to comprehensively re-evaluate other funding options even though, as this review panel acknowledges, the nature of the work undertaken by the Fire Service has changed significantly and the existing funding approach is essentially “unfair” to those who buy insurance. The four member panel, chaired by former National cabinet minister Paul Swain, said it considered a range of future funding options for both residential and non-residential levy payers. These, it said, included two insurance-based models and a property-based model. The Panel opted for what it calls a “mixed funding system” that: • Shifts the levy base for non-residential property from a levy on the amount for which property is insured to a levy on premiums; • Extends the levy base for non-residential property from contracts of fire insurance to all contracts of material damage; • Retains the present levy arrangements for residential and personal property but with the caps adjusted from their 1994 levels to the equivalent levels in today’s property market; • Attracts an appropriate contribution from the transport sector; • Continues to permit charging for attendance at open-air incidents where the beneficiary of the service has not made a contribution to the capability. Despite a reluctance to consider a major change in the funding model the Panel suggested that the Fire Service Commission “develop, in collaboration with other emergency services, a bold vision for New Zealand’s fire services” and come up with a “long-term strategic plan to implement the vision”. How that will be equitably funded remains a bone of contention. Australia has moved to property-based funding because it accepts 4 covernote | March 2013

David Lamb.

that property-based funding is fairer and significantly easier to administer. Local bodies already hold properties’ details making it easy to bolt on an additional levy collection process. New Zealand’s local bodies do not, however, want to change to a property-based tax or levy. They are concerned that collection through them would appear to inflate rates. Councils are already under pressure not to increase rates. The current insurance-based fire service levy does precisely this to insurance premiums – it makes them look more expensive. PwC partner David Lamb, the global consultancy’s Aucklandbased insurance expert, is disappointed that New Zealand has yet again failed to get to grips with fire service funding options. Insurance-based options are, to his mind, both unfair and expensive to administer. “And those additional collection costs are passed on to the consumer,” he says. Lamb argues that New Zealand has an efficient and broad-based tax system. It is anomalous that the Fire Service Commission must administer its own revenue collection by liaising with insurance companies to collect money for what is essentially a public service. “What is so special about funding a fire service as opposed to funding, say, a health service?” he asks. “By perpetuating this insurance-based approach we add another layer of collection which adds more complexity and more cost to the process. We have seen from Christchurch just how important insurance is. We want, indeed need to be a well-insured country. We don’t want people uninsured on account of cost. This approach leads to free-loading and it doesn’t seem logical or fair to me that we persist with it.” The most cost-efficient and equitable method of collecting funding for a fire service would be through Inland Revenue, says Lamb. Young agrees. Everyone in New Zealand needs a fire service. “It is entirely reasonable to ask why funding for a fire service doesn’t come out of the Central Fund,” he says. “That is the ideal solution. It’s unquestionably the fairest.” Efficient and fair it may be but it’s difficult to imagine the Minister of Finance opting for this approach. The Government would lose the roughly $300 million in revenue the fire service levy now delivers. “All the Panel has done, because that is what it was constrained to do, is look at the existing system and tinker with it. We are still just fiddling with what is a flawed process,” says Young. “It doesn’t solve either the fairness or the complexity and high-cost issues involved. There will still be free-loaders who don’t insure their property or don’t own property but still need all the services our fire services now provide. Only those who take a responsible position by taking out insurance pay for the fire service.”

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NEWS & ANALYSIS

year of the customer? Could 2013 become the year of the customer for New Zealand’s insurance industry? According to some industry leaders and observers it should, but there is still much post-Canterbury earthquake work to be done finds Reg Birchfield.

he Canterbury earthquakes have seriously shaken up the New Zealand insurance industry. They have also changed political and public perceptions of the sector, its place in the economy and the way in which it conducts its business. New technologies, such as big data analytics, are also driving change. So too are new and more industry regulations. The past two years have driven up insurance premiums, changed practices and processes, heaped work on to stretched resources and forced the industry to focus on itself and recalibrate its priorities and strategies.

fire services review continued from page 4

Photo: thinkstockphotos.com

This discrepancy in thinking is further highlighted by the Panel’s own commentary on the changing role of the fire service. Fire services now deliver a wide range of services for which they are not specifically funded and which fall outside their strict legislative mandate. The Panel concedes in its report that many of these services are “rescues” and emergencies such as motor vehicle extractions and decontaminations of people exposed to hazardous materials. They have little to do with “fire hazards” as described in fire legislation. The Panel was, it said, concerned that “New Zealand communities expect their fire services to deliver these services, and indeed rely on them to do so, but the fire services are neither obligated to deliver them nor is their liability limited if things go wrong”. Accordingly, it recommended a more comprehensive legislative framework to “formally mandate New Zealand’s fire service to deliver many of these non-fire rescue and emergency services” in future. It also recommended including immediate legislative reform to validate the delivery of the current range of services and a process to amend or add functions without having to amend legislation. The Panel indeed accepted that the current insurance-based funding approach is “unfair”. It said in its report that it investigated two key funding issues: • How to construct a more equitable funding system so that all New Zealanders make their fair contribution to funding fire services capability and, • How to attract a contribution from the beneficiaries of the non-fire rescue and emergency services. The Panel claims that by “broadening the funding base” the rate of levy for all contributions should reduce. But Young says it is a moot point as to whether the base has indeed been broadened and insurance-based models are still, and increasingly, inappropriate. IBANZ is particularly concerned by two of the Panel’s suggestions – that levy rating be moved from the current sum insured basis to a levy 6 covernote | March 2013

So, as IBANZ CEO Gary Young says, 2013 looks set to continue last year’s trend with broker activities influenced largely by the flowon effects of the Canterbury quakes and subsequent government and regulator-driven actions. The change to sum insured house policies, for example, will be logistically challenging both for the industry and for customers. “Brokers must help clients arrive at appropriate levels of cover without exposing their broking businesses to liability by providing the sum insured,” says Young. “The change is challenging but also offers opportunities for our members.” on premiums and, that the levy base for non-residential property be extended from contracts of fire insurance to all contracts of “material damage”. “The first of these recommendations is supposed to solve the problem of indemnity value which isn’t defined and everyone keeps arguing about what it means,” says Young. “Premium rates go up and down all the time. The fire service will not be able to budget a year ahead. “We are now in the most volatile insurance environment we’ve known in decades. Who knows how long it will continue? We now look set to move to something that will create a whole raft of new and complex issues. The Fire Service won’t know from one day to the next if it has enough money to deliver its services or not.” Many, often unpredictable factors, impact on rates, says Young. “This recommendation does nothing to resolve the central issue of fair, efficient and cost-effective funding of a national fire service.” The suggested move from fire damage policies to material damage policies is potentially even worse, says Young. “The perception is material damage covers not just fire but all manner of events such as floods and so on. It sounds better but the reality is different. There is probably no material damage policy that does not cover fire so the base is probably not expanded at all. “Further, call them material damage policies and the innovators in the industry will come up with another name. How on earth will they define material damage? It’s very easy to define fire. It will be significantly harder to define material damage and the policy may well be called something else altogether to avoid the levy. The solution is worse by far than the problem.” There are, according to Young, other issues in the report that need consideration – such as a move to collect more from the transport sector. But the two recommendations above are critical and don’t get to grips with the problem. “It’s a very disappointing report,” he adds. “And once again New Zealand looks set to drop the ball on a major economic policy issue for political rather than best practice and covernote commercially sensible reasons.” ...for insurance professionals

Photo: thinkstockphotos.com

The insurance industry’s

NEWS & ANALYSIS

The level of general customer confusion on this one issue is increasingly apparent. The move from replacement cost cover to a sum assured cover is, for New Zealand, a fundamental switch. How much to indemnify against risk versus how much cover is affordable, lies at the heart of a significant segment of the industry. But emerging industry issues are much wider in scope and scale. It’s time, says David Lamb, Auckland-based partner and insurance industry analyst with global consultancy PwC, for the insurance industry to refocus on its customers. “Customer satisfaction across the whole risk cover spectrum is a critical issue for the New Zealand insurance industry.” The relationship between insurers and insured is changing, he says. And 2013 looks set to be the year in which customer issues will gain greater traction. “Christchurch has heightened everyone’s awareness of insurance. It has, however, also highlighted industry weaknesses. People are having good and bad experiences with insurance and the industry must take note. Customer satisfaction is about more than paying lip service to the importance of providing good service and customer education. “Brokers and insurers must treat customers better,” says Lamb. Christchurch has shown that brokers can play a critical customer advice role. But they’ll need to be more professional in their approach to meet the higher standards new regulatory thresholds have imposed. “On the other hand, the insurer-broker-customer relationship might change with more insurers going straight to the customer,”

says Lamb. “Similarly, the reinsurer-insurer-broker-customer relation might lead reinsurers to go straight to larger customers as they become more adventurous around risk management.” The internet explosion will dramatically impact customers’ insurance experiences, buying preferences, perceptions and positive or negative attitudes, says Lamb. “Like the banking sector, insurance is facing rebranding issues. Direct marketing, versus big data strategies, versus brokers, versus aggregators versus banks selling off-the-shelf policies are all customer relationship issues. Depending on the strategies adopted and service responses, companies might or might not be successful.” It may be today’s buzz word but, “big data” strategies will have a profound and increasing influence on the industry. Big data is an information technology term used to describe a massive dataset which, if analysed innovatively, provides new and revolutionary business opportunities. The data comes from customer transactions and interactions, social networks that include profile information, multimedia applications, public databases and connections to an array of mobile and other internet connected devices – anything from running shoes, pedometers, cars, electronic labels and a host of other potentially analysable data sources. “Insurers have a great deal of data,” says Lamb. “They should learn how to use it both for their risk management and their business development strategies.” Insurers can develop more sophisticated

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NEWS & ANALYSIS

8 covernote | March 2013

EQC’s future remains unresolved and the planned review might have further major impacts on the insurance market, “from reinsurance capacity issues to post-event operational response”. Early indications are that reinsurance renewals will be flat this year. “That means we can expect a return to moderate movements in insurance renewal pricing,” says Lyon. Lyon’s other industry issues this year include “further regulatory changes (especially the impacts of the Consumer Law Reform bill), the need to provide professional development for industry employees, challenges associated with emerging technology, and (questionable) economic conditions to mention a few”. NZI’s executive general manager Karl Armstrong has a similar take on 2013. The sum insured issue is still up there as the New Zealand insurance industry’s big game changer, he says. “It requires a major mindset shift for the industry here and for homeowners. And it will be an enduring change.” The policy changes mean having to provide more detailed information to brokers and insurance companies to determine an accurate sum insured. This information will form a definitive basis on which claims are settled, says Armstrong. “We’ll need to support and lead clients through the changes and extra requirements to ensure adequate replacement protection for their property. The role brokers play in the transition will be vital. It creates an opportunity for brokers to develop their relationship with clients, but also to demonstrate their expertise,” he adds. NZI is focused on what Armstrong calls “great leadership, good communication and strong relationships. We need these to guide brokers and clients through the changes.” The company has, he says, been working on transition planning, reworking policy wordings and revising underwriting practices. AIG’s New Zealand chief executive Cris Knell agrees this year is largely about educating the customer. And the insurance industry deciding where responsibility for that education lies. The change to sum insured cover is a natural response to the Canterbury catastrophe. It gives reinsurers more exposure certainty, he says. Understanding that concept is one thing, ensuring that the consumer is properly equipped to deal with the change is something altogether different, according to Knell. He believes the big personal lines insurance carriers, which he agrees AIG is not in New Zealand, have an educational challenge on their hands. And the issue will remain uppermost in their minds this year. “Customers must be given the tools to make rational decisions, founded in fact, so that in the event of another catastrophe policy holders aren’t left under-insured. At the same time, policies must be priced so clients don’t under-insure or abandon cover altogether,” says Knell. Australian newspapers are reporting the combined impact of higher premiums and patchy economic growth is prompting more businesses to ditch property insurance. New Zealand might be

Photo: thinkstockphotos.com

pricing policies and models for risk and marketing strategies by using big data. Insurers that effectively manage, disseminate and mine data to drive improved enterprise-wide decision making and responsiveness will, according to a PwC report on the future of the insurance industry published in 2011, fare best in future. Industry executives who attended the 2011 International Insurance Society Conference agree. A solid 74 percent of those surveyed agreed that sophisticated information analytics and new sources of information will become “key determinants of competitive differentiation”. “The insurance industry should be using big data analytic techniques to better understand what opportunities or problems their customers present,” says Lamb. “I have no doubt that the next 12 to 24 months will see big data gain more traction in New Zealand.” Zurich New Zealand’s general manager Adrian Riminton agrees the industry needs to work hard on improving the public’s “understanding of insurance and what clients can expect at claim time”. The Canterbury quakes have, he says, delivered a number of lessons, including some relating to the role of the Earthquake Commission (EQC). “The issues need to be resolved and steps taken to ensure that customers have a complete and accurate picture of how insurance helps them.” There is still post-earthquake work to be done, says Riminton. “Most of the easier commercial claims have been resolved but there are still many complex claims that will take time to resolve. We’ll continue to work with brokers and clients to ensure claims issues are addressed as efficiently as practicable.” The major issue for Zurich is the future of the Fire Services Levy. “This process is desperately in need of reform. Despite compelling reasons for change there is a lack of political will to affect it,” says Riminton. Lumley chief executive John Lyon considers the change to sum insured policies is still one of the insurance sector’s biggest undertakings this year. “The vast majority of consumers will have to change the basis of their contracts and, in the process, determine the appropriate sum insured for their property,” he says. “Insurers and brokers must deal with the operational impacts of this, including the challenging technology changes required to support the new policy structure.” Brokers will, Lyon warns, need to be careful not to set a sum insured for their customers and rather advise them on how to calculate an appropriate figure. “They can’t just rely on the default sum insured,” he adds. Lumley will this year provide access to supporting customer documentation and a Cordell Calculator to assist in setting an insured amount. “Brokers will need to follow up on customers who don’t actively review and change their default sum insured and warn them of the risks of being under insured,” Lyon cautions. Lumley, he says, has been working closely with brokers on the impacts of the change. The good news, according to Lyon, is that this change “probably represents the final area of market-driven, post-earthquake product reform” following multiple years of price increases and product changes in both commercial and domestic classes. That said, the

NEWS & ANALYSIS

“vulnerable” to this, says Knell, but he thinks it unlikely. The sum insured might, in many cases, attract a similar premium and not be vastly different to the existing replacement cost, he offers. “We don’t really know yet whether the majority of people will be affected by this change. There is some feeling abroad that more expensive homes will attract higher premiums. Homes closer to the average might end up paying something similar to what they have paid before,” says Knell. AIG is focused on customer support and service this year, he says. “We have invested considerable resources into our claims area and into loss prevention programmes. New Zealand’s major corporates are our bread and butter and helping them assess their exposure to loss is critical. Insurance is one of the ultimate consumer businesses. You have to right-size the product and we work hard to do that,” he adds. Knell agrees the company’s use of big data analytics will increasingly influence its future growth and product development strategies. “We have large amounts of data that we will use to help our clients better understand their risks and help them appreciate why we view certain risks the way we do. Client transparency is important to us.” AIG is using big data to, for example, move from “assumed logic” in some market segments and develop new risk understandings.

“We are trying to change our business mix in some areas and that approach is becoming a key strategy,” says Knell. The company is also using its massive data resource to ramp up its claims settlement processes, a priority that will continue in 2013. “We want to achieve faster claims outcomes to benefit our customers,” he adds. Regulation, new and expanded, will, Knell agrees, be an issue in 2013 and beyond. “New Zealand is coming of age where insurance industry regulation is concerned,” he says. “There is more regulation in New Zealand, as there is globally. It’s principally designed to protect the policy holder and generally that’s positive.” But additional regulation comes at a cost, he warns. He also points out that the Reserve Bank’s new insurance industry licensing requirements must be completed by the end of September. AIG, along with a hand full of other major companies, has a full licence but there are more than 120 other companies with provisional licences only. “There are only six months left to get these companies over the line,” says Knell. “We’re watching to see if this will lead to changes in the marketplace. Some [companies] may decide to withdraw [from the New Zealand market] or there could be some portfolio transfers or some significant mergers and acquisitions. This will be a space to covernote watch in 2013.” ...for insurance professionals

EQC ramps up customer focus N

Photo: thinkstockphotos.com

ew Zealand’s Earthquake Commission (EQC) is ramping up its customer focus, according to its chief executive Ian Simpson. He told the Second Annual General Insurance Exchange conference in Sydney this month that EQC’s current “big initiative” is to communicate better, “talk with its customers”, start settling claims and get “the money out the door”. EQC was talking with insurers but hasn’t reached agreement on the level of cost recovery building policies provided and how far EQC’s ground cover extended. “We’re working on reaching an agreement.” And whatever agreement was reached, EQC would not use litigation to resolve the issue, he said. The Commission is also working on “getting a more balanced approach” to earthquake risk management, Simpson said. “We’re keen [to develop] a more holistic approach to risk management.” A whole risk landscape started with risk avoidance, including deciding where to build. The Government decision to create a residential red zone in Christchurch was, he said, a good example. “We’ve identified land

which will perform terribly in future earthquakes and we’re not going to build on it. You can apply the same logic to flood plains and other areas.” Land use controls should be implemented to avoid risk. That said, New Zealanders live with risk every day so they can’t avoid risk completely, Simpson said. “You avoid it where it’s critical and then go to the next stage, Ian Simpson. which is control, and improve building standards.” Though New Zealand’s building standards were amongst the best in the world, they could still be improved. That said, new standards needed to be reasonable and not too high, he warned. Improving building standards implied additional costs for society and for building owners, he added. Risk management meant transferring risk off shore and relying on insurance and reinsurance. But that did not cover all the risk, said Simpson. Personal acceptance of risk had a part to play. And he asked: How much risk will people accept, both financially and physically, post an earthquake? “New Zealand needs to get all factors in balance to find a sensible outcome.” EQC faced a number of challenges, said Simpson. It had, however, learned many lessons from the Christchurch earthquakes. “The EQC scheme has performed exceptionally well,” he said. “Our March 2013 | covernote

NEWS & PEOPLE

Marsh opens office in the Waikato Stuart Hamilton appointed branch manager

elebrating 55 years of operation in New Zealand this year and keen to expand its regional presence into New Zealand’s fourth-largest region, mid February saw Marsh open a new branch in the Waikato. The branch will be managed by Stuart Hamilton, a highly experienced risk and insurance professional with more than 25 years’ experience in the industry. Prior to Marsh, Hamilton had roles at Allianz, LMW/ Crombie Lockwood Insurance Brokers and the Medical Assurance Society.

“We are excited about our new office in the Waikato,” said Grant Milne, Marsh New Zealand country head. “We have been serving clients in this area for many years and will now be able to offer them a full locally based service. I am also glad that Stuart Hamilton has joined us as branch manager. As a long-standing member of the local insurance community, he will be an asset as we expand our offering to regional businesses.” Commenting on his appointment, Hamilton said: “Having worked in the

Waikato region for many years, I am delighted Stuart Hamilton. to be able to bring the vast resources that Marsh has available to help businesses in Hamilton and its surrounds. I look forward to working with companies in this growing region to help them manage their evolving risk and insurance needs.” The Waikato office is based at 361 Ulster covernote Street, Hamilton. ...for insurance professionals

MARSH REPORTS ON 2012 CSR ACTIVITY

s part of its Community and Environment policy, Marsh staff participated in a number of initiatives to support the local community during 2012. Fundraising activities benefited a number of charities and organisations, including: • Over $2000 to Youthline. • Diabetes Youth Taranaki received $3700 from the New Plymouth corporate golf day. • $350 for Cure Kids through purchasing tickets in its Easter raffle. • Mo-vember saw Marsh males use their mo’s to raise funds for prostate cancer.

• Auckland employees donated food and toys to the Auckland City Mission. • Marsh sponsored the LAPD fire truck in the annual Variety Club Bash and three employees took turns to travel on the truck presenting kids with bikes, books and other surprises. Marsh staff throughout the country also used their volunteer leave days to participate in a blood bank drive (Auckland and Wellington); drive elderly people to the supermarket or to medical appointments (Dunedin); rattle collecting tins in the

annual St John Street Appeal (Auckland and Dunedin); helped set up and compete in the inaugural ‘Naki Run A Muk’ event for the Taranaki Coastguard (New Plymouth) and cut down an unruly hedge as part of the Salvation Army’s community care programme covernote (Auckland). ...for insurance professionals

EQC ramps up customer focus continued from page 9

Christchurch liability is something like $12 billion – roughly what New Zealand spends on both education and health every year.” The reinsurance scheme and fund would cover about eleven of the $12 billion. It would call on the Crown guarantee for between $0.5 billion and $1 billion in a couple of years, Simpson said. New Zealand had roughly 90 percent insurance coverage across the country. “We’ve seen the power of just what that broad range of penetration of the insurance industry can deliver in terms of funding the [Canterbury] recovery and moving the rebuild forward.” The high penetration of coverage had worked well, he said. “What hasn’t worked so well is the lack of clarity around the cover, particularly of land coverage. The interface with the private insurance sector isn’t well defined and there’s a lot of duplication and confusion for our joint customers.” 10 covernote | March 2013

The EQC scheme was designed for an era in which expectations weren’t as great as they are now. New Zealand now needs to decide what it could reasonably expect post an earthquake – not just from the State and EQC, but from insurance overall, Simpson said. “What risk do we accept at the end of the day? Misalignment on expectations and what it is possible to deliver is evident everywhere: New Zealand, the United States, Japan – everywhere post earthquake.” EQC had been asking for a review of its scheme for more than 20 years, he said. It had consistently briefed every new minister involved with the portfolio. Simpson welcomed the current review and hoped it would get all the issues on the table because New Zealand was earthquake prone. For that reason it should consider every possible earthquake cover model available,covernote he said. ...for insurance professionals

NEWS & PEOPLE

New insurance provider teams up with First Assistance

irst Assistance announced last month its partnership with a new travel insurance provider – Travel & Accident International (TAI). This marks TAI’s entry into the New Zealand market as a travel insurance provider specialising in coverage of niche market or higher risk group travel schemes, with the support of Lloyds underwriters to provide flexibility and the ability to spread risk. The deal will see First Assistance act in a full third party administrator role for all emergency assistance and claims management decisions – a move which First Assistance CEO Mary-Jo McDonald says will be positive for both parties and their customers.

Ace Insurance appointee

...for insurance professionals

Employers urged to take part in Road Safety Week 2013

mployers are being encouraged to raise awareness of key road safety messages by joining in with Road Safety Week 2013. Brake, the road safety charity, which coordinates the event with the support of sponsor QBE Insurance, is calling on companies to start planning safety initiatives now, well in advance of the big week, May 6-12. Companies can go to www.brake.org.nz/roadsafetyweek for ideas of activities to run and ways to promote the week to staff. During Road Safety Week companies can communicate road safety messages in a variety of ways, for example by sending employees e-reminders on road safety topics such as speed, drink and drug driving, or vehicle maintenance. Val Graham, marketing and communications manager at QBE said: “At QBE Insurance, safety has always been a priority for us and we are very keen to do all we can to make our roads safer for the whole community. Through our support of Road Safety Week we will be making some resources available to our motor fleet clients to help covernote them ensure that they are operating their fleets as safely as possible.” ...for insurance professionals

March 2013 | covernote

Photo: thinkstockphotos.com

lenn O’Halloran has been appointed as environmental risk underwriter for Australia and New Zealand. Based in the Sydney office, O’Halloran is a qualified environmental engineer with experience in both environmental consulting and project management. In his previous role, Glenn supervised Glenn O’Halloran. the design and construction of large water infrastructure projects. Glenn’s appointment strengthens the capabilities of ACE in the environmental risk portfolio. Led by Kane Bennett, regional manager – Environmental Risk Asia Pacific, ACE Environmental Risk has a broad range of environmental liability solutions. These include: • Contractors Pollution Liability (CPL), which provides protection for liabilities and costs caused by pollution resulting from specified activities eg construction and service-based activities, and • Premises Pollution Liability (PPL) which provides cover for liabilities and costs resulting from pollution at specified locations, such as transferred and leased locations. ACE’s country president, Australia and New Zealand, Giles Ward said: “We are very pleased that an environmental engineer of Glenn’s calibre has joined the team. His appointment enhances the environmental insurance solutions we offer to Australian and New Zealand companies. Many businesses do not realise that a traditional liability policy wording usually only provides cover for sudden and accidental pollution, and for their liability to third parties but not for any statutory clean-up costs. “It’s particularly relevant to note that property owners have legal responsibility for the costs of cleaning contaminated land that they own, irrespective of when the pollution occurred or who was responsible. Where gradual pollution has been undiscovered over a covernote period of time, these costs can be very substantial. ”

“First Assistance has provided claims management services to a number of its clients, so is well placed to represent TAI’s interests around both its claims and its emergency assistance processes. Mary-Jo McDonald. “The result will be speedier resolution of all TAI cases, dealing with an expert team of experienced case managers,” says McDonald. Through its partnership with major UK Lloyds-based specialist insurer and reinsurer Atrium Syndicate, with Crispin Speers as the cover holder, and by taking a different approach to risk, TAI meets a niche in the New Zealand market for those otherwise unable to secure travel insurance through mainstream insurers. For this reason, the company is better prepared to cover the likes of adventure travellers, sports teams, and those with higher inherent risks. TAI director Greg Smith says the partnership with First Assistance makes the process for customers of TAI faster and more efficient. “Where traditionally securing insurance for something like an overseas sports tour or adventure travel has been a long and arduous process, through this deal with Crispin Speers in the UK, and by working with a local provider such as First Assistance, we are making it easier for clients to get the peace of mind they need without having to jump through hoops,” says Smith. “Allowing First Assistance full control over claims management will further simplify the process by allowing all decisions to be made promptly by the expert team at First Assistance, with no lag time,” covernote he says.

OUT & ABOUT

AIG – All Blacks Sevens

Waipuna Hospice Remembrance Day

n their role as Major Global Sponsor and Official Insurance Partner of six NZ Rugby national teams including the All Blacks Sevens, AIG hosted around 40 brokers and clients as well as 20 competition winners from broker and retail partners at the Wellington Sevens tournament on February 1 & 2. In addition to the tournament itself, guests were invited to attend the team’s final practice (“blow out”). Guests in AIG’s corporate box also had the opportunity to meet Coach Gordon Tietjens and players Belgium Tuatagaloa, Gillies Kaka and Luke Masirewa who visited the box after the team’s first game.

rombie Lockwood Tauranga has long been a supporter and sponsor of Waipuna Hospice. The hospice provides specialist medical services, nursing care and support to people living with an illness for which cure is no longer an option. Once a year they hold a remembrance service that is open to family and friends of those that have passed to remember and reflect. This year Karin Deed, Amanda Fryer, Linda Strydom, Steve Dobbs, Suzie Weir, Sandra Bryant and her husband Graham provided assistance in the kitchen making sandwiches, filling several hundred helium balloons for the ceremonial release, ushering and car park attendant services.

1 1 The All Blacks Sevens team during the “blow out”. 2 AIG CEO, Cris Knell speaking with All Blacks Sevens coach Gordon Tietjens. 3 Allan Henderson (Rothbury) and Veni Williams (Marsh) in the AIG Corporate Box.

Marsh charity golf day

he annual Marsh New Plymouth charity golf day was held on February 15 at the Ngamotu New Plymouth Golf Club. 97 players, including Marsh clients and insurers, took part in the 18-hole tournament in the sunshine. The tournament raised $3588 in aid of Taranaki Hospice. This money was gratefully received and has already been spent by the Hospice, which purchased a new lounge suite for their family quiet space room in their new extension. Pictured at right: Branch manager, Kevin Kerr (second from the right) with his team of golfers.

12 covernote | March 2013

Amanda Fryer, Karin Deed and Linda Strydom.

Steve Dobbs and Suzie Weir.

The AML/CFT Act | FEATURE

AT RISK?

nsurance brokers have just three months to identify and assess their exposure to high-penalty fines contained in the Anti-money Laundering and Countering Financing of Terrorism (AML/CFT) Act that comes into effect on June 30. The tough new legislation is designed to mitigate some of New Zealand’s increasing exposure to global crime. The Act, passed in 2009, ushers in new laws that recognise that money laundering and associated crime is growing in New Zealand and that more collaboration between the financial sector and the Government is needed to detect and deter it. The Act allows for penalties of up to two years’ imprisonment and fines from $300,000 up to $5 million. It takes a “risk-based approach” that depends on the size and complexity of a client’s business, the products offered, who the deal is done with and where the contacts are based and, the amount of work done to ensure the business is legitimate. The risk potential for insurance brokers falls under the legislation’s “Reporting Entities” classification. As IBANZ CEO Gary Young said in a recent report to members: “Reporting Entities include financial institutions, the definition of which would cover insurance brokers and their premium funding companies. There are, however, some exemptions in the AML/CFT (Exemptions) Regulations 2011.” IBANZ has prepared “qualified advice” for its members on how it thinks the Act will apply. “If you are a general insurance broker dealing only in general insurance, it seems you are exempt,” says Young. “However, brokers offering premium funding through their own companies need to undertake a risk assessment as soon as possible.” IBANZ will provide its members with a template for the assessment. “Based on that assessment brokers must then develop a programme. We will also advise members of the essentials the programme should include. Members who have not received that information from us already should get in touch,” says Young. In summary: Brokers must understand their obligations; conduct a business impact and risk assessment; implement an AML/CFT programme (if not exempt); designate an AML/CFT compliance officer; and conduct customer due diligence. The legislation will lift New Zealand’s financial regulations into line with other western countries. New Zealand’s anti-corruption legislation was trailing key economies. Had the legislation not been introduced New Zealand would have been considered globally vulnerable to money laundering activity and the country’s competitive trade advantage compromised. The cost of banks having to apply additional controls on New Zealand sourced remittances would also have been significant. Global consultancy Deloitte suggests that apart from the global issue, the legislation is a significant domestic concern. Illicit activity in New Zealand, such as the drugs trade and illegal fishing, also need the proceeds to be laundered to be rendered accessible. AML/CFT legislation helps address local black market issues, says Deloitte. The legislation’s risk-based approach recognises that no one solution fits all circumstances; that not all entities face the same money laundering risks and,

Photo: thinkstockphotos.com

BROKERS

that not all entities will have the same risk appetite. It recognises that there can be more than one solution to a problem, that any solution must be commercial and that different combinations of controls can deliver reasonable levels of protection, according to Deloitte. The Act imposes a set of reporting requirements for entities affected, a risk-based assessment, customer identification and transaction monitoring to detect possible money laundering and terrorism financing activity and a regime for supervision, monitoring and enforcement of legislated obligations. The responsibility for policing and ensuring the act is complied with by affected companies is split between the Financial Markets Authority (FMA), Department of Internal Affairs (DIA) and the Reserve Bank. The FMA will oversee financial advisers, share brokers, trustees, insurance brokers that are not exempt and auditors to identify suspect customers. Reports are that once the Act is operating and the processes bedded down real estate agents, car dealers, lawyers, jewellers, accountants and gold salesmen covernote will be included in its provisions. ...for insurance professionals

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FEATURE | Motoring

Photos: thinkstockphotos.com

AUTO REPAIRS:

A RISKY BUSINESS? New Zealand’s insurance policies allow clients to make their own choice of repairer, and the vehicle repair industry is largely self regulating. That creates a loophole which may leave an under-informed client open to financial or legal liability if it all turns pear-shaped. Jacqui Madelin takes a look at the risks, and examines how a responsible broker can help its clients, from both the fleet and insurance side of the fence, to sidestep them.

here certainly are risks in an unregulated environment in which cost can drive decision-making. Sue Kuiti from Kiwi Windscreens confirms anyone can become an auto-glazier; there are no NZ Safety Standards for windscreen fitment, and no requirement to be properly trained or have formal qualifications. “In New Zealand,” Kuiti says “all insurers have a preferred repairer for autoglass claims. Ultimately, the repair company is awarded preferred repairer status based on providing the cheapest price to the insurer.” But this increases the possibility the repairer may cut corners to maximise profits, perhaps changing to cheap 14 covernote | March 2013

urethane sealants, or neglecting other glass preparation or handling procedures. “This could have disastrous consequences should the poorly fitted windscreen go on to be involved in a serious accident,” she continues. As for other components within today’s complex vehicles, a client cited by Nick Cressey, of the corporate arm of insurance broker IBI Aon, had a new Ford ute with a bent chassis. Once you’d simply have straightened it, but one kink in the chassis rail is part of the planned crumple zone. Fortunately the repairer knew not to straighten it. And outgoing Motor Industry Association (MIA) CEO Perry

Motoring | FEATURE

Nick Cressey.

John Armstrong.

Neil Pritchard.

What prevents this from backfiring on the customer, he continues, is “the insurance companies tend to be fairly proactive customer assistance people who will talk it through … and that’s often the point where the customer may need convincing their own choice of repairer for a structural repair may not be satisfactory, and that they’ll become liable if the repair is not safe. “A client wishing to control his own repair needs to be aware that if they take the money and do the repair themselves they are on their own,” he says, “and if their own preferred repairer is not up to the job of managing a complex structural repair – and it doesn’t take much damage to make it structural – supplementary restraint systems and sensors can be compromised.” An inadequate repair “could compromise the value of their car, or the safety of their car and they need to be aware a WoF check will not necessarily pick that up.” Neil Pritchard, general manager of the Collision Repair Association, thinks there have been no serious injuries yet, but

Kerr is concerned repairers could use second-hand airbags, that haven’t been deployed but have been removed from wrecked vehicles, as there’s no way to test for internal damage. Using them is legal, but if any of these repairs fail in a crash and exacerbate damage to the vehicle, its occupants or the goods it carries, someone may be held liable; if nothing else, the OSH implications don’t bear thinking about. But is this scaremongering? John Lucas of the Insurance Council says insurers and repairers rely on information car makers supply and expect a smash repairer to have that information, though “some car makers’ franchise dealers have not been as free with the repair info saying that it’s only available through their franchise networks.” This is an issue that is likely to be resolved soon. If the vehicle’s owner chooses where it goes for repair, the insurer cannot guarantee it and is likely to agree a fair cost, write out a cheque, and have the client sign a discharge that there’s no liability. “It happens a lot,” says Lucas “and I think it works quite well.”

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March 2013 | covernote

FEATURE | Motoring

UNDER THE SKIN ntil recently cars were simple and mending metal was a matter of cutting and welding. That no longer applies, yet the changes are rarely obvious to the casual or ill-informed eye. Vehicle designers must meet increasingly stringent safety regulations while ensuring cars are lighter to cut fuel use and emissions and meet increasingly strict environmental regulations. The combination [increased safety and lighter frames] involves complex construction techniques and materials. The new Toyota RAV4 uses five different high-strength steel specs as well as some non tensile – the higher-strength steels allowing a thinner gauge to save weight. Toyota GM Customer Services Division Spencer Morris says that if you heat high strength steel – ie through the wrong type of welding – it is no longer high strength. “The repair manuals are quite specific about where to cut and weld in new sections or replacement parts. They are also specific about the welding. For example they specify the type of welder and gas mix for the shield such as a 20/80 argon/CO2 mix as opposed to pure CO2. The consequences of not following these instructions are loss of strength and therefore less crash resistance in another similar collision.” As for windscreens, it’s High tensile steel locations in the new the backboard to the pasToyota RAV4. senger airbag and 35 to 45 percent of the front’s structural strength. If it releases in an impact, the airbags are useless and the roof has no support in a roll-over. A factory fitted windscreen is designed not to release in a crash, thanks to a complex process of bonding and hardening that must be performed correctly. Repairs to a windscreen must comply to AS/NZS2366.1:1999 Windscreen Repairs – Repair Procedures and AS/ NZS2366.2:1999 Windscreen Repairs – Repair Systems (a joint Australia/New Zealand Standard). But there is no official standard for replacement. Novus GM John Armstrong says the Australian standard can be referenced, but “Novus is of the opinion a standard for automotive glass replacement should be developed and made mandatory as per the windscreen repair standard,” and “until such controls are in place, whilst in my opinion the glass companies should be held accountable, it will be very difficult to hold them liable, unless negligence or misconduct is proven.” Spencer Morris says windshield glass has presented challenges for Toyota too. “The use of non genuine glass is widespread, and one concern is they may not fit as well, causing collateral damage from leaking screens when water gets into electronic parts behind covernote the dash.” ...for insurance professionals

16 covernote | March 2013

says a mechanic has been prosecuted for inadequate work, “My fear is that will happen in the collision repair industry, and if the job was directed and assessed by the insurer they are as culpable as the repairer – though that hasn’t yet been tested in law.” A Vero spokesperson says, “If a customer chooses to ignore our advice we have the option of case managing the repair (inspecting the vehicle throughout the repair process) and completing a quality assurance check before the vehicle is returned to the customer, or cash settling with the customer and alerting NZ Transport Agency of any safety concerns to ensure the vehicle is examined by a Vehicle Certifier.” Even assuming the insurance industry’s expectation that repairers have the right information is correct, and NZTA is always alerted and follows up, the fact clients can determine their own repairer worries some in the industry, though John Lucas says, “we don’t see many cases of people being injured or dying through bad vehicle repair.” But as Inspector Mark Stables from Police National Headquarters and responsible for crash analysis says, “It is not prudent to wait for a problem to emerge if we are able to circumvent it before it becomes an issue. Police in general operate a prevention first approach.” Kiwi Windscreens says its network does see equipment failure after inadequate repairs “on a regular basis, and we are now beginning to document and photograph them”. Both it and Novus would like to see windscreen replacement regulated as rigorously as repair. What about other areas of the industry? Bill Hyslop, NZTA, says “The service repair project within NZTA is looking at how vehicles are repaired and what controls we have.” He says, “electricians and plumbers have to be registered and retrained or reregistered and show they have upskilled. With the likes of mechanics and panelbeaters there is no registration system as such, so anyone can set themselves up as a repairer and the consumer has protection only under the Consumer Guarantees Act. It’s not a problem unique to NZ. “I’ve spoken to my counterparts in the UK and Australia and no-one has yet come up with a proper solution. The only controls are that some manufacturers, like Mercedes, have recognised repair shops they’ll only allow their vehicles to be repaired in, but not every Mercedes will go to one.” And naturally, there’s a risk that brand-endorsed repair shops encourage companies to hold vital information too close to their chests. Some are more pro-active; the Collision Repair Association (CRA) has a programme with Holden and it’s talking to several other manufacturers – including Toyota, Mitsubishi, Hyundai and Mazda – to develop it further. Another area that may expose the insurance industry to liability

Photo credit: Jacqui Madelin

FEATURE | Motoring

is when an uninsured vehicle is being repaired. Neil Pritchard says the Insurance Council has raised concerns about uninsured vehicles. “They [insurers] get claims from owners who are at fault, and making a claim against the uninsured vehicle, but they have no control over how the uninsured vehicle is mended and yet they may be liable for that repair.” Pritchard says the Motor Transport Association (MTA) is among industry organisations which also highlight concerns about what they would call unqualified repairers. “They want to set a better image for their industry and don’t want to be tarnished by poor repairers without affiliation to their industries.” Mandating all repairers are registered would plug the gap but seems a step too far for some. John Lucas says shops not equipped or trained for structural repair have a place, “as they don’t have costly overheads for equipment used by the structural repair shops, they specialise in bumpers, paint and things like that, they are important to the industry as they keep repair costs competitive.” Neil Pritchard’s reply would be that CRA membership doesn’t force paint and panel experts to upgrade to structural capability, but does help clients recognise a repairer’s area of expertise and imparts confidence a repairer has the training and equipment to do an adequate job, whether on paint and panel or a more complex repair. Self regulation works when everyone is informed and responsible. It may also work when clients take control, if their insurers and

brokers ensure they are adequately educated on what to look out for when balancing cost against effective repair. But as two independent assessors told Covernote – on condition of anonymity – “Let’s consider for a moment the huge ramifications to our society and long-term legacy of the leaky home fiasco. We are told that “systemic failure” was to blame. How about we call it for what it really was, the lack of common sense principles being applied, due to profits being put ahead of long-term sustainability.

“

We now have a climate within the repair industry where the potential for ‘systemic failure’ can flourish.

”

“When everybody is forced to compete in an environment where the cheapest price rules, inevitably corners will be cut. The guys at the coal face then have to use the cheapest materials and processes, and employ low-cost labourers that don’t know any better.” They believe the same thing is happening to a less dramatic or visible degree with motor vehicle insurance. “So what will it take before significant damage to the collision repair industry becomes obvious to the readers of this magazine? A few tragic high-profile motor accidents... workshops having to downsize or close down?” One assessor cites a recent case in which a claim officer was critical money hadn’t been saved on a job the assessor believed

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Motoring | FEATURE

Inspector Mark Stables will start to see more crashes made worse when an inadequate repair fails, especially while those in the insurance industry assume their clients (despite being in a diverse range of sectors) are aware of the issues surrounding repairing a modern car, in an unregulated environment. The insurance industry – brokers and insurers – must step into the loop, ensuring their clients know the ramifications of their car repair decisions and acting as a second setcovernote of eyes. ...for insurance professionals

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March 2013 | covernote

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couldn’t have been achieved more cheaply without compromising repair quality; a subsequent repair controlled by the same underwriter was sent to a workshop lacking critical equipment; that was flagged but no change was made. They are also concerned claims administrators are not always as well informed as they should be. “We have no problem with pragmatic cost control as part of a balanced approach to ensuring a suitably qualified and equipped repairer is using adequate processes for collision repairs. Anything less is regarded by us as dangerous practice. This balance clearly suffers when a claims administrator with little or no understanding of the complexity of repair methods, or running a business where overheads are capped and margins are almost non-existent, makes a decision based on cost alone.” The end result, according to one, is “we now have a climate within the repair industry where the potential for ‘systemic failure’ can flourish.” The Insurance Council is trying to develop an audit system within repairers to ensure they know everything has been repaired to manufacturer specifications, but again it takes a switched-on repairer to realise the importance of the issue, and it adds cost. There are ways to check repair methodology beyond consulting the manufacturer. UK Thatcham, owned by the UK insurance industry, delivers such advice and so does American I-CAR. Manufacturers may follow the ‘replace everything’ route while Thatcham and I-Car give a more pragmatic view, while keeping their eye on best practice since they operate in a highly litigious society. Meanwhile in New Zealand the CRA works with the likes of NZTA, the MTA and MIA to certify repairers and deliver the information needed to keep up with the technology race. It’s not mandatory to belong – only half NZ’s repairers are members – but those who are must stick to an enforced standard in panel and spray, or structural repair. They are inspected annually, and their equipment levels, ongoing training and compliance are audited. It’s the combination of an unregulated environment, owners who can direct their own repairs, and ignorance about what’s involved in modern cars that’s left a gap, and if that creates crash-related costs, government could step in and regulate. At present there seems no appetite for this, but with increasing numbers of modern cars and greater cost pressure from repairers on up, it seems likely

ADVERTORIAL

The changing liability landscape. It’s not the Wild West anymore.

Lumley’s specialist Liability team

Until recently, for most of us earthquakes and massive financial collapses only happened overseas, and liability insurance wasn’t something that businesses worried unduly about. Unlike overseas markets, where carefully tailored liability cover has long been seen as critical, the New Zealand approach has traditionally been more complacent.

But the last five years have seen a perfect storm of market meltdowns, natural disasters and negligent business practices which have changed the liability landscape in New Zealand forever. Events like the global financial crisis, the collapse of many major finance companies, our leaky building saga, Canterbury earthquakes and the Pike River disaster have all led to a substantially higher level of regulatory focus within New Zealand. This includes the introduction of the Financial Markets Authority (FMA), much more stringent regulatory regimes for real estate agents and financial advisers and, more recently, the licensing regime for building practitioners. And that’s far from the end of it. There are many other changes in the pipeline including proposed changes to the Privacy Act and an ongoing review by the Law Commission of the Joint and Several Liability regime in New Zealand. There is also a much higher level of scrutiny around management and governance practices. The bar has been raised on the level of accountability that directors are being held to, and the proposed changes to the Companies Act indicate that our policymakers are determined to lift New Zealand governance practices to global standards. It’s not the Wild West here anymore.

New people = fresh thinking While change brings uncertainty, it also brings opportunity. Over the last few years at Lumley we’ve quietly set about building one of the strongest specialist liability teams in New Zealand. The new team is headed up by Craig Kirk, who came to Lumley in 2011 after an international career that has taken him to Australia, the United Kingdom and Europe.

Craig Kirk Manager – Liability Centre of Expertise Applying international experience to shape the local market “We’ve kept a reasonably low profile over the last couple of years, but we certainly haven’t been standing still,” says Craig. “We’ve taken time to totally rethink New Zealand liability needs and to gear up to offer the market real solutions. This has meant stacking our team with talented and service-oriented people who have the depth of knowledge and experience to bring some fresh thinking to the New Zealand liability market.”

Monica Maharaj Claims Service Manager Taking a fair approach to claims With seven years at Lumley and extensive experience working in private legal practice, Monica has recently been appointed to this leadership role. She is well-known in the industry for working closely with brokers to facilitate claims management. “Our approach is generally to work with brokers to find the best solution for all parties, rather than looking for ways to decline it,” she says. “I think that’s given us a good reputation for being fair, not hard-headed.”

“There is an increasing need for specialised liability cover,” says Craig. “We’re living in a new world of regulation and with that comes new professional and governance standards. This means different things to a business depending on their industry and size, however businesses now generally have a greater understanding of potential consequences of being exposed to liability risk.” Lumley’s nationwide branches not only support the accessibility of our products, but also offer a local face with local knowledge. This means you’re working with someone who understands your and your client’s needs.

Strong credentials Brett Wainhouse Senior Underwriter Experience on both sides of the fence Brett has worked for large international insurers and brokers in New Zealand and the United Kingdom where he specialised in cover for directors and officers of FTSE 100 companies. With over 15 years of industry experience he has significant insight into the intricacies of liability cover. Brett is well respected in the industry for working in conjunction with partners to deliver tailored solutions for their clients.

Fresh thinking = new products This fresh thinking has seen a lot of time invested in reviewing and upgrading our key liability products. Last year we revamped and streamlined our Management Shield package of liability covers which is designed to meet the needs of small to medium sized businesses and has been well received by the market. We have also recently launched an improved Technology Liability policy which we’re confident will cement our position as market leader in this field. We are currently releasing a new Directors and Officers Liability policy, and later in the year we will also launch updated versions of our General Liability, Statutory Liability and Employers Liability products. We’re confident these improvements will mean we continue to deliver products to the market that meet the changing needs of businesses.

Lumley has a consistent track record and a long term commitment to the market and our partners. This includes providing specialised training by our highly skilled team to help you understand the specific needs of your clients and provide the best solution available. We also have the security of considerable resource and support from our parent Wesfarmers which is one of Australasia’s largest and most diverse businesses.

Where to now? The year ahead is all about securing our position in the New Zealand market as one of the leading liability insurers. We understand that the constantly changing legal and regulatory environment will continue to alter the risk landscape. To ensure our products meet the changing needs of the market, we will continue to upgrade our product range, strengthen our partner relationships and look at ways to provide superior customer service. We look forward to working with you - our business partners, to continue to provide market leading risk solutions to our mutual clients.

To find out more about our new products, visit www.lumley.co.nz or contact your Account Manager.

COVER STORY | The Best Things about Broking

THE BEST THINGS ABOUT

BROKING

Tips from four industry leaders By Reg Birchfield

22 covernote | March 2013

The Best Things about Broking | COVER STORY

There’s no time like now to become an insurance broker. Broking firms, large and small, are working harder to attract good people and build their capability. But what does it take to be a great broker? Covernote talked with four leading employers and two successful young brokers about how to succeed.

oday’s fast changing insurance industry makes it both harder and easier to be a good insurance broker. There’s more to learn about the industry’s evolution and the job, but the broker’s role is better defined than it was. Carl O’Shea, chief executive of New Zealand’s largest home-grown broking firm Crombie Lockwood, Grant Milne, country head of global broking business Marsh, Trevor Dodunski of Hamilton-based family broker Edward Ruys and Roger Abel, CEO of the 100-brokerstrong Rothbury Group believe brokers are more important to the insurance industry than ever. Understanding what it takes to become the best broker possible is the key to success. The Christchurch earthquakes have, sadly, made it easier for more New Zealanders to understand the real personal and nationwide value of insurance. Along with that understanding has come a greater appreciation of the value of a broker, particularly a good one, according to Crombie Lockwood’s O’Shea. Brokers must now provide clients with more comprehensive risk and exposure advice. “And that means brokers knowing what they are talking about when they offer advice. Broking is no longer about order taking and competing on price. Brokers must add value to a client’s insurance investment,” he says. Dodunski agrees but articulates the transition slightly differently. “The [insurance] environment has changed and brokers must adapt to that change,” he says. “And brokers are even more important in the process now. It’s not about ticking boxes to place a set of business. Clients want sound advice and support.” Milne agrees the changing insurance marketplace has made the broker’s life more challenging. Underwriter and client expectations have, he says, risen appreciably. “Both now expect brokers to do more for them and to do it more quickly. Younger brokers though, don’t have the benefit of the cadetship programmes the insurance industry offered 25 or so years ago. The kind of basic training then provided set brokers up with essential industry skills.” Rothbury Group’s Abel considers broking more challenging now, but also more satisfying. There is, he says, a clearer path by which to enter and remain in the profession. Previously, people could stumble into broking and, if they had some of the right attributes, they could survive and even thrive. “New entrants now look for the greater clarity that exists around the broking profession,” he adds.

Crombie Lockwood CEO Carl O’Shea.

“

It’s also about self respect, knowing you have been able to add value to someone’s business and been thoroughly professional in the process.

”

– Carl O’Shea, CEO Crombie Lockwood

“If insurance broking has become more challenging, that’s because people generally have greater expectations of professionals, in whatever sector.” With today’s finer insurance business margins, broking and insurance companies expect young recruits to hit the ground running. They must learn on the job, says Milne. He concedes, however, that every company deals with the realities of breaking in brokers differently. “We do a lot of on-the-job training. We encourage our new recruits to take all the insurance industry exams possible and to immerse themselves in the business.” What, then, makes a good broker? According to Dodunski, it’s an individual that builds relationships with clients by listening and March 2013 | covernote

COVER STORY | The Best Things about Broking

“

We push honesty and transparency with our brokers. Great brokers are naturally open and honest.

”

Roger Abel, CEO Rothbury Group

identifying what the client needs. “Broking is not just about price,” he adds. “It’s about helping clients release their exposure to risk.” Brokers, according to Dodunski, are part of a three-way relationship between client, insurer and broker. “Brokers are mediators and advocates for the client,” he says. “Their job is to find and advocate for a sustainable and affordable contract with the insurer.” Finding the right people to become brokers and provide a high level of service can be challenging, according to O’Shea. So broking companies must up their employee development and training programmes to meet that challenge. “Companies like ours need to create an environment in which brokers can access the knowledge and tap the enthusiasm to do the job,” he says. “We pro-actively position clients to financially survive any insurable event. To do that, we need brokers who can sit with business owners and talk about risk, comprehensively understand a balance sheet and add value to the process.”

For his part, O’Shea looks for people who are engaging, energetic and willing to learn. His company is, he says, the forum in which brokers are educated about insurance and taught the skills of their profession. “But as in any industry it can be difficult to get the really good people,” he adds. Broking is a people business, says Abel. “It needs individuals with inquiring minds and strong inter-personal skills. The best brokers have an affinity with their clients. But honesty, integrity and professionalism are defining attributes. And the best brokers are high on self awareness.” Integrity is also high on Dodunski’s list of crucial broker attributes. “We try to live by standards of high integrity and we transact business accordingly,” he adds. “Long lasting and close working relationships only survive when there is trust and a high element of integrity involved,” he adds. Milne agrees honesty and integrity are critical. “You only Rothbury Group CEO Roger Abel. have one crack at integrity,” he

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24 covernote | March 2013

The Best Things about Broking | COVER STORY

Photo: thinkstockphotos.com

MENTORS MAKE A DIFFERENCE

he Australian insurance industry uses mentors to develop brokers. Its National Insurance Brokers Association (NIBA) College started a mentoring programme in 2008. It was introduced in response to a request from the Association’s Young Professionals committee, says Sydney-based programme co-ordinator Caroline Campbell. “They wanted an industry programme which would help brokers realise both their personal and professional goals,” she said. “Our mission is to provide empowerment to young professionals to attain higher levels of performance through supportive and motivating industry role models; to develop focused goals and direction and, to strive for higher levels of achievement.” The programme is deliberately flexible with mentees deciding on the particular skill sets they want to focus on. Topics chosen by mentees include personal branding, presentation skills, time management and prioritising skills, career development, goal setting, understanding clients, work-life balance, strategic selling, business planning and networking. “A flexible approach allows us to tailor the programmes to individual’s specific needs. It allows for a wide range of development options,” said Campbell. The NIBA programme uses a dedicated committee to match mentors and mentees. The same committee reviews progress to continually refine the programme. “There is a great depth of insurance broking experience available and many individuals want to give back to the industry,” she adds. “Our formal programme is deliberately short – 12 weeks – in which time mentors and mentees commit to meeting once a week. They then come to an arrangement to continue the relationship on an informal basis. Many mentors elect to participate in repeat programmes.” The NIBA programme runs in Sydney, Melbourne and Adelaide and, in response to popular demand, there are plans to expand it to other Australian state capitals. “I’m sure the programme would be similarly successful in New Zealand,” said Campbell. IBANZ Principal Gené Bekker is equally optimistic about the potential for a mentor programme in New Zealand. “We have been looking into it and hope that, with IBANZ member and sponsor support, we will get one up and running in the ready for launch in November this year.” “The Australian programme seems to be very successful and we would no doubt model ours based on their experiences,” she covernote added. ...for insurance professionals

March 2013 | covernote

COVER STORY | The Best Things about Broking

that come from greater education it’s very powerful. They become keen to know more about the industry.”

Marsh country head Grant Milne.

Photo: thinkstockphotos.com

warns. “Once damaged, it is difficult to repair. We push honesty and transparency with our brokers. Great brokers are naturally open and honest. Clients are more focused on governance now. They need to transparently understand what their insurance broker is doing for them.” Brokers are, in O’Shea’s opinion, important now because their job is more defined. “Brokers are professional client advisers. They discuss business exposures and identify risks. They are risk consultants and don’t simply offer cover at the cheapest price. The broker has unquestionably become more important,” he says. Milne and Abel agree. “Clients are increasingly reliant on brokers to help them manage risk. Clients are also time poor and they need brokers to do the homework and provide the best advice,” says Milne. “Brokers are business advocates,” says Abel. “A good broker must therefore fully understand a client’s business to provide the right advice and take the best options to the underwriter. Clients don’t know what they don’t know and need brokers to advise them and add value to the process. Brokers must be both competent and confident.” Crombie Lockwood’s broker education is based on its Education Mountain programme. New recruits are inducted and begin an online tracking process that starts at base camp and works up. The career path includes external IBANZ and other qualifications, supplemented with liberal doses of practical in-house education, designed to deliver in-depth industry knowledge. The company uses a Red Line Assessment (RLA) programme to coach brokers to talk effectively with clients and risk profile them. “Brokers who want to successfully differentiate themselves from their peers need the knowledge,” says O’Shea. “Once they see the benefits 26 covernote | March 2013

What incentives do brokers have to embrace rigorous learning and development programmes? The best and worst thing that can happen for a client is to have a loss, says O’Shea. “Then there is nothing more satisfying for a broker than knowing that they have the right insurance cover in place. It’s also about self respect, knowing you have been able to add value to someone’s business and been thoroughly professional in the process.” Brokers want and need to view themselves as professionals. To do that they must offer professional advice. Brokers can be as important to a business as an accountant or a lawyer,” says O’Shea. “If anything goes wrong they can be even more important than these other professionals.” Rothbury runs an in-house Foundation and Advanced Leadership programme to school its brokers. Both programmes start with and

“

You’re always learning and improving. Once you start thinking you’re great, you’re dead in the water…

”

– Trevor Dodunski, Edward Ruys

focus on self-awareness skills enabling individual brokers to make the most of the technical skills that industry qualifications and other development programmes provide. “Great brokers have higher levels of emotional intelligence (EQ),” Abel says. “We try to help them develop that,” he adds. What are the personal and professional qualities that define a successful broker? Milne looks for a mix of qualities in his brokers. He wants outgoing individuals who ask the right questions and who can communicate with many individual types. “They must have good communication and writing skills,” he adds. “They must get the advice message across successfully and ensure that their written material provides the client with clear and unambiguous recommendations.” Great brokers are, he says, “fantastic” listeners. “Brokers that don’t listen never learn about a client’s business or what he or she wants and needs. And great brokers are proactive.” They also need to be patient and master what Milne calls broking 101 skills. “When all else turns to custard these basic skills will get a broker through. And being a hard worker never goes amiss.” Hard work and a disciplined approach to the job can turn a good broker into a great one, he adds. Brokers must be real, engaging and genuinely interested in working with clients on a programme, says O’Shea. “Good brokers can get their heads around any industry and understand its risks. They can

The Best Things about Broking | COVER STORY

communicate those risks to the client and structure a programme based on their knowledge of the industry. They must be able to communicate their learnings and make themselves understood.” And brokers need to be persistent, says Abel. “Persistence pays. It is a discipline. It might just be persistence in following up and following through on commitments made. Whatever it is, it’s an important attribute. I link it with resilience. Brokers must be resilient, particularly when times are hard. You must be able to take a few knocks.” Good brokers keep up to speed on the many and complex regulations that prescribe, govern and constantly change the insurance industry environment. Crombie Lockwood aggressively communicates all industry changes. “We tell our people everything and then run education modules in each office on what underwriters are doing and what else is changing,” says O’Shea. And wise brokers keep tuned in to all communications and read everything they can about what is going on in the insurance world. Dodunski agrees brokers must keep up with regulatory and other

industry changes. “And it’s not just about doing the minimum,” he says. “Regulations, for example, are just performance benchmarks. A good broker will want to exceed the guidelines and do an even better job. It’s not about doing the minimum to keep up and be informed.” New regulations with which brokers must now be familiar have, in Abel’s opinion, Trevor Dodunski, Edward Ruys. clarified processes and industry requirements. Though he’s not an advocate of over-regulation, Abel accepts that voluntary regulations are never enough for an industry. “Clear direction and regulatory requirements can be helpful,” he says. And yes, brokers need to be totally familiar with the rules of the game. Astute brokers understand that advantages flow from continuing

March 2013 | covernote

Photo: thinkstockphotos.com

NEW GENERATION BROKERS

aura te Kaat and Lisa Williamson represent New Zealand’s next generation of successful insurance brokers. They tell Covernote why they think broking is the career for them and how success comes from a commitment to continuous learning. Why did you choose a career as an insurance broker? Like many people I ‘fell’ into the insurance industry. Working in a broker support role with great role models, I knew early on that I wanted to be a broker. The core values of broking fit with my vision of a rewarding and satisfying career. What do you enjoy most about it?

Laura te Kaat. Account manager and senior broker support, Lifetime Group, Christchurch.

I love the variety of my work and the everyday challenges it provides. It’s great to work in an exciting and ever changing industry. Playing an integral role in the Christchurch rebuild is very rewarding.

Why do you think you are successful? Trust, communication and knowledge. I learned these values early and believe they make up the core attributes of a successful broker. What are your four most demanding job challenges? • Earthquake claims – The complexity and sheer volume of these claims make this a time consuming and demanding part of my job. • Current insurance market – Now more than ever, brokers are in the forefront of the insurance market. We possess the knowledge, tools and extensive insurer relationships that work in a client’s favour in this very hard environment. This creates an increased workload due to the overwhelming underinsurance and dissatisfaction across the industry as clients try to get increased cover and a better deal. • Ongoing policy changes – Policy changes are inevitable after the recent global events. Communicating and explaining these changes to clients and internal staff can be demanding. • Regulation – Remaining compliant can be time consuming but in the end it will pay off if and when it needs to.

28 covernote | March 2013

How well does your private life fit with your broking profession? My family is in Christchurch so I get asked a lot of claims and insurance questions. That doesn’t bother me. I see my friends and family as a network of people who are on my side and can make for some easy sales and referrals. Is training and development important and why? Absolutely. Dr Seuss, a favourite author of mine, said: “The more that you read, the more things you will know. The more that you learn, the more places you’ll go.” Although simple in its words [the quote] is profoundly accurate and I believe and live by this. I am constantly learning new things and looking at ways to develop professionally and personally. Whether through ongoing study, social and professional networking or structured seminars. Do you have a mentor? I don’t have a dedicated mentor, I see all the senior brokers in my office as mentors. I know they will help me with anything should I need it and for that I am very grateful. What’s next for you? In the near future I will continue to grow my network and develop my relationships. This will hopefully grow my book of business. I am going to finish my studies with IBANZ College later this year and think about what to study next.

Why did you choose a career as an insurance broker? Having worked for insurers previously in a variety of different roles, broking provided a forum from which I could draw on the range of knowledge and skills I had acquired over the years. It wasn’t a career path I selected from school age but few occupations provide the variety and challenges that come with broking, particularly in today’s market. What do you enjoy most about it?

Lisa Williamson. Leader – business development and sales/commercial broker, Rothbury Insurance Brokers, Whangarei.

The client contact. We are working in a difficult economic environment and so are our clients. It’s a privilege to work with them and have them view us as allies and part of their business team. We are not just a name at the bottom of a letter.

The Best Things about Broking | COVER STORY

Why do you think you are successful? I like people. Even the most difficult client has a story to tell. I enjoy the challenge of finding common ground so my clients feel comfortable working with me. I maintain a level of professionalism to ensure my clients get what they need, when they need it. I focus on the basics and do what I promise. The value of providing good service can’t be overstated. I have a great support team and they are integral to the delivery of our high-service standards. It’s also essential to maintain a level of technical skill and knowledge. Regulation and compliance mean the onus of responsibility rests with the broker. What are your four most demanding job challenges? • Educating clients to accept that the new normal of higher. premiums, excesses and changes to the basis of settlement are here to stay. • Working with my team to find the best pathways for them to continue their own individual training and development and remain motivated. • Reduced markets for hard-to-place risks. • Hardening insurer attitudes at claim time. How well does your private life fit with your broking profession? At the moment the term work/ life blend as opposed to work/ life balance is an accurate assessment of my life and that of most of my colleagues. Today’s technology means we’re never away from the coal face and people now expect a response 24/7. The work load can put a strain on your private life so it’s important to take stock now and then to ensure we’re still effective in all aspects of our life. To me this means occasionally taking time away (really away, no phone, no emails) and keeping physically fit. Is training and development important and why? It’s absolutely critical. While there is some resistance to our regulated environment, we need to embrace the changes as an opportunity to raise the level of professionalism within the broking industry. This can only be achieved with on-going development, training and monitoring. Our industry is changing at such a rapid pace it’s no longer sufficient to rely on the qualifications attained a decade or two ago. Do you have a mentor? I have been fortunate to work with some extremely skilled and professional people. I have learned from each of them in some way and they have shaped the way I approach my career. Some had the title of mentor, others probably didn’t realise how influential they were. What’s next for you? The completion of my Level 5 certification and encouraging the covernote rest of my team to do the same. ...for insurance professionals

education. “We’ve been going down this track for some time,” says Abel. “The changes to regulations have, quite frankly, made it easier for us to insist that our people commit to ongoing development programmes. The smart ones have always understood the value of continuous learning.” Brokers need a “good” but not necessarily “deep” understanding of industry regulations and compliance rules, according to Milne. As a global enterprise, Marsh has its own compliance resource on tap with which to support its brokers. The company uses case study or scenario analysis techniques to illustrate the implications of getting things wrong. “The process is designed to protect both the broker and the business,” he says. Some of the most valuable lessons no doubt come from post mortems of unfortunate incidents. “The best learning happens on the job,” says Milne. Consequently, Marsh takes a mentor/mentee-style approach to broker development. “I expect my senior management team to impart their knowledge and life skills to the younger brokers. Brokers are expected to understand both the local and the global context of the insurance industry.” Abel also believes in mentors. “A mentor programme doesn’t need to be formalised. It can simply be someone a broker looks up to, observes and incrementally learns from. Finding a mentor can be a very smart thing to do,” he adds. Marsh funds its brokers’ professional study programmes to ensure brokers commit to personal development and gain industry qualifications. “Brokers should get into the qualification process as early as possible in their careers. The longer they leave it the harder it is to get back into study,” he says. “All the professional qualifications, including the NZQAs, offer useful fundamental learnings that can help aspiring brokers. Having qualifications enhances a broker’s personal credibility both within the industry and with clients.” Dodunski’s small, third-generation family broking business is committed to continuous education and building team knowledge. “Insurance is a malleable industry and it’s difficult to keep abreast of it. The volume of information is sometimes overwhelming but brokers must attend courses. Only by keeping up with education can they pass the minimum standards required. We do what we can to keep our people well informed and well educated.” Brokers who want to succeed must commit to the knowledge industry, says Dodunski. “Qualifications are important. Gaining those qualifications is part of the development process. But there’s really no such thing as a great broker. You’re always learning and improving. Once you start thinking you’re great, you’re dead in the water,” he adds. Brokers bent on success will, in O’Shea’s opinion, assume an important level of self respect which gives them the ability to become real advisers. “They need to be well-enough educated to be fully confident that they know what they are talking about,” he adds. “People’s attitudes toward insurance have changed markedly after the Christchurch quakes,” says O’Shea. “Clients now demand more information. They realise that things can happen that have significant consequences for them. At the same time, more people are becoming aware of the interesting career opportunities the sector offers. Hundreds have been recruited to deal with the increased workload.” Brokers now need to know more about the role of insurance in society and not just what specific products can deliver. “Insurance is March 2013 | covernote

COVER STORY | The Best Things about Broking

integral to our society,” says Dodunski. “Brokers need to understand why and how that is true.” More university graduates are turning to careers in insurance and broking. “We are getting some great young graduates through and that too is reinforcing the importance of the education programme,” says O’Shea. “We are recruiting people without any industry experience. They need a platform from which to gather industry information and experience.” The industry is also attracting recruits because, says Milne, it is an interesting business to be in. But he concedes there is a shortage of experience since broker training programmes collapsed 20 or so years ago. New Zealand’s original crop of brokers learned while employed as salesmen for the small clutch of large insurance companies. When they left and set up as independent brokers they neglected to train and develop their employees. That generation of brokers is now selling up and set to retire. Crombie Lockwood was built on the early model. “We’ve been building an education path for our employees for a while now,” says O’Shea. And he agrees that the industry must now educate the next generation of brokers. “Qualifications, including those offered under the NZQA, are as important as any provided either in house or externally. Anything that provides forced education is valuable to the industry. We promote it and fund examinations for our people.” So how do brokers who aspire to greatness measure success? “By meeting client needs,” says Dodunski. “Success for us is about keeping our clients and meeting their needs despite the difficult economic environment.” Monetary reward is one measure, and insurance broking is a well-rewarded profession. But O’Shea and the other industry leaders interviewed for this feature rank client retention and client satisfaction the two most telling measures of broker success. Crombie Lockwood measures the performance of its brokers using both yardsticks. It also measures the suitability of programmes written by brokers and tested by an event they didn’t want to happen. Marsh also measures its brokers’ client retention record. “Client retention is one of the best measures of a broker’s ability,” says Milne. “Brokers should aspire to capture a client’s advocacy. A client’s personal recommendation to a business colleague or friend is the best

professional performance measure any broker can get.” Rothbury uses the Harvard Business School’s Net Promoter Score (NPS) system to measure broker effectiveness. NPS measures client satisfaction and that is the most telling measure of broker success and performance, says Abel. “NPS measures client propensity to refer a broker. We use the approach to survey all clients and ask if we have done a good job. It tells us which brokers are best satisfying their clients’ expectations.” When it comes to setting personal priorities brokers should, first and foremost, develop what O’Shea calls “a true understanding” of business and how it works. “Brokers must be commercially literate to really succeed and offer the best advice. You cannot be a good broker if you cannot read and comprehend a set of financial accounts,” he says emphatically. The best brokers understand the finances of every client’s business. They comprehend the dynamics of the sector in which the company operates. This lack of competency, more than any other, lets both brokers and their clients down, says O’Shea. “Turning up to a client, asking for a copy of last year’s insurance programme and promising to get a new price simply doesn’t cut the mustard.” Successful and aspiring brokers keep focused on their personal development and keep themselves relevant, advises Milne. They are aware of and understand the changing industry environment. “There is always new product and new risks emerging,” he says. “Brokers must be proactive and respond so clients don’t have to chase them. That’s customer service. And great brokers know where to access information to help a client. They don’t need to know everything personally, but they need to be well organised and well researched.” O’Shea has clients who ask him to join their company board. That is his most satisfying personal accomplishment as a broker. “Being asked to join a client’s board suggests they see the value you offer beyond just being an insurance broker,” he says reflectively. “Customers spend 99 percent of their time not thinking about insurance. Clients expect brokers to tell them what they need to know. That’s how a broker adds value.” Dodunski says good brokers understand the importance of the three-way relationship. “Brokers need to maintain strong relationships with underwriters and clients to meet everyone’s needs. That’s the bible I believe in,”covernote he adds. ...for insurance professionals

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30 covernote | March 2013

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LEGAL | Crossley Gates

“

Determining the correct interpretation of the words ‘indemnity value’ was central to the dispute.

”

Minimising fire service levies is legally effective

Crossley Gates DLA Phillips Fox

he Fire Service Act 1975 (Act) governs the payment of fire service levies on policies that insure damage ‘from fire’. For non-motor vehicle insurance, the amount of the levy is generally based on the indemnity value of the insured property. Where a policy pays indemnity value only, the levy is calculated on the sum insured. Where a policy pays the replacement cost, the levy is based on the indemnity value of the insured property ascertained by either a declaration of this value from the insured, or a valuation from a registered valuer, registered architect, an engineer or a quantity surveyor. For a number of years some policyholders have been minimising the levy payable on commercial property by creating a threetier policy structure. One tier covers all the insured property on a replacement cost basis for all the usual perils except for fire. This, of course, means no levy is payable on this policy. The second and third tiers insure the peril of fire only. The second covers the insured property on an indemnity value basis only up to a stated sum insured. The third covers the insured property strictly on an excess of indemnity value basis for replacement cost. Up until now, it has been uncertain whether

this way of minimising fire service levies is legally effective. IBANZ sought a declaratory judgment in the High Court to clarify this. The method by which the levy is calculated is set out in section 48(2). Leaving aside motor vehicles, the sub-section requires the rate set by Parliament to be calculated on all other property by reference to the ‘amount for which the property is insured for the period of the contract of fire insurance’ and the ‘period of’ that contract. Where the policy covers property for its replacement cost, the ‘amount’ is calculated in section 48(6) by reference to the property’s ‘indemnity value’ as ascertained by either a declaration (which the Commission can contest) or by a valuation certificate from a suitably qualified person. The differences between the parties centred on the following: • The meaning of ‘indemnity value’, as used in section 48(6)(c) of the Act, and • The scope of the exception set out in section 48(7), which applies to insurance in ‘excess over the indemnity value of the property’. Determining the correct interpretation of the words ‘indemnity value’ was central to the dispute. As Heath J noted, the words are

Photo: thinkstockphotos.com

For many years, there has been a tense standoff between the insurance industry and the Fire Service Commission about material damage policies that are structured to minimise fire service levies. The legal effectiveness of this structuring finally came, head on, before the High Court late last year in IBANZ and Vero v New Zealand Fire Service Commission. The result was a win for the insurance industry. The High Court upheld its effectiveness. The Fire Service Commission is appealing the decision to the Court of Appeal. In this article, Crossley Gates analyses the issues the High Court considered and the reasoning it used to come to its decision.

used no less than six times in section 48(6) of the Act, but are not defined in it. He followed the definition applied in a previous Court of Appeal decision AMP Fire and General Insurance Co (NZ) Ltd v The Earthquake and War Damage Commission (1983) 2 ANZ Insurance Cases 78-016 (CA). He noted in that case, the Court of Appeal considered a submission from the Fire Service Commission about its concern that the indemnity sum insured could be set at a level that was less than the indemnity value of the property insured whereas the replacement policy covered the difference between the indemnity sum insured and the replacement cost. In other words, the replacement policy could, in fact, have a portion of the indemnity value within it, being any difference between the indemnity sum insured and the indemnity value. The Court of Appeal noted: “It seems unlikely that Parliament would have intended this complication. It also seems unlikely that there would at all comMarch 2013 | covernote

LEGAL | Crossley Gates

monly be issued a separate replacement policy leaving the insured to bear the difference between the limit in his indemnity policy and the actual value of the property destroyed or damaged.” I find the second sentence interesting. What I believe the Court of Appeal is referring to is this. If insured property has an accurate market value (indemnity value) of $100,000, and an accurate replacement cost of $200,000, what is the position if the indemnity policy sum insured is $50,000 and the property is a total loss? If the excess replacement policy only pays on top of the indemnity value ($100,000) and not the indemnity policy sum insured ($50,000), there is a ‘hole’ in the cover of $50,000. Heath J found that: “The term ‘indemnity value’ means the value of the loss for which indemnity is provided by the contract. Ordinarily, that will be the stated sum insured. The amount of the indemnity sum set out in the contract will be regarded as the upper limit of the ‘indemnity value’.”

It followed from this that a replacement policy that only pays in excess of this ‘indemnity value’ comes within the section 48(7) exemption and is not subject to a levy. As this was the position contended for by IBANZ, the declaration it sought to this effect was granted by the court. Therefore, the High Court has confirmed that the three-tier policy structure is legally effective in the sense that the figure stated as the indemnity value sum insured in the second-tier policy is the figure to be used in calculating the levy. The amount of cover in the third-tier policy tops this figure up and so is exempt under section 48(7). (Some policyholders have only a two-tiered policy structure along the same lines and this will be similarly effective.) The High Court’s reasoning relies heavily on the way the Court of Appeal defined ‘indemnity value’. Under section 48(6) (c), when setting the indemnity value sum insured in the second-tier policy, the policyholder must use a figure stated either: 1. In a valuation certificate given by a regis-

tered valuer, registered architect, engineer or quantity surveyor, or 2. By the policyholder in a statutory declaration stating the fair and reasonable indemnity value, which the Commission can overrule, subject to the policyholder subsequently providing a valuation certificate. The person providing the valuation certificate must establish clearly ‘the indemnity value of the property for the purposes of the levy’. If the words ‘indemnity value’, as used here, are interpreted in the same way as the Court of Appeal did in the AMP case, then all the person has to do is establish the sum insured the policyholder wishes to set. The Fire Service Commission is appealing the decision to the Court of Appeal. It will be interesting to see if the Court of Appeal follows its earlier decision in the AMP case in covernote round two. ...for insurance professionals

Crossley Gates has written for Covernote for many years and is a partner at DLA Phillips Fox. He can be contacted directly on 09 300 3823 or emailed at crossley.gates@dlapf.com

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32 covernote | March 2013

AIG | TECHNICAL INSIGHT

“

The rise in cyber crime is an international trend; Symantec blocked more than 5.5 billion malicious attacks in 2011, an increase of 81% over the previous year.

”

Cyber threats top business concerns Cyber risks continue to grow in number and complexity and are now considered the greatest risk to businesses by many executives. Ian Pollard outlines how companies should specifically address these risks.

fter February’s cyber attack on its e-mail service, Telecom has joined a growing number of New Zealand businesses with firsthand experience of the impact of a cyber attack. In its 2012 Incident Summary, the National Cyber Security Centre noted an annual increase of nearly 50% in the number of reported attacks last year, equating to at least three serious cyber attacks each week. With the majority of attacks suspected to go unreported, the actual increase may be much higher. The rise in cyber crime is an international trend; Symantec blocked more than 5.5 billion malicious attacks in 2011, an increase of 81% over the previous year. Cyber threats now rank above all other business risks for many companies. According to a survey conducted by Penn Schoen Berland in Q4 last year on behalf of AIG, more than 85% of corporate executives said they were ‘very’ or ‘somewhat concerned’ about cyber risks to their organisation, compared with 82% for income loss, 80% for property damage and 76% for securities and investment risk. Cyber threats are not always malicious and can be a result of human error, as in the case of ACC where personal information was disclosed on multiple occasions as a result of serious gaps in data protection processes. While hacking incidents pose the greatest threat to personal information loss and identity theft, the most frequent cause of data breaches that could facilitate both is loss or theft of a computer or other medium on which data is stored or transmitted. An increasing amount of information is transmitted wirelessly or accessible on mobile

devices, leaving business vulnerable to data loss if not properly protected. In another survey conducted by AIG, 81% of top Japanese executives ranked ‘data leakage’ as the biggest risk to their business. Their second biggest concern was natural disasters at 70.5%, followed by external Photo: thinkstockphotos.com cyber attacks, at 67.5%. The cost to businesses in the event of even a small data breach can be considerable, and can significantly impact a firm’s reputation. Investigations to discover the cause and extent of the breach require specialist consultants and the process can be lengthy. Cyber attacks can take businesses offline for a period of time, with a resulting loss of income. Firms may also be liable for legal damages. Other costs may be incurred as the company copes with the aftermath. For example Telecom was forced to hire 100 extra staff to cope with the long waiting time in call centres. However, all these costs may pale in comparison to the potential longterm damage to the brand. In the first AIG survey mentioned above, 69% of executives and brokers believed the reputational risk from a cyber attack is a far greater concern for a company than the financial risk. A fast response time is essential and can significantly reduce the overall cost of a cyber attack.

Ian Pollard AIG

The threat to businesses from cyber risks requires risk management practices to go beyond the IT function and touch all levels of the company – C-suite executives and senior management need to take these risks seriously and prioritise them as highly as physical risks. Most traditional insurance policies such as Property, Liability, Crime and even Professional Liability policies are unlikely to provide full – if any – cover in the event of a data breach. Brokers should be knowledgeable to comfortably discuss the different cyberspecific products coming into the market. The fast-evolving landscape of cyber crime requires brokers and business decisionmakers to keep pace with developments to ensure that their company is ready to respond covernote quickly when a data breach occurs. ...for insurance professionals

When talking about cyber insurance with clients, there are three key misconceptions to counter about exposure: Our data is not a high-risk target: Some companies may be seen as ‘easier’ targets because they do not have the resources for effective security to prevent a loss. Our industry is not high-risk: Nontargeted companies may be used as a backdoor entry to a larger, more desirable target. Cyber policies should also cover employee error or sabotage. We are covered by existing insurance policies: Existing policies may cover some elements but will not offer total coverage and are often sub-limited to nominal fees.

Ian Pollard is AIG’s vice president – Financial Lines Asia Pacific, professions manager.

March 2013 | covernote

TECHNICAL INSIGHT | NZI

Knowledge is power in the new insurance landscape Pink Floyd said “we don’t need no education”, but the reality is that education is essential given the impending changes to the industry. The spotlight has been firmly on insurance and the insurance industry since the Canterbury earthquakes, and the changes as a result of these events are significant. The new insurance landscape, particularly in the area of home insurance, will require more home-owner participation, and as a consequence they’ll be looking for more information and advice.

34 covernote | March 2013

from open-ended replacement policies to a defined sum insured. What was traditionally a low involvement transaction will in future require clients to take more responsibility and be more aware. However, it also delivers the industry an opportunity to educate the client on the importance of insurance that more accurately reflects their risk. In the past, clients have had to accurately record the square metres of their property, but now they’ll also need an understanding of the likely cost to rebuild when determining the required sum insured. For homeowners, the policy changes mean having to provide more detailed information to brokers and insurance companies to determine an accurate sum insured, as it’s this information that will form a definitive basis on which their claims are settled. Clients will need to be more involved in insurance decisions and the output will be more tailored. And that’s where the importance of education cannot be understated. The industry will need to support and lead its clients through the unfolding changes and extra requirements to ensure adequate replacement protection is established for their property. The part brokers play in the transition will be vital as undoubtedly their clients will look to them for guidance. This creates an opening not only for brokers to further develop their relationship with clients, but also to demonstrate the expertise they bring. In this new era, brokers will have an opportunity to demonstrate the true value of the intermediated channel. There’s potentially a bigger role for the broker now than in the past; as an adviser in an increasingly complex world.

And while brokers are educating their clients, it’s the insurer’s role to support and educate the broker, to ensure they are equipped to lead clients through the changes the industry’s facing. The insurer’s role is to build the capacity of its broker network, plug knowledge gaps where they exist, stay abreast of regulatory changes – like the proposed changes to earthquake-prone buildings – and pass on relevant information. The insurer’s focus needs to be on great leadership, good communication and strong relationships as it guides brokers and clients through the home insurance changes. Knowledge is power and the insurer together with its broker network will provide clients with the necessary tools and information to covernote navigate the changes ahead. ...for insurance professionals

Karl Armstrong is NZI’s executive general manager. He can be contacted on 09 969 3888.

Photo: thinkstockphotos.com

he Canterbury earthquakes have placed insurance at the forefront of the collective consciousness of both businesses and home-owners, and have encouraged the latter to review their cover. In short, insurance has probably never been more topical or relevant, and with that comes a tremendous opportunity for the industry. However, the opportunity has to be seen in the context of a sector that has been under some pressure in terms of how it is perceived by the public – and is sometimes portrayed in the media. At a group level, IAG has been consolidating research from a number of areas into an insurance monitor and several insights have emerged. The monitor shows levels of trust accorded to the industry have been under pressure since before the earthquakes, with a downward trend emerging in association with the global financial crisis. The insurance monitor also identified that: • Only around a third of home-owners were aware of upcoming changes in many home insurance policies (the move to sum insured policies). • While almost all home insurance policy holders (93%) feel at least somewhat aware of all the details of their home insurance cover, only 22% considered themselves ‘very’ well aware of all the details of the cover provided. Ideally, those figures should be the other way around. And it’s awareness of this gulf between what people know and what they should perhaps know, that has driven IAG’s home insurance education campaign ‘Need to Know’ (need2know.org.nz). The Campaign sets out to educate home-owners about the changes to home insurance, with the move

Karl Armstrong NZI

Marsh New Zealand | TECHNICAL INSIGHT

Photo: thinkstockphotos.com

More than just a job – a career in insurance Many people “fall into insurance” rather than actively choosing it. Grant Milne asks: How do we attract, retain and develop people so that insurance is considered to be a career – rather than “just a job”?

s an industry we need to encourage those seeking a new career to consider insurance as one of their first options rather than just an after thought. Our industry bodies, IBANZ and ANZIIF, work hard in helping us to promote the industry and support the training and development of our industry colleagues. I believe, however, that it is also up to us as individuals to be active industry representatives and take the opportunity to talk to, and educate, others about what we do. This means, for example, allowing students to come and do work experience or shadow you for a day or taking up the opportunity to speak at your child’s school on career day. These simple things cannot be underestimated in terms of their impact. It’s about planting a seed that a career in insurance is an interesting option. It also means that, as industry professionals, we should be doing our bit to positively promote the industry in our communications and with the media. By helping to shape positive perceptions about our roles as brokers and insurers, people are more likely to want to join our industry. Recruit, train and retain Once we have attracted people to work with us, it is then our responsibility to help ensure that they have the training they need to represent our industry in the best possible light. Investment in training is an important part of retaining talent and keeping people challenged and motivated.

Training can take many forms. In the area of products and services knowledge, for example, there are three key areas where this can be obtained: 1. Formal training sessions conducted by IBANZ. 2. Training on new products run by insurers. 3. Internal product and service training. At Marsh, internal technical training programmes are delivered by our senior colleagues. This is an important part of sharing expertise, whilst also developing the coaching skills of senior people. These sessions are often conducted as a “lunch and learn” to help bring some informality and fun into learning. Continued professional development Any organisation wanting to be considered an employer of choice should not just provide training programmes but an overarching programme of continued professional development (CPD). CPD should be approached from both an insurance perspective, to help raise the professional standards of the industry, but also at a more holistic level to help people maintain their personal development. On the insurance side, Marsh strongly supports the attainment of industry qualifications. Colleagues who wish to undertake insurance qualifications are supported with funding and time away from the office. On the personal development front, opportunities are provided for colleagues to participate in a range of internal and external

Grant Milne Marsh New Zealand

programmes. Internally there is ‘Managing @ Marsh – a management course for new leaders. As these leaders evolve into more senior positions within the company they are provided with external executive coaching, which shows that continuing development is important at all levels. Sharing industry ‘nous’ The industry is full of very talented people with skills in a lot of different areas. Helping colleagues to stay within the industry and to grow professionally means that they need mentoring. Mentoring is something that can benefit everyone. As well as helping the mentee develop and advance through their career, the mentor can also gain extra skills and understanding from the partnership. At Marsh, it is believed that the next generation of leaders can learn so much from the experiences of more senior colleagues, which is why it has an official mentoring programme. Not only does this create opportunities to share experiences, it has helped with building colleague collegiality and a strong network of information sharing across the branch network. A satisfying career I’ve been in insurance now for 25 years and it is a great industry to be in. By doing our bit, promoting the industry, and sharing skills and expertise we can change insurance from “just a job” to a satisfying and successful career for manycovernote people. ...for insurance professionals

Grant Milne is the country head for Marsh New Zealand (www.marsh.co.nz). He can be contacted at grant.b.milne@marsh.com and on 09 928 3079.

March 2013 | covernote

Global solutions

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We understand that no two multinational businesses are alike. Every organisation has its own risk exposures and risk tolerance. At AIG, we’ll work with you to help create a program tailored to your specific needs, virtually anywhere you do business—whether that means local policies in some or all of the places you have exposure or a single global policy. Learn more at www.aig.co.nz All products are written by insurance company subsidiaries or affiliates of AIG Inc. Coverage may not be available in all jurisdictions and is subject to actual policy language. AIG trades in New Zealand through AIG Insurance New Zealand Limited. For additional information, please visit our website at www.aig.co.nz © AIG 2013. All rights reserved.

Your Questions Answered | ASK AN EXPERT

Motor fleet & property Photos: thinkstockphotos.com

Q MOTOR Application of Burning Cost Our client accidentally reversed into a large truck, with relatively minor damage to both vehicles. The fleet operator, TP, is refusing to make a claim on their own policy so that the ‘knock for knock’ could apply, as they have a ‘Burning Cost’ clause on their policy and the cost to their insurer, despite the K4K, will result in either a potential additional premium to them or a reduced refund at year end. They have had confirmation from their Insurer that this will be the case. They are continuing to hold our client liable and insisting their Insurer pay for the truck damage too. This seems unreasonable as in the event of the opposite having occurred – their truck hitting our client – they would make a claim and have the benefit of the K4K and not be penalised for the third party damage. Can your experts confirm whether the advice they have been given is correct – that they will be penalised under the Burner? (Incidentally has anyone ever seen a copy of this ‘knock for knock’ agreement?)

A Response from Dion Herdson, NZI, Auckland The ‘knock for knock’ agreement has clauses which cater for this scenario. The TP is not legally obliged to lodge a claim with their own insurer, and being on a burning cost policy I understand why. This does not avoid the K4K application. On the basis that both insurers are party to the K4K agreement (and this claim fits all criteria for a K4K claim) your client’s insurer is still entitled to reclaim the TP costs back from the TP insurer regardless of whether the TP lodges a claim or not. The outcome is the same, it just means that your client’s insurer must first settle the TP claim and then approach the TP insurer for recovery. There is nothing the TP can do to avoid this recovery, and the TP insurer must pay. It then becomes an issue for the TP insurer and the TP to resolve how the TP’s burner is affected by this claim. (I should have added that the reason the K4K agreement was written in this way was to avoid this very scenario and its application being abused by picking and choosing when somebody wishes to have it apply... either you are all in, or you are all out.)

It is an area that the market does not fully understand, and when advising clients around premium adjustment options for CMV policies, the client should be made fully aware of the pros and cons of being with an insurer who is party to the agreement. This particular scenario is actually quite common, and is a result of clients not fully understanding the agreement.

Q PROPERTY Earthquake Prone Buildings Would the notification of an earthquake-prone building on a building be simply an underwriting consideration impacting on pricing and underwriting per se or a material fact that must be disclosed and, if so, is it advisable for brokers to ask the specific question as part of the pre-renewal discussion? I have also heard of a couple of cases where neighbouring buildings to identified EQBs have been notified of this fact. Where do these people stand in this constantly changing world? The concern in both examples, I guess, is that customers (despite the press coverage) may not really understand the importance of such information and be in danger of prejudicing their insurance cover.

Response from Paul Lightfoot, Auckland I think all material facts are also underwriting considerations, so should be disclosed.

Response from Jane Marsick, NZI, Auckland Yes yes yes. Very clearly a material fact. Well worth asking clients specifically about this, especially if insuring any kind of older building. If only to avoid later PI issues. If you’ve done your job well of advising clients of the changing status of this issue in the insurance market, you avoid an issue if it’s later discovered the client didn’t disclose something to you. Many of the local authorities are now publishing their lists of identified buildings on their websites. Well worth researching which of your clients might be potentially affected, especially if they themselves aren’t yet aware of things. These buildings will become increasingly difficult to insure so it’s worth it to discover as much information up front as you can so that you disclose everything to the underwriter and build a business case for acceptance of covernote the risk. ...for insurance professionals

DO YOU HAVE A QUESTION FOR OUR EXPERTS? If so, visit iNavigator, www.inavigator.co.nz or the

IBANZ website, www.ibanz.co.nz and let us know (iNavigator experts offer free assistance to IBANZ Members via the IBANZ website).

March 2013 | covernote

TECHNICAL INSIGHT | Lumley

“

The extension is... applied if the carrier becomes legally liable for consequential loss caused by breach of a term of the contract of carriage.

”

Carrier’s Liability: Consequential Loss Extension

Andrew Scrivens Lumley

There is often a lot of confusion or misunderstanding around a carrier’s liability for consequential loss under the New Zealand Carriage of Goods Act 1979. Andrew Scrivens provides his take along with a brief explanation and scenario of how a Consequential Loss policy extension can work for clients. Carrier’s Liability Policy: Consequential Loss Extension Fortunately there are options available in the market for carriers to purchase a Consequential Loss Extension to protect themselves against such claims. This is often an optional extension to a standard Carrier’s Liability policy. Every policy is different but the Lumley extension works as follows: There must be a loss payable under the Act (ie physical loss or damage to goods being carried) to trigger the application of the policy extension. The extension is then applied if the carrier becomes legally liable for consequential loss caused by breach of a term of the contract of carriage. Damages for breach of contract are aimed at putting the injured party back in the position they were

Photos: thinkstockphotos.com

New Zealand Carriage of Goods Act – Consequential Loss Section 15 (2) (c) of the Act states: “The limitation of amount for the time being specified in subsection (1) does not apply to any liability arising out of the terms of the contract for damages consequential upon the loss of or damage to the goods.” The “limitation of amount” referred to is the unit limitation applicable to “limited carrier’s risk” contracts, being $1500 per unit, or such higher amount as has been specified under a “declared value risk” contract. Claims for consequential loss can be pursued even if they exceed this limitation, provided that the loss arises from the breach of a term of the contract of carriage.

CONSUMER LAW REFORM BILL UPDATE The Bill has now had its second reading in Parliament and will need a third reading before it is passed into law. The main concern, for carriers and insurers, to the proposed changes that affected the Carriage of Goods Act had been in relation to the proposal to make the Carriage of Goods Act subject to the Consumer Guarantees Act, and restricting the situations in which carriers would be permitted to offer carriage on “Owner’s Risk” and “Declared Value” terms. The Bill also proposed an increase to the unit limitation but this is not seen as a major concern as it is considered to be more an overdue inflationary increase.

38 covernote | March 2013

Thankfully after various submissions from the transport industry, insurance and law sectors the revised Bill does not feature any of the proposed changes that were strongly opposed. The only change to the Carriage of Goods Act itself is an increase in the unit limitation from $1500 to $2000. The revised Bill does however include an amendment to the Consumer Guarantees Act, which places the responsibility on a supplier who has arranged delivery of goods to a consumer, to ensure that the goods will be delivered at the agreed time, or within a reasonable time if no delivery time has been agreed,

and that the goods will be in proper condition. This means that suppliers must resolve with their customers any issues over goods that are lost or damaged in transit, whereas currently they are able to refer customers to the contracting carrier. The supplier will still be able to pursue a claim against the contracting carrier within the terms of the Carriage of Goods Act. This change is not considered to have any effect on the carrier’s liability or insurance. At this stage there is no confirmed timetable for the third Parliamentary covernote reading. ...for insurance professionals

Lumley | TECHNICAL INSIGHT

in before the breach, subject to factors such as how foreseeable it was that the loss would result from the breach. It could be well worth recommending to clients that they consider purchasing the Consequential Loss Extension offered at their next renewal, to ensure they have better cover against the potential exposures they may face in the course of business. Putting it into practice ABC Ltd has entered into a contract to supply and assemble a piece of critical machinery for a start-up manufacturing plant in Hamilton. Their contract outlines when this machinery must be installed and penalties that will be incurred if there is any delay. ABC Ltd sources the machinery from a supplier in Auckland and contracts XYZ Ltd to pick up and transport the machinery from the supplier in Auckland to the site in Hamilton. ABC Ltd specifies the date that the machinery must be delivered and emphasises that it is absolutely critical for XYZ Ltd to make sure that delivery occurs on that date because failure to do so would interrupt the work that needs to be done in Hamilton. XYZ Ltd picks up the machinery

which is presented to them in one full container load. On route to Hamilton XYZ Ltd’s driver loses control, rolls the truck and the machinery is a total loss. ABC Ltd instigates replacement of the machinery with the Auckland supplier and is told that replacement machinery must be sourced from overseas and will take three months to import. This means ABC Ltd cannot meet the deadline in its supply contract with the manufacturing plant and will incur the agreed penalties for the delayed supply. ABC Ltd submits a claim against XYZ Ltd for the total loss of the machinery and the penalties it will incur for the delayed supply. There was no formal contract of carriage in place and therefore the terms of the carriage defaulted to ‘Limited Carrier’s Risk’ terms under the Carriage of Goods Act 1979. XYZ Ltd’s Carrier’s Liability insurers settle to ABC Ltd the legal liability limitation of $1500 per unit (a unit being the full container load as presented to XYZ Ltd). However they refute the claim for the penalties ABC Ltd have incurred under their supply contract. ABC Ltd continues to pursue recovery of the penalties incurred and the matter goes

before the court. The court rules in favour of ABC Ltd and ABC Ltd is awarded the full penalties being consequential losses incurred that are not limited by the Carriage of Goods Act 1979. This is because the court considers that when XYZ Ltd agreed to deliver the machinery to Hamilton by a specified date, that became a term of the contract with ABC Ltd. Because XYZ Ltd did not deliver, the term was breached and XYZ Ltd therefore is liable for the consequential losses that resulted from the breach. XYZ Ltd has purchased the Consequential Loss extension under their Carrier’s Liability insurance so have protection for this liability. This scenario would be covered by the Lumley Consequential Loss extension as: 1. There was physical loss to the goods carried under the Act; 2. There was a breach of a term of the contract of carriage, ie the machinery was not delivered on time; covernote 3. The Carrier was found legally liable. ...for insurance professionals

Andrew Scrivens is Lumley’s Marine Centre of Expertise manager. He can be contacted at AScrivens@lumley.co.nz and on 09 308 1855.

FSCL | CASE SUMMARY

CASE ONE: Motor Vehicle Insurance

disclosure of information

Background Mr K suffered damage to his vehicle after he struck wandering farm stock while driving home at night. The vehicle was written off and Mr K claimed for the value of the cost of the vehicle. Mr K’s insurance claim was declined, on the grounds that Mr K’s traffic infringements were not fully disclosed. On the initial insurance policy form Mr K disclosed a drink driving conviction. When Mr K completed an insurance claim form for the damage, he disclosed further traffic infringements which included speeding, failure to give way and failure to wear a seatbelt. As a result of this non-disclosure the insurance

Photos: thinkstockphotos.com

What are the issues when full disclosure is made only on subsequent insurance policy forms? company revoked the policy and refunded to Mr K the premiums that were paid. The declinature of the policy was made on the grounds that had the insurer known of all traffic convictions and infringements it would not have accepted the risk. However, the insurance company’s proposal form only requested details of driving ‘convictions’, not infringements. Mr K explained that his mother filled in the insurance policy form and that the nondisclosure was simply an oversight. Mr K’s insurance broker further argued that other insurance policy underwriters would have accepted the risk despite having full disclosure of the other traffic infringements. March 2013 | covernote

CASE SUMMARY | FSCL

Review The dispute was referred to FSCL. FSCL investigated the issues which were three fold. These included: • Determining whether Mr K made a substantially incorrect statement on the proposal form • Investigating whether the insurance company can avoid the policy on the grounds of non-disclosure • Determining whether the disclosure of the traffic infringements would have been considered material by a prudent insurer by influencing its judgment in fixing the premium or accepting the risk. After a thorough investigation, FSCL determined that, although Mr K acted innocently and in good faith, he did have a duty at common law to disclose the

infringements. Further, Mr K’s traffic infringements were material in that they would have influenced a prudent underwriter not to accept the risk. It followed that the insurance company had acted within its rights in declining Mr K’s claim. However, FSCL found that had the insurer followed its own internal guidelines and asked further questions regarding infringements, it would not have accepted the risk, but Mr K could have found alternative insurance cover. FSCL’s enquiries showed that there were other insurers who would have provided insurance cover for Mr K. Resolution FSCL’s CEO made a recommendation that the insurer pay Mr K a contribution of 30

percent of his loss. This was on the basis that: • There was evidence that Mr K could have found insurance cover with a different insurance company • The wording on the proposal form could have been more specific about the need to disclose traffic infringements. The loss was calculated as the value of the written-off vehicle, less the excess on the vehicle and less the value of the premiums that had been paid back to Mr K after the initial declinature of the policy. Finally, the CEO recommended that the wording on the insurance proposal form be changed to make it clear to customers that disclosures of traffic infringements as well as disclosures of driving convictions are required.

Photos: thinkstockphotos.com

CASE TWO: Public Liability Insurance

the cover’s short – who’s at fault?

Background Ms Q, an insurance broker with R Ltd, arranged liability insurance with X Ltd (the “Insurer”) for X Tree Services (“the Insured”). While the Insured was working on a client’s property he felled a 14-metre tree, damaging a neighbouring fence and garage. The Insured could not claim against the policy arranged by Ms Q as the policy wording excluded cover where the tree exceeded 3.5 metres in height. Ms Q accepted fault, because the policy did not fit the Insured’s needs, and paid the Insured $5,000 for the loss. Ms Q then asked the Insurer to contribute to the loss. Ms Q claimed that: • The Insurer had a duty to advise R Ltd of any pitfalls in the policy • The Insurer was on notice of the Insured’s business described as: “tree felling, surgery, including stump removal” • The Insurer should have offered a height extension to R Ltd • The Insurer’s height restriction was 40 covernote | March 2013

abnormal when compared to other policies, which provide cover for tree felling to a height of 15 metres. Review It is accepted law, supported by section 33 of the Financial Advisers Act 2008, that a broker’s primary duty is to follow a client’s specific instructions, and in the absence of specific instructions, to obtain suitable insurance for the client’s needs. Determining the scope of cover and advising a client to choose one policy over another policy is an insurance broker’s basic role. It was reasonable for the Insurer to assume that Ms Q was aware of other policies available on the market providing cover for felling trees over 3.5 metres. The Insurer did not know the Insured intended felling trees over 3.5 metres and could reasonably have expected Ms Q to make the Insured, Ms Q’s client, aware of the height restriction in the policy. Upon application the Insurer could have extended the height restriction, how-

ever no standard height extension existed. On the evidence, FSCL’s CEO was satisfied the Insurer had not breached any legal duty owed to Ms Q or acted contrary to industry standards. It was reasonable for the Insurer to expect Ms Q to have performed her function and obligation as a broker. Ms Q could not pass liability on to the Insurer as it had in no way contributed to her negligence. It was recommended that Ms Q withdraw her covernote complaint. ...for insurance professionals

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

ISO | CASE SUMMARY

Motor Vehicle –

Background In 2008, C’s broker arranged cover for a work vehicle, belonging to C’s company. The cover was provided by a second broker (“X”) and was underwritten by P. Later in 2008, the policy was endorsed to provide cover for various other vehicles, including C’s racing car. In April 2009, C discovered the racing car had been stolen. It was recovered after having been stripped of parts. X advised P of a claim. P discovered that C had 10 traffic convictions and two licence suspensions. C also told P’s investigator he had had insurance refused due to his traffic convictions. P avoided the policy from inception and declined to consider the claim. C accepted that he failed to disclose the convictions and suspensions on the proposal. However, he believed the broker knew of them and, therefore, P could not rely on the non-disclosure to avoid the policy and decline to consider the claim. Did the broker know about C’s traffic convictions? The case manager discussed the matter with the broker who advised him that, when the policy was arranged, he was aware there was a ‘licence issue’. The broker later confirmed to P that he knew C’s licence had been suspended for demerit points. While the broker did not appear to have known the full details of C’s convictions and suspensions, he knew that C’s licence had been suspended for demerit points. The case manager considered this fact clearly indicated that C had a number of traffic convictions. The broker was reasonably put on enquiry about the full extent of C’s

convictions and suspensions when the policy was arranged. Was the broker P’s representative? Under section 10 of the Insurance Law Reform Act 1977 (“the ILR Act”), P was deemed to have notice of any information held by the broker if the broker was a “representative of the insurer”. Section 10(3) of the ILR Act states that a person is a “representative of the insurer” if he/ she is “entitled to receive from the insurer commission or other valuable consideration … for … arranging, negotiating, soliciting or procuring the contract of insurance”. The broker was the referring agent to X and was listed as the ‘client contact person’. X confirmed that the broker was paid a referral fee. The case manager believed that, for the purposes of section 10, the broker was P’s representative. Therefore, P was deemed to have been reasonably put on enquiry about the full extent of the convictions and suspensions and could not rely on their non-disclosure to avoid the policy. C’s insurance history The proposal form asked the following questions: “[h]ave you or any intended driver … involved in the operation of the vehicles [e]ver had insurance declined or cancelled”. C answered “[n]o”. While being interviewed, C was asked “[h]ave you ever been declined or refused any insurance claim or cover”. C answered “[y]es, cover probably, because of driving convictions I didn’t get insurance, I can’t recall, it was years ago”. C later denied that he had had any insurance refused or cancelled and said he had

Photos: thinkstockphotos.com

disclosure of information been mistaken. There was no evidence to the contrary and P’s subsequent investigations did not reveal any claims declined or policies refused. Therefore, the case manager did not believe P had proved, as a matter of fact, C had insurance refused or cancelled. Consequently, P could not rely on C’s answer as the basis for an avoidance of the policy for non-disclosure. Result: Complaint upheld. Note: If you are aware of information about your client that should be disclosed on an application you should ensure that this information is disclosed. If there is information which you know has not been disclosed on an application, you should discuss this with your client, explain that he/she has an obligation to disclose the information and document your conversation. Under legislation, if you are paid a commission or a referral fee, you could be deemed to be an agent of the insurer and the insurer may then be deemed to be on notice of information which was not disclosed on the application if you knew covernote about it. ...for insurance professionals

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

March 2013 | covernote

CELEBRATING SOLID SUCCESS Students of Excellence

www.ibanzcollege.ac.nz CONTENTS: 42 News 43 Active Listening Skills 44 CPD on Tour 45 The Six-Step Advice Process 46 NCFS Overview 47 Calendar of Events

Cameron Hollis of Primesure Brokers (Auckland) has successfully completed the National Certificate in Financial Services (Level 5). Chris Gear of Bay Insurance Brokers Ltd (Tauranga) has completed Set C. Chris has one more standard to go to complete his full Level 5 qualification. Nicola Crawford of Centurion Insurance Services (Auckland) has made a great start to her studies by completing Set B. Chris Sit of Sit & Blake (Auckland) already has a number of postgraduate qualifications and has made a choice to complete standard Set C (compliance) to evidence knowledge and practice of current legislation.

Students of the Month December and February: Congratulations to Lisa Williamson of Rothbury, Whangarei who has completed her Set B within a month and her Set E in just eight weeks. This demonstrates tremendous motivation and commitment to study. March: Congratulations to Carolynn Braithwaite of Adams Trimmer Nauman Insurance Ltd, Northland for completing Set A towards the Certificate in Financial Services Level 5. Set covernote A is a challenging module and we appreciate the commitment that Carolynn has shown. ...for insurance professionals

NEWS Significant changes to brokers’ CPD requirements

here have been significant changes made to CPD for all IBANZ members. After discussion at last year’s IBANZ AGM and Brokers Forum it was agreed individual members who are registered financial advisers (RFAs) need to undertake a minimum of 20 CPD hours, which is the standard applicable for Practicing Insurance Broker (PIB) status. The College encourages all IBANZ members to apply for PIB status before January 1, 2014. Qualified Insurance Broker (QIB) and Chartered Insurance Broker (CIB) status requirements remain a minimum of 25 CPD hours. A new rating request has also been created so that all members seeking IBANZ approval and endorsement of in-house training, in either of the structured CPD categories, will need to complete this form. For the unstructured CPD category members will need to record the number of hours spent on unstructured learning activities, this should be available for audit purposes at any time. Items in the unstructured category do not need to be rated.

CPD overview – categories and hours There are two main CPD categories: Structured CPD – consists of two sub-categories: S1 and S2 are structured IBANZ endorsed and approved programmes with learning outcomes. S1 has an assessment of learning while S2 does not. Unstructured CPD – consists of four sub-categories: Professional Participation Activities (U3); Industry Leadership Activities (U4); Professional Reading (U5); Research Activities (U6). Examples of structured and unstructured training can be found in the IBANZ College CPD Guide. The minimum individual member requirement is 20 CPD hours per year (a minimum of 10 hours from S1 Structured CPD category and a minimum 42 covernote | March 2013

of 10 hours from Unstructured CPD categories). QIB and CIB members are required to complete 25 CPD hours per year: a minimum of 10 hours (from S1 Structured CPD category) plus a minimum of 5 hours (from either the S1 or S2 structured CPD categories) and a minimum of 10 hours (from Unstructured CPD categories). In 2010, the Government introduced new regulations to encourage the training and ongoing development of those involved in the financial and insurance professions. These new regulations are advantageous to both clients and insurance professionals. For the client, the regulations provide an assurance of professionalism and a measure of protection against misguided or misinformed advice. Clients are advised of the credentials and the levels of expertise held by the professional they are dealing with, and have confidence that the advice they are receiving is in their best interest. CPD is, however, meaningful only when a benefit is achieved in a planned and structured way. Points can be accumulated only if the activity has been completed and genuinely meets the identified professional development requirements. Gené Bekker, IBANZ Professional Development Executive.

Why IBANZ requires CPD CPD has always been part of being a true professional. Legislation and the introduction of a regulator have reinforced professional standards. The clear expectation, now set out in law, is that insurance brokers have the skills to meet the needs of their clients and must actively work towards maintaining and developing those skills. IBANZ provides all members with the courses, workshops and course monitoring required for structured CPD. We also set a professional standard through our Code of Professional Conduct to ensure members reach an appropriate standard. An important reason for being a member of IBANZ is to show you are a professional, committed to high standards. Gary Young, IBANZ Chief covernote Executive ...for insurance professionals

Active Listening Skills | COLLEGE

DIGGING DEEP TO GIVE THE BEST ADVICE Most insurance advisers will recognise that in order to provide a product of the best fit, a solid understanding of a client’s needs and motivations is essential. Trevor Slater, general manager of Financial Services Complaints Limited (FSCL), is a highly qualified and experienced commercial mediator and negotiator. Andrew Healey spoke with Trevor to get his perspectives on the subject. Trevor Slater.

Ask good questions Trevor is a firm advocate for asking good questions and isn’t afraid to ask more if he is unclear about what a client is saying; questions like: ‘What do you want me to do? If I can do that, what will it do for you? I don’t understand exactly the reasons for what you’re asking; can you give me more information?’ He says that to peel back the layers and receive good-quality answers, it is important that questions are open ended, not just questions that will get a “yes” or “no” answer. As well as asking good questions, putting aside pre-conceived ideas, says Trevor, will often uncover solutions which are not initially apparent. In his field of complaints resolution, it is not uncommon for brokers, if they don’t ask good questions, to come up with solutions that miss the mark; he believes the same issue applies throughout the insurance industry. Trevor has seen brokers run into problems by asking too many closed questions resulting in the recommendation of unsuitable products, usually unintentionally.

important they listen to you. Trevor says that clients must understand that any proposed insurance product will be accepted based on the information given and, for everything to go well at claim time, the information must be accurate. “Sometimes you may have to re-phrase a question three or four times to ensure they are answering honestly,” he says. “For example, when asking a medical question, make sure your client answers truthfully and don’t be afraid to ask the tough questions. If you get the feeling that you’re not getting the right information, be completely upfront withcovernote them.” ...for insurance professionals

IN SUMMARY 1. Ask open-ended questions without pre-conceived ideas. 2. Apply active listening skills. 3. Make sure your clients listen to you. 4. As a precaution, make sure you keep good records.

Keep good records Because of increasing scrutiny of the industry, it is important to keep good records should you be asked to justify your recommendations. “I often say to advisers, ‘If it comes across my desk I want to be able to see why you did what you did,’” Trevor says. Active listening Of course, after you’ve asked a good question, it’s important to listen properly to the answer. This is called active listening – a technique which requires you to listen intently to your clients and then restate what they say in your own words. Trevor says it is common for advisers to think too much about what they are going to say next while they should, instead, be listening carefully to what their client is saying. Also, because everyone’s perceptions are different, think carefully about your choice of words when phrasing a question: “Put yourself in their shoes. Think, what are you going to say? What is your client going to hear? Will they understand what you mean?” he says. Make sure your clients listen to you Just as it is important to listen to your clients, likewise, it is

Visit IBANZ Media to see the full interview with Trevor Slater and gain further ‘top tips for top insurance brokers’.You can also book to attend his Negotiation Skills and Dispute Resolution Process Workshops near you.

Negotiation Skills and Dispute Resolution Workshops Commercial Negotiation Skills

Wellington

5/08/13

9-5

Commercial Negotiation Skills

Christchurch

12/08/13 9-5

Commercial Negotiation Skills

Auckland

27/08/13 9-5

Dispute Resolution Process and Skills

Auckland

2/10/13

9-12

Dispute Resolution Process and Skills

Palmerston North

8/10/13

9-12

Dispute Resolution Process and Skills

Christchurch

16/10/13 9-12

March 2013 | covernote

COLLEGE | CPD On Tour

CPD ON TOUR In February, IBANZ College tutor Chris Mahoney spent four back-to-back days on tour, taking CPD to experienced IBANZ brokers and giving them the chance to evidence current knowledge and skills.

he one-day workshops for the Insurance & Risk Principles and Fire & General Insurance unit standards – core subjects in the Insurance Advice strand – were facilitated in the main centres. Mahoney said it was done as a trial to see if people who know their subjects, but don’t do written homework anymore, would benefit from having the chance to ‘show that their skills are current and do it in one go’. They would also chalk up some invaluable CPD hours. “On paper, it appealed to experienced insurance people,” Chris said. He also added that it was an exciting challenge and his goal was to highlight information from the unit standards, make it user friendly and easily understood by the students. Chris believes that the workshops went well and, when we talked

RECOGNITION OF EXPERIENCE –

‘Fast Track’ opportunities for experienced advisers This month, the College saw the launch of a very exciting new training workshop concept. The introduction of the fast track oneday workshop coupled with the acquisition of CPD points. The workshop worked tremendously well for the experienced and busy financial adviser as it took one day out of their schedules to complete covernote assessments towards their qualifications. ...for insurance professionals

to him, everyone who took part was on track to be awarded the two unit standards. He says: “The workshops seem to work best when there is a Chris Mahoney. real mix of people there. We all learn something.” Is he keen to do it all again? “I think the workshops work really well for people who already know their stuff.” Any down sides? “Sitting around airports and eating too late!” Participant/ Student – Faith Owens – Bridges Insurance “I found the IBANZ Set E workshop a real help to my course progression. It has been a challenge studying on my own and fitting it in around full-time work and home life, so to have a one-day focused workshop with other students was fantastic. We were able to share ideas and solutions and move through the course content at a pace that suited our prior experience. The tutor, Chris Mahoney, was great to work with; knowledgeable, approachable and flexible. “Having now received confirmation that I passed the two Set E papers, this has given my other study a real boost and I’d happily recommend this workshop to other students working through their Level 5 papers”. There are spaces left for the Legislation and Compliance Workshop – Set B and C (see advertcovernote below). ...for insurance professionals

IDEAL FOR EXPERIENCED FINANCIAL ADVISERS & ANZIIF QUALIFIED BROKERS Choosing the Legislation and Compliance workshop is the route to go if you want to get a running start to help you gain the NZ Certificate in Financial Services (Level 5) and gain structured CPD hours all in one go!!! Book now to secure a place for the April Workshops: ✓ Enrich your knowledge base ✓ Understand the formal advice process ✓ Gain additional structured CPD hours on completing assessments. COST: Workshop Only Option: Members $280 + GST & Non members: $450 + GST NZQA Certificate Option (standard sets B and C) Members: $1480 + GST & Non members: $1750 + GST NB: the above fee includes NZQA annual admin feel, tutorials and The Skills Organisation examination and workplace assessment fees. Free for IBANZ students enrolled to complete standard set C

44 covernote | March 2013

Earn

23 CPD Hours

C TR HO AC OS E K OP YO TI UR ON FA TO ST DA Y!

OUTLINE: Legislation and Compliance Workshop for Registered Financial Advisers Legislative Requirements (Set B): Topic 1: Regulatory Requirements Refresher (US 26360) FMA Compliance and Advice Process (Set C): Topic 1: Financial advice and gathering of confirmation (US 25650) Topic 2: Development and presentation of recommendations (US 25651) Topic 3: Implementation and review process (US 25652) Topic 4: Professional practice and regulations (US 25653) Workshop Dates and Venues: Timing: 9.30am – 5.00pm Dunedin: 8th April – 310 Princes St, Dunedin Wellington: 9th April – The Wellington City Library, 65 Victoria St Auckland 10th April – Level 5, 280 Queen Street, Auckland PS:Workshops are subject to minimum class number requirements.

Visit www.ibanzcollege.ac.nz for more information on the qualifications and courses that we offer.

The Six-Step Advice Process | COLLEGE

THE SIX-STEP ADVICE PROCESS Step 1: Creating a professional relationship with the client This step (often connected with Step 2) is meant to identify: What the client’s financial and personal goals are, what the client needs and what can be offered to the client as a solution. Usually in the insurance broker’s case, this means managing insurable risks at the ‘big picture’ level. That will lead to an agreement on the ‘scope of services’ the client requires from the insurance broker. Step 2: Gathering relevant information about the client This means more than just the information needed to provide an insurance quote. It covers the client’s financial and personal situation – including relevant non-financial information, information about assets, liabilities, attitudes to risk and risk consequences. This step includes recording a proper risk profile for the client. Step 3: Analysing the information Information is analysed so the broker properly understands the client’s situation and attitudes. It includes analysing whether the insurance broker (or the broker’s firm) has the resources to provide objective advice to help the client reach their Step 1 goals.

Step 4: Providing advice that includes key factors, limitations and recommendations This step involves devising an insurance plan (‘strategy’) based on an understanding of what the client wants in the future and his/her current financial status; a roadmap that matches ‘goals’ with ‘needs’. Step 5: Implementing the agreed strategies Guided by the insurance plan recommendations, the client makes decisions. This step ensures the agreed solutions are put in place and are ‘working’ as the client expects. Insurance brokers discuss their recommendations, get agreement on how to proceed – then document everything. Step 6: Monitoring and reviewing This is the ‘follow up’ step; where advisers check that what was agreed is still working the way the client expected. Each client’s needs dictate how often periodic reviews are required to check for ‘misalignment’ and changes in the client’s situation. Note: This process is adapted from the ISO 22222:2005 six-step financial planningcovernote process. ...for insurance professionals

March 2013 | covernote

COLLEGE | NCFS Overview

National Certificate in Financial Services

PREPARING FOR THE FUTURE For those working as financial advisers within the insurance industry, including fire and general insurance brokers, IBANZ College offers the National Certificate in Financial Services (NCFS). Andrew Healey talks with some of those studying for the certificate.

he NCFS is the IBANZ recommended minimum standard of competency required for any insurance brokers providing advice (ie Registered Financial Advisers) and the Financial Markets Authority (FMA) minimum requirement for authorised financial advisers (AFAs). Level Five is made up of five groups of standard sets. Chris Mahoney, a tutor and assessor at IBANZ College for NCFS, has this to say: “Esse quam videri — be; not seen to be.” He explains: “It’s not about what you say, but what you do.” To complete the workplace compliance and advice process assessment (Set C), a student must produce documents from three customers and demonstrate that they have followed a six-step advice process. The purpose is to ensure that clients are fully briefed and equipped to make informed choices. Chris says the six-step process is important because it underpins all of the financial services legislation. Though completing the NCFS isn’t compulsory for many in the insurance industry, Chris highly recommends it. He tells me that the insurance industry may have an “avalanche of bad publicity” heading its way as a result of the Christchurch Earthquakes, which will likely lead the Government to make changes to the law. Having this qualification, which has an emphasis on regulation, will be a valuable asset in the future. Chris Gear sees studying towards the NCFS as a way of managing ongoing professional development as well as “future proofing” himself. Chris is a claims manager and broker with Bay Insurance Brokers. He has just completed Set C and, although he confesses to me that new insurance regulations “scared me into study,” he has found it to be worthwhile. Chris says that learning about

LEVEL 5 NCFS (INSURANCE SPECIALIST STRAND) Set A Financial Markets – Advice and Products • Demonstrate knowledge and apply professional practice (unit standard 24755) • Economic, financial and participatory relationship (unit standard 25642) • Stages of personal financial advice and products (unit standard 25643) Set B Legislative Requirements • Knowledge of regulatory requirements (unit standard 26360)

the six-step process has given him a much broader perspective of the industry and he has been able to pass on much of what he’s learned to colleagues. The biggest challenge for Chris was time management: “It’s difficult dealing with a day-to-day workload and a family as well as study.” He tells me he is lucky to have an understanding partner. Cameron Hollis, a director of Primesure Insurance Brokers and Consultants, says that in order to manage continuous professional development, it is important for anyone in the industry to do some sort of study, whether it be attending conferences or workshops. As most of the study for NCFC can be done from the workplace, Cameron saw it as a practical option. He has now finished the NCFC, having completed all five standard sets and felt that one of the main benefits he gained is the point of difference the Level Five qualification gives him. He felt that it gave him a much broader view of the financial markets. Like Chris Gear, Cameron says his biggest challenge was time management and advises anyone who is thinking about studying to “stick to the study plan”. He believes that all brokers should have a qualification to support their area of insurance. His focus now is to keep up his CPD hours in order to maintain the currency of his skills and knowlcovernote edge and to retain him Chartered Insurance Broker status. ...for insurance professionals

o meet the requirements of the National Certificate in Financial Services [Level 5], insurance brokers need to know their speciality well, demonstrate sound judgement for their area of practice and be able to provide evidence of this.

Set C FMA Compliance and the Advice Process • Financial advice process and gathering information • Development and presentation of recommendations • Implementation and review processes • Regulations and professional practice (Unit Standards 25653 -25650 -25651 -25652) Set E Fire & General Insurance • Insurance and risk principles (unit standard 25644) • Fire and general insurance (unit standard 25647) Elective • Develop and strengthen customer relationships and services (unit covernote standard 7455). ...for insurance professionals

46 covernote | March 2013

Calendar of Events | COLLEGE

College Events Calendar 2013 Technical & Specialist

Business Skills & Interpersonal Leadership

Legislation & Compliance

MAY Set E workshop

MARCH Professional Practice 101 and 102

Tuesday

AUCKLAND

Character Building Leadership

Thursday

AUCKLAND

Monday

INVERCARGILL

Tuesday

CHRISTCHURCH

Wednesday

WELLINGTON

Thursday

AUCKLAND

Monday

INVERCARGILL

Tuesday

CHRISTCHURCH

Wednesday

WELLINGTON

Building Relationships - Developing the X-Factor

DUNEDIN

Tuesday

CHRISTCHURCH

Wednesday

WELLINGTON

Thursday

AUCKLAND

Thursday

CHRISTCHURCH

Friday

ASHBURTON

Friday

TIMARU

Thursday

CHRISTCHURCH

Set A workshop

Tuesday

AUCKLAND

Wednesday

WELLINGTON

Thursday

DUNEDIN

Friday

CHRISTCHURCH

Tuesday

INVERCARGILL

Wednesday

DUNEDIN

Monday

DUNEDIN

Thursday

CHRISTCHURCH

Tuesday

WELLINGTON

Friday

NELSON

Wednesday

AUCKLAND

Tuesday

AUCKLAND

Wednesday

WELLINGTON

Tuesday

Clear Thinking Workshop

Monday

BI - Calculations & Policy Purpose

Trade Credit Workshop

APRIL Set B & Set C workshop

Vero Liabilty Seminar Series May

JUNE Set B & Set C workshop

Monday

DUNEDIN

Tuesday

CHRISTCHURCH

Wednesday

WELLINGTON

Tuesday

AUCKLAND

Thursday

AUCKLAND

Wednesday

WELLINGTON

Monday

AUCKLAND

Tuesday

CHRISTCHURCH

Tuesday

HAMILTON

BI - Calculations & Policy Purpose

Thursday

AUCKLAND

Wednesday

WELLINGTON

Thursday

PALMERSTON NTH

Train the Trainer

BI - Calculations & Policy Purpose

Thursday

WELLINGTON

Conflict Management - Handling Conflict Positively Understanding Personality Types

Tuesday

AUCKLAND

Thursday

WELLINGTON

Tuesday

AUCKLAND

Thursday

WELLINGTON

Cultural Diversity Training

Tuesday

AUCKLAND

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

Trade Credit Workshop

March 2013 | covernote

CONTACTS | IBANZ Contacts

College Board 2013

IBANZ Board 2013

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

Tony Butson Rothbury Group Limited PO Box 1120, Queenstown 9348 Mob: 021 322 605 tony@butson.co.nz

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

Tony Bridgman (Vice President) Executive Director Marsh Ltd PO Box 2221, Auckland 1140 Tel: 09 379 6640 Fax: 09 309 9891 Mob: 021 873 399 tony.j.bridgman@marsh.com

Ruth Steele Brokerage Manager/ Commercial Broker Certus Insurance Brokers NZ Ltd PO Box 26621 Epsom Auckland 1344 Tel: 09 365 5912 Fax: 09 307 2386 Mob: 021 639 286 ruth@certusnz.co.nz Gary Young CEO, IBANZ PO Box 7053 Wellesley Street Auckland 1141 DDI: 09 306 1734 Fax: 09 307 0960 Mob: 027 543 0650 gary@ibanz.co.nz

David Crawford Chief Executive Officer Insurance Advisernet NZ Ltd PO Box 74557, Auckland 1051 Tel: 09 524 7600 Fax: 09 524 2226 Mob: 021 905 537 davidc@insuranceadvisernet.co.nz Nick Cressey (President) Director Insurance Brokers (International) Ltd PO Box 305019, Albany, Auckland, 0757 Tel: 09 477 0277 Fax: 09 478 0277 Mob: 021 707 025 nick.cressey@ibi.co.nz

WISH TO RECEIVE YOUR OWN COPY OF...

covernote ...for insurance professionals

ach issue of Covernote is packed with vital information, news, commentary, and advice for the insurance industry from experts within the industry. To keep abreast with all the issues affecting New Zealandâ&#x20AC;&#x2122;s insurance broking industry just email robyn@ibanz.co.nz To advertise: Contact Lisa Morris admanager@covernotemag.co.nz 09 529 3000, 021 651 601 Covernote is published quarterly by IBANZ, the Insurance Brokers Association of New Zealand. All correspondence should be addressed to: The editor, Covernote, PO Box 5544, Wellesley Street, Auckland 1141 or email editor@covernotemag.co.nz

Next issue is due out: June 2013 48 covernote | March 2013

Allan Daly Managing Director Avon Insurance Brokers PO Box 3923, CMC Christchurch 8140 Tel: 03 371 0301 Fax: 03 366 6589 Mob: 027 535 8128 allan@avoninsurance.co.nz Duane Duggan (Vice President) Operations Manager FMR Risk PO Box 2626, Auckland 1140 Tel: 09 358 2258 Fax: 09 358 5920 Mob: 021 833 286 duane.duggan@fmrrisk.co.nz Peter Lowe General Manager NZ Willis New Zealand Ltd PO Box 369, Auckland 1140 Tel: 09 358 3197 Fax: 03 358 3343 Mob: 021 909 148 lowepj@willis.com Ezra Malligan Account Broker IC Frith & Associates PO Box 457, Hamilton Tel: 07 839 0110

Fax: 07 839 0401 Mob: 0212 758 744 ezra@malligan@icfrith.co.nz Rieny Marck General Manager Marketing & Corporate Risk Aon New Zealand PO Box 1184, Auckland 1140 Tel: 09 362 9000 Fax: 09 362 9121 Mob: 027 446 7787 rieny.marck@aon.com Jason Smith Managing Director Property & Commercial Insurance Brokers PO Box 4, Feilding 4740 Tel: 06 323 8820 Fax: 06 323 8872 Mob: 027 293 8724 jase@pcinsurance.co.nz Ruth Steele Brokerage Manager/ Commercial Broker Certus Insurance Brokers NZ Ltd PO Box 26621, Auckland 1344 Tel: 09 365 5912 Fax: 09 307 2386 Mob: 021 639 286 ruth@certusnz.co.nz

IBANZ Staff 2013 June Bai Tutor/Academic Coordinator IBANZ College DDI: 09 306 1737 june@ibanz.co.nz

Janine Kantor Student Support Officer IBANZ College DDI: 09 306 1731 janine@ibanz.co.nz

GenĂŠ Bekker Principal IBANZ College DDI: 09 306 1735 Mob: 027 459 9804 gene@ibanz.co.nz

Karen Scard Membership & Secretarial Support DDI: 09 306 1738 karen@ibanz.co.nz

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

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

IBANZ 2013 Physical address: Level 5, 280 Queen Street, Auckland 1010 Mailing address: PO Box 7053, Wellesley Street, Auckland 1141 Telephone: 09 306 1732 Fax: 09 307 0960 Website: www.ibanz.co.nz

IBANZ Corporate Company List | CONTACTS

IBANZ Corporate Company List Abbott Insurance Brokers Ltd Adams Trimmer Insurance 1992 Ltd Adams Trimmer Nauman Insurance Ltd Addex Ltd Advice First Limited Affiliated Insurance Brokers Ltd AJIB Insurance Brokers Ltd Albany Insurance Services Ltd Allfinanz Risk Anchorage Insurance Brokers Ltd Andrew Scragg & Associates AMP Services (NZ) Ltd Aon New Zealand API Insurance Ascot Insurance Brokers Ltd Atlas Insurance Brokers Ltd. Austinsure Ltd Aviation Co-operating Underwriters Pacific Ltd Avon Insurance Brokers Baileys Insurance Brokers Ltd Barley Insurances Limited Bay Insurance Brokers Ltd Benson Insurance Brokers Ltd Benton & Power Ltd Bill Boyd & Associates Ltd Boston Marks Group Ltd Bridges Insurance Brokers Limited Broker Direct Services Ltd BrokerWeb Risk Services (Auckland) Ltd BrokerWeb Risk Services (Bay of Plenty) Ltd BrokerWeb Risk Services (Hawkes Bay) Ltd BrokerWeb Risk Services (Manawatu) Ltd BrokerWeb Risk Services (Northland) Ltd BrokerWeb Risk Services (Southern) Ltd BrokerWeb Risk Services Limited Card Marketing International Ltd Cartwright General Insurance Limited CBA Insurances Limited Certus Insurance Brokers NZ Ltd Coastline Insurance Services Commercial & Rural Insurance Brokers Ltd Crombie Lockwood (NZ) Ltd Dave Fielding Financial Services Dawson Ins. Brokers (Whakatane) Ltd Dawson Insurance Brokers (Rotorua) Ltd Edward Ruys & Co Ltd Elders Insurance Limited Emerre & Hathaway Insurances Limited Executive Insurance Services Ltd Freedom Insurance Ltd Future Agency Co. NZ Ltd Gary Jamieson Insurance Brokers Ltd Glenn Stone Insurance Limited Graeme England Insurance Services Ltd Grayson & Associates Ltd Gregan & Company Ltd Harden & Hart Insurances Ltd Hawkeâ&#x20AC;&#x2122;s Bay Insurances Ltd Hazlett Rural Insurance Limited Hopkins Paton Ltd Hornibrooke Dolan Ltd Hugh Vercoe and Associates Ltd Hurford Parker Insurance Brokers Ltd Hutchison Rodway Ltd I C Frith (NZ) Ltd i2i Insurance Brokers Ltd Ian K Everett Ltd ICIB Limited ILS Insurance Brokers Inbroke Ltd Ingerson Insurances Ltd Insite Insurance Insurance (IMC) Management Centre Ltd Insurance Advisernet NZ Ltd

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

Insurance Brokers Alliance Ltd Insurance Design Insurance People (Fire & General) Limited International Underwriting Agencies Iremonger Insurance Brokers Limited James Forster Insurance Brokers Ltd Jane Cook Insurance Ltd JLT Holdings (NZ) Limited JRI Ltd Ken McNee Family Trust Liberty Insurance Brokers Ltd Lifetime Insurance Brokers Ltd Lloyd East & Associates Insurance Brokers Lowe Schollum & Jones Ltd Luxor Insurance Brokers Ltd MA Risk Solutions NZ Limited Mainprice King Chartered Brokers Ltd Malcolm Flowers Insurances Ltd Marsh Ltd Matt Jensen Insurance Brokers Ltd McDonald Everest Insurance Brokers Ltd Mike Henry Insurance Brokers Limited Montage General Insurance Ltd Multisure Ltd Neal P Sadgrove & Associates Ltd Nelson Bays Insurance Brokers Ltd (NIB) Neville Newcomb Insurance Brokers Ltd Nexus Insurance Brokers Ltd North Harbour Ins Services (1985) Ltd Northco Insurance Brokers Ltd Oâ&#x20AC;&#x2122;Connor Warren Insurance Brokers Oamaru Insurance Brokers OFS Insurance Brokers Ltd Omni Fire & General Ltd Paterson & Co NZ Ltd Penberthy Insurance Ltd Peter C Cranshaw Insurance Broker Ltd PIC Insurance Brokers Ltd Pinnacle Insurance Brokerage Ltd Presland Tocker Insurance Services Primesure Brokers Ltd Property and Commercial Insurance Brokers Protekt Insurance Brokers 2008 Ltd Provincial Insurance Brokers Limited PSC Connect NZ Limited Pulsar Insurance Agency Reid Manson Ltd River City Insurance Brokers 2000 Ltd RMA General Ltd Rosser Underwriting Ltd Rothbury Group Ltd Runacres & Asssociates Limited Seneca Insurance Brokers Ltd Sit & Blake Limited Smith Pitman Insurances Ltd South Pacific Insurance Bureau Limited Sweeney Townsend & Associates Ltd Thames Valley Insurance Ltd The Insurance Brokers Ltd The Stoneman Group Thorner General Insurances Ltd Towes Insurance Brokers Ltd Travel & Accident International Ltd Trevor Strong Ins Ltd Vision Insurance (S.I.) Ltd Waikato Insurance Brokers Limited Wallace McLean Ltd Wanganui Insurance Brokers Ltd Wholesale Insurance Brokers Ltd Wilkinson Insurance Brokers Ltd Willis New Zealand Ltd Yesberg Insurance Services Ltd Yongkim Consulting Co Ltd

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

March 2013 | covernote

Star Underwriting Agents Limited is...

New Zealand owned

available 24/7

behind NZ Brokers

privately owned

of claims settled by SUAL

focused on providing a professional and quick service

underwriting decisions are ours (we ask advice sometimes)

share holding by any insurance company or brokerage

Star Underwriting Agents network of products include

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

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

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

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

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

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

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