CoverNote September Issue 2015

REINFORCING BROKERS' DUTIES

September 2015

The professionals’ magazine from IBANZ

NZ BUSINESSES FACE BIG BILLS FOR ENVIRONMENTAL DAMAGE Dransfield set for new industry, new challenge

over 2Â billion

*

A lot happens in 2 years.

In the last 2 years, we have paid out over $2 billion on insurance claims. It proves something every business owner knows. Running a business can be challenging and the unexpected is never that far away. That’s why so many companies, large and small, turn to us to protect them from all manner of risks.

NZ6214 08/15

For more information call your NZI Business Development Manager or visit www.nzi.co.nz * Number is an indication of all personal and commercial insurance claims paid to NZI customers inclusive of reinsurance.

WELCOME

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

PO Box 33-1630 Takapuna.

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

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

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

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

Website: www.ibanz.co.nz

Gary Young CEO, IBANZ

Not change for change's sake When we look back over this year from an IBANZ perspective what will likely stand out will be legislative reviews.

Not the most exciting of things in the world during 2015 but these are matters we just have to get right.

These days the reality of business life is we operate in a regulated environment, which is going to have an impact. It probably won’t make your business successful, but it sure can kill it if we get it wrong.

The hard thing for IBANZ to determine is what is right and what is wrong for our members’ success. Government would argue that it is clear: Get it right for consumers and you get it right for regulators and therefore ultimately right for business.

In many ways what is right will be about what is not in the legislation rather than what is in. Overly-prescriptive regulation kills innovation, kills entrepreneurs and eventually stifles business, meaning consumers have little choice. This is definitely not the right outcome for business or consumers.

Legislation and the resulting regulatory environment are part of the foundations for business. Any change should ensure they remain a strong base on which to grow. I am reminded of the Team NZ approach to change: “Will it make the boat go faster?” If not, don’t do it.

When we look at changes to legislation we need to take a similar approach. If it doesn’t improve the overall position of business and their clients, then don’t do it.

Looking at the current reviews in which IBANZ is closely involved, there are good examples.

The EQC review has focused on the key issues, and come up with changes that will definitely make the claims process go faster. Sure we can debate if they have they gone far enough, but at least the direction is positive.

On the other hand, the Fire Service review of the levy funding model is the opposite.

It is suggesting changes that are clearly unsound and will produce a more complex environment that will surely slow everything down. This reminds me of a slow funeral march with the current funding model in the coffin. A quick burial would be good.

It is early days with our third key review, looking at financial advisers. This is poised somewhere in between the other two scenarios and might go either way. The regulatory environment for advisers could easily drown us in compliance, it has happened in similar jurisdictions overseas where the outcome has produced nothing positive for consumers.

There are some vital issues at stake here and we must continue to question the purpose of change. We have had assurances that there will not be change for change's sake, I hope so. Our efforts are completely focused on ensuring the end result follows the EQC example rather than that of Fire Service funding.

Gary Young, CEO, IBANZ

Features 16. Business insurance policies need better explanation Many New Zealand companies do not understand why they need to cover their ability to operate as well as their physical assets.

20. Dransfield set for new industry, next challenge Vero chief executive is returning to Sydney to head Suncorp’s life insurance business.

28. Disruption being felt by insurance sector 30. The revised Fair Insurance Code - brokers as the agent of the insured What you need to know

39. What's in a name? Tips for navigating trade mark territory 14. Environmental Liability Why brokers and businesses need to improve their knowledge.

40. Emergency Planning Part of

Brokers' Toolkit

Small businesses have a new way to ensure

they are prepared for a worst-case scenario.

42. FSCL Case Study

Regulars 1. View from the CEO’s chair 3.

News 25.

Out & About 26. Ask an Expert

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

44. ISO Case Study

REINFOR

CING BRO

KERS' DUT

IES

September 2015 The profe

ssionals’ mag azine from

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NZ BUSIN FACE BIG ESSES ENVIRON BILLS FOR MENTAL Dransfield DAMAGE new challenset for new industr y, ge

NEWS

More expensive weather The June weather bomb that caused extensive flooding in the lower North Island and the West Coast of the South Island cost insurers more than $44 million, bringing the total cost for 2015 weather-related events close to $100 million, the Insurance Council says.

ICNZ chief executive Tim Grafton said: “Provisional figures show the Lower North Island damage to total $36.8 million and the West Coast of the South Island $7.5 million.”

More than 1600 domestic claims cost insurers more than $23 million, with nearly 600 commercial and business interruption claims costing over $11 million. The remainder of claims was largely for motor vehicles, at over $1.3 million.

ICNZ produced a 15-point plan to protect New Zealand from natural hazards.

Grafton said New Zealand was one of the most vulnerable countries of its economic size to the impact of natural disasters.

“Recent Insurance Council research underlines the need to take these risks seriously with 64% of New Zealanders agreeing central and local government need to actively plan and increase funding for initiatives to reduce and prevent damage from natural hazards before they occur,” he said.

“The research also found that 71% of Kiwis do not think that New Zealand is well prepared to minimise the economic and social costs of natural hazards.”

The full cost to the insurance sector will be more than $44 million as a substantial amount of council infrastructure damage will be underwritten through offshore insurance arrangements.

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NEWS

Record claims numbers settled More residential insurance claims were settled in the second quarter of 2015 than in any other three-month period since the 2010 and 2011 Canterbury earthquakes, the Insurance Council says.

ICNZ chief executive Tim Grafton said there was a nearly 40% increase in the June quarter and it was the highest number of claims settled of any quarter to date.

The value of all residential and commercial claims settled is well over $15 billion.

Private insurers have settled 66%, or over 16,000, of over-cap residential Canterbury earthquake claims. That includes more than 1500 in the quarter to June 30, or equivalent to nearly 17 properties a day.

Grafton said: “The pace of settlements has ramped up and the evidence suggests that contrary to recent commentary reported in the media about the rate of recovery, we are continuing to see more residential settlements than ever. Insurers continue to make a major contribution to Canterbury and the New Zealand economy and are committed to settling the remaining claims as quickly as possible.”

At the end of June 2015, there were 24,527 over-cap residential claims, with 327 transferred from the Earthquake Commission (EQC), taking the total transferred from EQC since January 2015 to 602.

ICNZ and the Canterbury Earthquake Recovery Authority (CERA) data indicates 75% of all over-cap residential claims are resolved or have been fully settled. Resolved means the repair/rebuild is under construction, in consenting or a building contract has been signed.

A further 19% of the 24,527 over-cap claims are in resolution, meaning cash settlement is pending or the rebuild/repair is in the pricing and design process.

Grafton said: “While cash settlements remain an option for many homeowners, the increase this quarter in settlements is for both cash settlements and rebuilds and repairs. Insurers completed 596 major repairs and rebuilds in the last quarter, bringing the total to 4053 to the end of June 2015. To date 12,153 of over-cap claims have been cash settled, which has allowed people to buy another home or manage their own rebuild or repair. The number of customers who are still to receive offers from their private insurer is down to 488 and there are 358 people who have yet to make decisions on the offers they’ve received.

“We’d encourage any customers who are unsure about the offer they’ve received or have yet to make a decision to contact either their insurer or the Residential Advisory Service. The service is costfree, totally independent and can help provide customers advice and assistance that may help progress their claim."

Suncorp’s NZ business profit up Suncorp Group reported a net profit after tax (NPAT) of A$1133 million for the year to June 30.

Suncorp New Zealand’s general insurance business, which consists of Vero New Zealand and AA Insurance, delivered a strong performance with an insurance trading result of NZ$159 million for the full year, a 64% increase on the previous year.

The group said the increase reflected a reduction in impacts from weather-related events during the year and additional claims costs in relation to the Canterbury earthquake events.

Gross written premium increased by 3% over the period in the direct and intermediated

4

September 2015

businesses.

Suncorp said an increased focus on personal insurance resulted in pleasing unit growth of more than 6% over the past 12 months. It said growth and improved client retention rates remained strong in commercial

insurance despite challenging market conditions.

Vero New Zealand chief executive Gary Dransfield said Suncorp remained committed to investing in and growing the New Zealand business.

“In particular, we continue

to invest in simplifying and transforming our business to make it easier for our customers, particularly at claims time. This includes technology investment and new product development as we saw with the launch of SumExtra this year,” he said.

“We continue to work through remaining claims in Canterbury and have continued to make progress in the past 12 months.

Suncorp New Zealand has now paid $4.5 billion in claims to customers."

The remaining cases are the most complex ones and we are committed to resolving these directly with customers as soon as practicable. The resolution of Canterbury claims remains a key priority.”

NEWS

Underwriters back bike show Business travel policy launched ACE Group has announced a new business travel insurance policy for the New Zealand market, which will fulfil a corporation’s obligations and protect their employees in the event of a travel mishap.

ACE policyholders can select unlimited loss of deposits and cancellation cover for business trips.

A level of cover is offered to people regardless of age.

ACE has also partnered with global crisis management company red24 to provide its clients with travel safety and security services.

These include ground support and evacuation assistance in the event of unexpected civil

unrest, political instability, natural disaster or a terrorist attack. red24 services also include access to worldwide telephone support and a website providing a range of pre-travel security and safety advisories.

ACE’s business travel policyholders and covered persons will be offered access to a smartphone app that provides them with travel advice, country intelligence, daily news and travel alerts during their trips.

These travel safety and security services are complementary to the existing ACE Assistance network that provides 24/7 medical and other travel related services.

“The needs of our business travel

clients have changed over the years and this refreshed policy is a timely response to that market demand,” said Andrew Brooks, country president for ACE in New Zealand.

“We now have market-leading coverage together with a comprehensive range of travel assistance and security services available to our policyholders.

In the event of a travel mishap like cancelled flights or a major event such as a terrorist attack, our clients and their employees can rely on the 24/7 support of a worldwide emergency assistance network. They can travel with confidence knowing that help is just a phone call away if the unthinkable occurs.”

A classic and custom motorcycle show organised

by Rotary and sponsored

by Star Underwriting has raised $70,000 for charities.

The event was held in August at the ASB Showgrounds in Auckland.

A Trade Me auction for an Indian Scout bike was a highlight and raised more than $36,000.

Burt Munro’s son, John, took part in the closing stages of the auction at the show with his wife, Margaret.

The organisers said Star had worked closely with Ride For Ever to provide rider training courses at a minimal and heavily-subsidised cost.

Star also put up two $1000 cash prizes, for best in show and best club.

www.covernote.co.nz

5

NEWS

UAC increases NZ representation The Underwriting Agencies Council has appointed an associate director from New Zealand to the board.

Mike Street is director, property and casualty, with Auckland-based International Underwriting Agencies Ltd (IUA).

He has 40 years’ experience in the insurance industry, having started as a trainee broker. He soon moved into the company market and remained there until 2002, when he joined IUA. In 2009, Street and his wife, Debbie, became major shareholders in the company.

IUA was New Zealand’s first agency to join UAC; there are now nine New Zealand-based UAC members.

UAC General Manager William Legge welcomed Street to the board. He said the board represented all UAC members, regardless of where they were domiciled, but with New Zealand membership expanding rapidly, the directors decided it was beneficial to have a New Zealand-based board representative.

“This move will facilitate communications between the board and our New Zealand-based members and UAC is delighted to welcome Mike Street to our governing body,” he said.

“As UAC’s New Zealand membership grows, and we have more member events there, it is important for us to get direct input from the New Zealand agencies via an associate director.”

Insurance for pricey bikes More than a million Kiwi cyclists may not be insured for theft and damage to their expensive cycle gear including bikes damaged during road rage incidents, according to a local industry expert.

A dramatic increase in the average investment in bicycles and accessories over the past decade has seen the cost of a quality bike rise to more than $10,000 for keen recreational racing and ‘weekend warrior’ cyclists.

However, traditional home and contents policies do not cover common events that could result in damage to, or loss of, expensive cycling equipment, says James McGhie, of Apex Insurance.

“Current home and contents policies do not cover loss of your bicycle due to damage while in use, theft if it occurs away from the home, and bikes are not covered if taken overseas,” says McGhie.

“That means if a cyclist damages their bike badly enough to write it off while commuting to work or racing on the weekend or even if it's pushed over during a road rage incident, it won’t be covered. And if it’s stolen while they are out and about, there will also be no replacement.”

The chance of damage to a bike in an accident is significant, with some highly skilled riders reaching speeds of up to 60km per hour, while theft is an extremely common occurrence, with hundreds of bicycles stolen from streets every year.

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September 2015

“It’s also becoming much more common for people to travel around New Zealand and internationally for cycling holidays and races, but your gear will not be covered from the moment you leave the house without specialist insurance,” says McGhie.

“With a typical top-of-the-line bike costing $7-$8000, and accessories on top of that

around $1500-$2000, it’s a significant investment that most people would struggle to replace easily if something was to happen.”

McGhie estimates only a very small number of the 1.2 million Kiwi cyclists currently on the roads would have specifically insured their bicycles, with most relying on home and contents policies that are inadequate.

In response, Apex Insurance is introducing a new standalone insurance package specifically tailored for cycling enthusiasts.

The Bikesure policy is the first and only

in New Zealand to offer cover for damage while racing and training, worldwide cover for damage, damage in transit, and damage to the bike while in use.

It will also include open-air theft cover, so long as reasonable care is taken for the bike’s security by locking it and not leaving it unattended for long periods of time.

“The policy will offer replacement value on your bike at the agreed sum insured, and depreciation won’t apply for the first two years so long as the policy-holder is the first owner of the bicycle,” says McGhie.

The cover fills all the gaps left by a home and contents policy, says McGhie, and has also been taken up by well-known cyclists to look after their prized possessions.

Bikesure ambassador and professional cyclist Robbie McEwen, who is a three-time Green Jersey Winner in the Tour de France and a triple Olympian, says insuring a bike, no matter what level people ride at, offers peace of mind.

“My bike is worth approximately $30,000, so for it not to be insured while I travel and race would be a huge risk,” says McEwen.

“While most people wouldn’t have that much invested in their bicycle, there’s still always a chance something might go wrong, and it’s good to know you’ll be able to replace your bike immediately no matter where you are or what you were doing at the time.”

NEWS

Review a disappointment There is only limited appetite for a change in the way the Fire Service is funded, despite the launch of a wide-ranging review, IBANZ’s chief executive Gary Young says.

The association has made a submission to the Department of Internal Affairs’ Fire Services Review discussion document.

The Fire Service is funded through a levy charged to property owners who take out fire insurance.

This levy provides 95% of the Fire Service Commission’s funding.

The levy has been a source of contention in the industry and has led to protracted court battles over brokers’ attempts to structure their clients’ insurance in such a way as to minimise it.

The Government has been heavily criticised for not considering the

possibility that the service levy could be dropped in favour of another method of funding the Fire Service.

The only option it has suggested to replace the current model is either using an insurance-based system with a levy that is easier to understand, or a mixed funding model including insurance levies and contributions from the Government to fund non-fire activities and reflect the underinsurance of Crown properties.

Recommendations as a result of the review are expected to be made to the minister later this year, followed by any changes to the legislation next year for implementation in 2017.

The Insurance Council wants the Fire Service to be funded through general taxation.

Young said the system needed to be simplified. “Everyone just

wants to get on and do it. Brokers want a simpler system to operate.

But it appears there’s only an appetite for limited change.”

He said the Government had removed all the options from the review that might have worked better, including funding from local body rates or the general tax take. “That doesn’t stop us saying this is the wrong option,” Young said.

IBANZ’s submission said the association had submitted many times that the approach of funding via insurance was outdated and did not reflect the reality of the role of the Fire Service or the environment in which it operated.

“The model is also inherently unfair in that everyone in New Zealand relies on the effective emergency response provided by the Fire Service and yet only those

who choose to pay for insurance actually pay for the service.

This is particularly true with motor vehicle accidents where a large number of motorists are uninsured but still rely on the Fire Service in an emergency situation. The funding model does not reflect a user pays approach or the wider activities of the Fire Service which are not related to fire response.

"This has been recognised in all similar countries overseas and has gradually been replaced to the point now where New Zealand is an anomaly.”

Young said the legislation urgently needed to be modernised.

“Lengthy and expensive court cases in recent times have proved the matter should be made a priority. The Courts agreed that the legislation is outdated and no longer fit for purpose.”

Code Compliance Committee appointed Three well-known New Zealanders have been appointed to an Insurance Council (ICNZ) committee to monitor the new Fair Insurance Code.

The revised Code sets high standards for companies to uphold and includes timeframes for addressing claims and complaints as well as a requirement for insurers to respond reasonably to any non-disclosure of material information by the insured.

The Code comes into effect on January 1.

The Code will be monitored by a new Code Compliance Committee which will be chaired by the chief executive of ICNZ Tim Grafton.

The Code covers all dealings between ICNZ’s members and consumers and small and medium enterprises.

The Committee’s role is to monitor breaches of ICNZ’s Fair Insurance Code, report data on the number of breaches of the Code to the ICNZ Board, investigate unresolved significant breaches of the Code and make recommendations to the Board on those breaches.

Former Governor General Anand Satyanand, former finance

minister David Caygill and QC David McGee have accepted membership of the Committee.

Satyanand is also a former judge, ombudsman and legal practitioner with extensive governance experience.

He reviewed the Banking Ombudsman scheme that led to the independent framework it operates under and until recently he was a patron of the New Zealand chapter of Transparency International.

Caygill retired from politics in 1996 and has since held a range of senior governance roles including Chair of the ACC and Chair of the Electricity Commission.

In 2010, he was appointed as one of the Commissioners at Environment Canterbury. He acted as the peer reviewer for the Fair Insurance Code.

McGee was appointed an ombudsman in 2007 after 22 years as Clerk of the House. He retired as an ombudsman in 2013.

“I am delighted that such high-calibre individuals who bring a vast amount of skills and experience have joined the Code Compliance Committee,” Grafton said. www.covernote.co.nz

7

NEWS

Insurance Council 2015 Conference The Consumer Spotlight – The Changing Environment ICNZ is shining the spotlight on consumers at its 2015 conference this year.

The conference will be held on November 11 at the Sky City Convention Centre.

The conference, dubbed The Consumer Spotlight – The Changing Environment, will be opened by incoming ICNZ President Chris Black and will introduce a line-up of expert speakers on topics that are shaping the industry.

ICNZ wants to encourage brokers to attend.

Canterbury Earthquake Recovery Minister Gerry Brownlee will talk about the Government’s plans for disaster recovery in the future and Commerce and Consumer Affairs Minister Paul Goldsmith will give his take on how insurers are dealing with consumers. He’s been asked to talk about disclosure of broker commissions.

Hon David Caygill, a Cantabrian who peerreviewed the Fair Insurance Code, will look at how well the industry regulates itself and PR practitioner Samson Samasoni,

who used to be ICNZ’s Communications Manager, will give an inside-out as well as an outside-in view on how we manage our reputation.

The conference winds up with a four-person chief executive panel which will contrast the views of established and challenger brands on the consumer environment.

It will include IAG’s Jacki Johnson and AAI’s Chris Curtin for the established brands with John Lyon (Ando) and Danie Matthee (Youi) alongside them.

Start-up joins Insurance Advisernet Geoff Long and David Burroughs have started a new, independent risk advisory and insurance broking firm in Auckland, under the umbrella of Insurance Advisernet.

Called Long Burroughs, the firm’s focus is on bringing back the highly professional and personalised service model to the insurance industry.

Trading on the key values of integrity, transparency and customer service, Long and Burroughs are committed to doing things the right way. This means taking the time to understand clients’ and prospects’ unique situation, in order to provide good advice and a truly tailored insurance programme which is understood by all parties.

“There is nothing revolutionary in our service offering,” says Burroughs. “Many would say this is the traditional broking model.”

But Long said the industry seemed to have forgotten the traditional elements of client service and was instead focused on selling on price, commoditising brokers’ role in commerce and pushing margin at all cost.

“In our experience we found that the majority of New Zealand businesses viewed insurance broking as a ‘veneer service’ - we all do the same thing, the same way – it is this mentality we seek to change in order to attract clients and build long-standing relationships,” Long said.

Both Long and Burroughs come from corporate insurance backgrounds, a heritage they are both proud of.

Having undertaken client and market-facing roles in New Zealand and London, they have the experience at providing advocacy at the top end, managing the expectations of technical and demanding individuals and boards alike.

The experience gained managing these kinds of clients provided them with the proving ground for the service model they have adopted for Long Burroughs.

Long said: “The corporate market represents roughly 5% of the 8

September 2015

market share and frankly Long Burroughs is not here to actively compete in that market. Instead we intend to take attributes of the service offering we as an industry tend to reserve for corporate business and apply it to the wider SME sector – the majority of New Zealand business.”

Burroughs said: “The beauty of our model is that while we have corporate experience, we are unrestrained in the way we offer our service and do not segregate our customers based on their size or other defining attribute. We’re able to provide both the service and attention those companies deserve and we do so regardless of their size or insurance requirements.”

He said the third step that was crucial is developing their unique service provision.

“We chose to align with Insurance Advisernet as they allowed us to maintain complete autonomy in the way we wish to do business, however, provided us with risk identification and management tools that we have not seen elsewhere before.”

Long said: “It is remarkable what we have at our finger tips.We look forward to implementing the technology Advisernet has invested in and vastly improving the standard of advice and reporting for our clients.”

David Crawford of Insurance Advisernet said: “In the first few weeks of operating it is obvious that this new firm is going to be a great success. Geoff and David are relishing the removal of the corporate shackles and customers are already buying into their service and advice philosophy.”

He said the new firm was what the insurance market needed.

“Young, talented and entrepreneurial brokers to get out there and take on the bigger players. With Advisernet’s backing and resources it is not as risky as it used to be going out on your own and I look forward to watching Geoff and David’s growth in their new venture.”

NEWS

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9

NEWS

Earthquake claims hitting IAG New Zealand continues to be a strong performer for IAG, the company said as it delivered its annual result.

That’s despite the fact that it is having to dip into its own capital reserves to pay for claims still coming in as a result of the February 2011 Christchurch earthquake.

The IAG group reported a 2015 year insurance profit of A$1.1 billion ($1.2 billion), down from A$1.6 billion in the previous year.

That equated to a reported insurance margin of 10.7%.

Managing director and chief executive Mike Wilkins said the group was well-positioned in a rapidly changing and competitive environment.

“Our strong franchises in Australia and New Zealand, our increasing digital presence and the significant opportunities available to us in the fast-growing Asian market mean we are well-placed for the future,” he said.

He said the full-year reported performance was affected by a substantial increase in net natural peril claim costs.

In New Zealand, IAG has had to strengthen its gross claim reserves in relation to the 2011 earthquakes.

The gross claim reserves for the February

quake now exceed the group’s $4 billion reinsurance limit, meaning it is having to fund the claims still coming in and cannot rely on reinsurers.

IAG said: “The strengthening has been driven by the continuing notification of new household claims that have exceeded the Earthquake Commission’s residential dwelling limit and, to a lesser extent, an increase in forecast repair costs and a series of adverse court judgements which have affected the broader insurance industry. With more than 78% of related claims by number now settled, the group expects the Canterbury rebuild will be largely complete by the middle of the 2016 calendar year.”

New Zealand reported gross written premium growth of 22.8%, derived from the Wesfarmers acquisition, and assisted by the falling New Zealand dollar.

It said modest growth in direct personal lines business was countered by continuing competitive conditions.

Reported margin fell slightly to 10.8% from 11.5%. The earthquake-related net reserve strengthening in the second half of the year reduced the full-year margin by more than 600 basis points.

New Austbrokers CFO Jodie Blackledge has taken over from Steve Rouvray as chief financial officer of Austbrokers Holdings, the parent of NZbrokers.

Rouvray has retired after 10 years in the job.

Blackledge will also assume responsibility for Austbrokers’ risk and compliance and group legal functions to drive improvements and further enhance the value and service that Austbrokers offers to partners and clients.

NZI makes appointments Nina Lammiman Head of Strategy and Transformation Nina Lammiman joined NZI’s leadership team in late May, heading up strategy and transformation.

With more than 10 years in senior strategy roles here in New Zealand and in the United Kingdom, Nina brings with her a depth and breadth of experience.

Lammiman’s most recent roles have been with Spark Digital (formerly Gen-i, a division of Telecom) where she worked for six years as head of strategy, planning and performance; and before that head of business transformation.

Lammiman will be responsible for refreshing NZI’s overall strategy with a focus on digital.

“Enabling the digital transmission of the business and how we work with our partners to provide more solution-focused products and services to our key customer groups is critical,” she says.

“Our broker partners need tailored solutions. We need to understand how they want to grow so that we can align our products and service offerings to meet their needs.”

Lammiman has a Master of Engineering and a Bachelor of Arts (Hons), and is an Associate Member of the New Zealand Institute of Directors.

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September 2015

Paul Geden National Manager Broker Personal Sales Paul Geden took on the role of national manager broker personal sales in July, working under John Chandler, now NZI’s general manager broker business.

Geden has an extensive background in underwriting, intermediated sales, transformation and change.

Originally from the United Kingdom, Geden has come from the Lumley part of the business where he was initially part of the commercial motor underwriting team, most recently working to standardise and improve the business through process and technology.

Over the coming months, Geden will be working with our partners to determine how best NZI can support them and work with them to develop a fresh approach to high-net-worth and broker VIP customers.

Geden says: “Partnering with and supporting our brokers has been the foundation to our success as a business. As the market faces new challenges we see opportunities for NZI to work closer with our partners to become more agile and faster to market. We also want to seek out different ways of working to ensure our customers get the right service, the right product and a quality claims service to match.”

FEATURE

In June 2015, PSC Connect celebrated three years

quality brokers and small broking businesses

These are the introduction of a highly-efficient

as an expanding insurance broking group in New

know about the benefits and opportunities the

electronic document management system, which

Zealand.

PSC model offers. You have the ability to run

assists with compliance and efficient record

After taking some time to establish the business,

your own broking business with minimal capital

retention, and a new and improved website to

the first broker, Rick Lim of Insurance Resources

outlay, along with access to quality systems, a

promote the services of the member brokers to

Limited, was signed in January 2013 and from

support team and the leverage of being part of a

potential clients which will be launched within the

there the business has grown rapidly towards the

well-known larger group. This structure is already

next month.

anticipated target of 25 member brokers within

huge in Australia, but the opportunity of building

PSC Connect is also a network broker of the

three years.

your own broking business and asset for yourself

Steadfast Group, which provides additional access

PSC Connect national manager Dave Penfold

as part of a network, such as PSC Connect, is

to specialist products and services.

said: “At just over the three-year mark, we have

only now becoming more widely known in New

Penfold said: “Our model is all about providing

22 signed up with commitments from several

Zealand.

expertise, technology, compliance, marketing and

other brokers wanting to join over the next few

The success of our PSC Connect member

lead generation, training and other valued services

months.”

brokers contributes to this and we hope it will

to help our member brokers build a successful

He expressed his surprise at how little New

continue to do so,” Penfold said.

broking business over the long term.

Zealand brokers know about the evolution of this

Two key initiatives have recently been offered

In addition we continue to focus on specialisation

type of broking business model.

to the growing member broker team by PSC

and schemes to provide additional opportunities

“I am still amazed at how little so many good

Connect, at no additional cost to them.

to our member brokers.”

“PSC has allowed me the opportunity to set up my own business, but with the backing of a large organisation providing great back office and sales support. This has allowed me time to focus on my clients and business.” – Brent Michie from Jack Mac Ltd in Wellington “We have been a member of PSC Connect for over two years. This has enabled us as a single operator access to an array of insurers which before was impossible. Now with the groups involvement in Steadfast Group, we have an even better opportunity for enhanced policy wording, competitive premiums and greater commissions. The Ibais system and office support has been instrumental in our business being able to upgrade our data output to meet current Regulation and Compliance issues. The opportunity to share industry information with other PSC brokers in a non-competitive environment has been the hidden bonus in joining the group.” – Peter Snedden from Threefold General Ltd in Takapuna

Build your own broking business supported by a global insurance broking company Are you • Frustrated working for someone else?

• Ready for an exciting new challenge?

• Want 100% ownership of your business?

• A quality insurance broker?

If you have an existing business do you • Want to level the playing field?

• Need a new quality web based broking system?

• Need access to more markets for your clients?

• Want to increase the value of your business?

09 358 1186

or dpenfold@pscconnect.co.nz

Proud to be members of IBANZ and Steadfast

www.pscconnect.co.nz www.

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

11

VERO

O AD

COVER STORY

Environmental Liability What you need to know

I

ncidents that cause environmental damage can mean big bills for New Zealand businesses. Just ask Fonterra, which was recently fined $192,000 for causing a buttermilk stink in Eltham.

But there are claims that few brokers fully understand environmental liability insurance policies, or the gaps that can exist in traditional business liability policies when environmental problems arise.

Charges can be brought under the Resource Management Act, Hazardous Substances and New Organisms Act, Climate Change Response Act, Ozone Layer Protection Act and Waste Minimisation Act. Regulators include local councils and the Environmental Protection Authority.

In the 2013-2014 year, there were 711 spills and leakages that came to the attention of the Environmental Protection Authority, 312 fires, 10 explosions and one incident of spray drift.

That is down from 2012-2013 when there were 930 spills and leakages, 296 fires, 17 explosions and three cases of spray drift.

This does not include RMA prosecutions, which are handled by local authorities. There about 100 RMA prosecutions each year, about 60% of which relate to effluent discharge into water and 7% discharge into air. Until the Fonterra case, the highest fine recorded was $120,000.

In New Zealand, the bulk of the breaches are in the agricultural sector, which makes up 73% of all cases and investigations. Commercial businesses are responsible for another 20% and industrial 7%. The average fine handed out is $23,000, but this is going up as authorities try to use the fines to send deterrent messages to other industry players. The average number of RMA prosecutions has increased from 39 to 101 a year in the past 20 years.

In Australasia, environmental liability is a

14

September 2015

growing area of insurance cover. But in New Zealand, AIG and ACE have been the only major players. Now, Delta Insurance has launched a new environmental liability policy.

Delta’s managing director Craig Kirk said it was an established product overseas but was still not understood well by the business community or many brokers.

He said any business that had an environmental impact would potentially need cover, but the industries with the most significant risk included manufacturing, construction, agriculture, medical, waste management companies, local governments, bulk storage facilities, petrol stations, mining and oil and gas.

He said insurance brokers in New Zealand should provide their clients some perspective in relation to the number of pollution events that were occurring.

“It is a problem in New Zealand just like any other country, and our ‘clean green’ image may not be as squeaky clean as we would like to believe.”

He said the consequences for businesses could be significant, with strict liability obligations applying in many cases and big fines handed out by the courts.

“In addition the clean-up costs in respect of remediating soil, surface water and groundwater can be exorbitant, which can all have a major impact on a company’s balance sheet. Further, given the strong public opinion around the need to preserve our environment, any publicity in relation to a pollution event can be very damaging – no company wants to see their brand in the headlines for the wrong reasons. “ He said an environmental liability policy would give much more targeted cover than would be achieved through other business liability cover.

“Part of the problem is a misunderstanding of what is covered under existing insurance. Clients

and brokers think they have a full solution under the existing liability products, but really, while there is some cover, it doesn’t extend to clean-up costs of contamination on your site or a whole bunch of other issues,” he said.

He said the average client would buy general and statutory liability, which would respond if a client was prosecuted, or for reparations awarded against an individual, but would not go so far as to cover the cost of contamination or cleaning up. There is only cover for a sudden and accidental event, not for a gradual pollution over a period of time. Defining what a sudden and accidental event was could be difficult.

“While general liability and statutory liability provide some level of protection, environmental impairment liability is a much more ‘belts and braces’ solution, whether it be in relation to fixed-site operations such as manufacturing plants, storage facility or waste management operations or in relation to contracting services provided to third parties,” he said.

“Specific perils which will not typically be covered under traditional GL and statutory policies include asbestos, gradual pollution and emergency response and clean-up costs.

It’s also important to know that professional indemnity policies will also typically have an absolute pollution exclusion, which can be very problematic for environmental service providers.

Given there may be some overlap across policies, I think it is prudent for brokers to ensure that the EIL insurance is placed with the same insurer that does the GL, Stat and/or PI as it will limit the risk of disputes between insurers.”

The cover is designed to respond to pollution incidents that the client was not previously aware of, and typical coverage examples include accidental spillages of hazardous substances, asbestos contamination, sewerage contamination, gradual effluent leakage that was previously undetected or gradual pollution arising from

COVER STORY

IT IS A PROBLEM IN NEW ZEALAND JUST LIKE ANY OTHER COUNTRY, AND OUR ‘CLEAN GREEN’ IMAGE MAY NOT BE AS SQUEAKY CLEAN AS WE WOULD LIKE TO BELIEVE.

underground tanks.

Cover can be arranged for completely new pollution incidents or for pre-existing conditions which may have arisen prior to the commencement of the policy but which the client was not aware of.

Like other liability policies, the client has an obligation to take necessary steps to manage their statutory obligations and the policy will not respond to deliberate or wilful non-compliance of environmental laws.

Kirk said:“EIL should not be seen as a panacea for all environmental risks, but it can form an integral part of a broader risk management strategy.”

Insurance lawyer Mark Anderson, a partner at DAC Beachcroft New Zealand, said Delta’s move into the environmental liability market could lead to increased competition and lower premiums for businesses.

He said it was not uncommon to see businesses faced with six-figure fines for breaches and the penalties imposed had crept up as regulators started to use them as a deterrent effect.

An environmental liability policy would offer a type of “one-stop shop” cover.

“It gives confidence that when there has been an environmental breach they will have the ability to cover clean-up and remediation costs which can easily run into hundreds of thousands

of dollars. We are talking about enforcement consequences that are pretty hard-hitting. That’s before you even look at remediation costs, ongoing monitoring or subsequent RMA costs, some of which [environmental liability policies] cover.”

He said businesses were doing better in understanding their responsibilities and obligations, the agricultural sector in particular.

“But look at our biggest company, Fonterra, being prosecuted for buttermilk breaches. It’s the largest company with a sophisticated approach to environmental considerations. Sometimes, things just go wrong.”

He said the policies were all largely similar but there were some subtle differences in what they would cover and the costs they would respond to. Deliberate or reckless conduct would not be covered. “A lot of these acts can be deliberate… it’s not different to fish hooks in any insurance policy. Insurers aren’t in the business of underwriting intentional or deliberate acts.”

He said for brokers it would be a question of translating the product to the client’s need. “It’s a simple proposition for dairy farmers staring down the barrel of a $120,000 fine for effluent discharge…. in other businesses the message is more difficult to translate.”

Kirk said it was a question of more than just covering a business against a potential hit in the

pocket. He said the public at large felt strongly about issues of environmental contamination, reflected by the increased level of regulation and increased attention paid to breaches of the law.

“I think companies and company directors in particular have a social obligation to limit and mitigate the impacts that their operations have on the environment. There has been a lot of focus recently on company directors’ governance obligations in relation to prudent financial management and workplace health and safety and there is no reason why stakeholders shouldn’t hold directors to a similarly high standard when it comes to environmental issues.

It is therefore important for directors to be aware of their statutory obligations and to ensure that appropriate environmental management systems are in place. EIL can form a corner-stone of any such system.”

And Fonterra? The dairy giant pleaded not guilty to a charge laid by the Taranaki Regional Council of discharging odorous compounds in Eltham last year. But it was found guilty. The company had approached the South Taranaki District Council asking for help getting rid of millions of litres of buttermilk caused by an oversupply.

It came to an arrangement where it would be dumped at the wastewater plant but the milk went off and caused a stink.

PIQ COLLEGE WORKSHOP/WEBINAR: 19 October

Environmental Liability

Dinesh Murali & Craig Kirk

Auckland & Webinar

9.30-10.30

Pollution events and resultant Environmental issues are becoming an increasingly topical issue for the NZ public with increased regulator activity and enforcement. The cost to businesses through fines, clean-up costs, civil claims and reputational damage can be significant.

www.covernote.co.nz

15

FEATURE

Business interruption insurance policies need better explanation Many New Zealand companies do not understand why they need to cover their ability to operate as well as their physical assets.

K

iwi businesses are leaving themselves vulnerable to disaster because of a widespread lack of understanding of business interruption insurance.

Research has shown that about a quarter of small businesses would not survive if they had to close their doors for as little as three months. Half of those who suffer a total loss never get back in business.

But many Kiwi businesses, particularly at the smaller end of the market, do not see the value in the product and are seriously underinsured.

That has led to calls for brokers to work harder to drive home the message that business interruption policies may be the most important cover a company takes out.

But Insurance Council of New Zealand (ICNZ) insurance manager John Lucas said the policies were not understood well by insurers or brokers either.

“They understand the textbook stuff but don’t understand how to relate it to the customer’s risks and needs,” he said.

Lucas said that meant many clients did not appreciate what the cover could do for their business.

“Despite the good advice brokers give, often clients will say ‘no, I’m not going to bother fully insuring for business interruption, it won’t happen, or if it does, we’ll just close down’.”

But he said the right sort of insurance could make the difference between a business failing and surviving a disaster.

In a partial loss situation, if insurance was in place to step in and cover operating costs, or other ongoing costs such as wages of key personnel, the business could maintain its customer base more easily.

Lucas said that was what proved vital to the long-term viability of any business that encountered a work-stopping crisis. “If you haven’t got cover to pay your operating costs, as soon as you stop production and the customer base disappears, they are gone. Businesses with interruption cover should be able to recover… Insurers will spend a dollar to save a dollar in the initial periods until the client is up and running and the business is back to where it was.”

David Field, a business interruption specialist at Munich Re, said for many businesses, business interruption policies were an afterthought.

“We tend not to think there will be a fire and if there is, we think the business will recover in a few months.”

16

September 2015

DESPITE THE GOOD ADVICE BROKERS GIVE, OFTEN CLIENTS WILL SAY ‘NO, I’M NOT GOING TO BOTHER FULLY INSURING FOR BUSINESS INTERRUPTION, IT WON’T HAPPEN, OR IF IT DOES, WE’LL JUST CLOSE DOWN. How does it work?

Business interruption insurance commonly covers gross insurable profit.

But Field said misunderstanding of the policy wording was common.

“What actually is insurable gross profit is not well understood across the industry. If we don’t understand that, we cannot expect our clients to understand it. It is really taking the time to explain to the client that it is two things – fixed costs and net profit – that we want to protect. That is insurable gross profit.”

He said making that clear to clients should be brokers’ first priority.

“These are the basic concepts and knowledge that we need to explain to our clients when it comes to business interruption insurance. But unless we can explain it in plain English I don’t think they will ever understand it themselves. And if they don’t understand it they are unlikely to buy the right cover in the first place."

“If you were in the market for a new car and you went to a Subaru dealership and you said to the person is it a two-wheel-drive or a fourwheel-drive, you would probably buy that car if the salesperson was able to explain if it was a two or four-wheel drive and if it was four-cylinder or six-cylinder,” he said.

Once the principle is made clear to a business customer, to determine the level of gross profit required means a thorough examination and understanding of an organisation’s expenses, with detailed management accounts.

FEATURE

To work out an insurable value, business expenses need to be split into those that would reduce in proportion to a reduction in turnover, such as the cost of shipping or stock, and those that would continue, such as the lease on a building. Some would partially drop, such as staff salaries.

Insurable gross profit is different to the gross profit used by accountants because insurable gross profit usually includes fixed expenses and overheads as well as staff wages and net profit.

“Without those accounts you cannot ever really understand which costs are fixed and which are variable. It’s hard to get an accurate figure,” Field said.

He said once brokers could make the concepts of business interruption insurance clear to their clients, it would boost coverage.

“If we can have that conversation across the industry, then I think we go a long way to improving knowledge and improving the penetration of people buying adequate gross profit cover.”

Businesses must also choose an indemnity period – the length of time for which the policy will pay out.

This will need to include the time it will take to replace things such as key equipment as well as some additional leeway to build back up to the business’ previous position in the market.

Lucas said it was common to underestimate how long it would take to get back into business after a disaster.

He said in many cases a business would form the view that it could recover within 12 months from a fire loss or earthquake loss, which would then prove too optimistic.

Lucas said business interruption insurance premium rates had become cheaper over the past three years but the amount of gross written premium had increased, indicating that more businesses were coming around to the idea of the cover.

In the 12 months ending March 2015, Insurance Council members reported $87.2 million in business interruption gross written premium, up from $80.4 million in 2013.

There were 1255 claims in the 2015 year, totalling gross claims of $35.8 million. That is up from 911 claims worth $14.9 million in 2013.

Field said the Christchurch earthquakes seemed to have crystallised the value of many types of cover for clients.

“I find the level of knowledge and engagement I receive from New Zealand underwriters and brokers is some of the best across the world.

I think it’s because of Christchurch, everyone’s mind has been more focused on issues that come out of business interruption and people have seen how things can go wrong. People in New Zealand have a greater appreciation of the cover.”

All insurers who offer commercial property insurance offer business interruption and the triggers for the cover are generally the same. A fire in an office would trigger both policies.

While more businesses appear to be taking out business interruption insurance, Lucas said it was likely that many, predominantly small businesses, were underinsured.

“Probably in the past it was because they haven’t had the best advice and often don’t fully understand it does take a long time to recover and they need insurance to protect their trading position. You invest in a business to make a profit, that’s the only reason you are in business.Why don’t you protect that?"

He said businesspeople often spent a lot of money on insuring their physical business assets but did not give the same thought to the security of their income, which was often the biggest asset of all.

“Big corporations get it but the small ones often don’t.”

The answer might be some more financial literacy education, Lucas said. “A lot of people say I know what you are offering, I see what you are saying but I don’t value it. I don’t believe you. It won’t happen.”

CHECK YOUR FINE PRINT

by Hamish Davies, of Corcoran French When considering your next business insurance policy the most important part is the fine print. Many people, particularly business owners, have recently learnt harsh (and expensive) lessons on their business insurance.The Christchurch earthquakes and North Island floods have been particularly severe on businesses, unfortunately catching many by surprise and many business owners have been ill-equipped to deal with the fall out.

Having a robust business interruption (BI) insurance policy can go a long way towards protecting you and your business in tough times.

The purpose of BI insurance is to help businesses survive a loss of profit as a result of being forced to cease trading for a period of time, usually following a disaster. BI policies are generally linked to material damage insurance policies as they are triggered following physical damage to property which then causes interruption and a subsequent financial loss to a business. BI insurance is ultimately designed to restore a business to the same financial position prior to the loss being suffered.

Policy wording is important The wording of your BI policy is of the utmost importance. You need to clearly understand what cover you need at the time that the cover is obtained, not at the time of the loss. Some of the key questions to consider are whether you’ll be covered: • While your business premises are being repaired?

• If all your clients’ businesses shut down?

• If access to your business is disrupted because of a government imposed cordon, eg: red zoning, not only because of physical damage?

• For multiple events?

These questions are just a small example of what should be considered so that your business stands the best chance of surviving lost profits and being affected by sudden, unforeseen costs.

Depopulation and indemnity periods Two particularly pertinent BI issues are depopulation and indemnity periods. The former refers to the adverse effect of people or customers leaving an area and is particularly controversial and, although dependent on the policy wording, now not likely to be covered.

Meanwhile, the indemnity period refers to the period of time in which BI policies will operate. Commonly, policies operate for 12 months, which in many cases is simply not long enough for businesses to recover. Many businesses have been caught out by cover starting from the date the damage is incurred not from when a business closes. This can have a detrimental impact on business owners whose businesses, say for example, continue to trade immediately after an insured event expecting that a claim can be made later when repairs are necessary only to find that the indemnity period has expired. Some insurers are, however, offering deferment periods.

These allow policyholders to begin their indemnity period at a later, more suitable date than when the loss was incurred. Other insurers are offering longer indemnity periods. Although these policy variations are likely to cost business owners more in the first instance, they could be well worth the investment in the future.

GETTING THE RIGHT ADVICE In terms of getting BI insurance advice, insurance brokers specialise in obtaining the right type of cover for their clients and assisting when the time comes to make a claim. As well, we can support you interpret policies, help you put forward a well presented claim and, if necessary, help resolve any dispute with the insurance company providing the cover.

Overall, the most important point is that you must take the time to read and fully understand your BI insurance policy, and make sure you seek advice when in doubt. Understanding what you and your business are, and aren’t, insured for is incredibly important. www.covernote.co.nz

17

COVER STORY

Reinforcing brokers’ duties Regulatory oversight of the insurance broking industry has increased and the FMA is focussing on the mis-selling of insurance products. Coupled with the Financial Markets Conduct Act and amendments to the Fair Trading Act, this means that it is timely to examine some key aspects of brokers’ duties.

ZANE KENNEDY AND NICK FRITH, MINTER ELLISON RUDD WATTS

R

egulatory oversight of the financial services sector has increased dramatically following the Global Financial Crisis. With the Financial Markets Conduct Act 2013 (FMCA) recently coming into force, this article summarises the current regulatory position applying to insurance brokers’ obligations.

The FMCA, Financial Advisers Act 2008 (FAA) and Fair Trading Act 1986 (FTA) (which has recently been overhauled) all play a part in regulating the insurance broking industry. Regulators are taking a more active role in policing compliance with laws, regulations and professional standards. Brokers need to be more aware of their obligations as a result.

In addition, the FMA has taken over from the Commerce Commission as the primary regulator of misleading or deceptive conduct and unsubstantiated representations in relation to financial products and services, including insurance. While the two regulators will work together if there is overlap in their respective bailiwicks, the FMA now has a clear focus on most aspects of financial services regulation.

One of the FMA’s strategic priorities over the next three years is to ensure that sales processes and advisory services reflect consumers’ best interests. In particular, the FMA is concerned with mis-selling of insurance products, including selling products that do not meet clients’ needs. This priority arises from the increasing number of complaints the FMA has received about insurance sales.

In order to achieve its regulatory objectives, the FMA has wide-ranging powers, which include the ability to publish written warnings, seek pecuniary damages or issue banning orders against brokers, along with criminal proceedings in some cases.

18

September 2015

ONE OF THE FMA’S STRATEGIC PRIORITIES OVER THE NEXT THREE YEARS IS TO ENSURE THAT SALES PROCESSES AND ADVISORY SERVICES REFLECT CONSUMERS’ BEST INTERESTS. Brokers’ statutory duties The FAA, FMCA and FTA in part codify the common law and impose the following key duties upon brokers: 1. to exercise reasonable care, diligence and skill; 2. not to engage in misleading or deceptive conduct, or conduct

that is likely to mislead or deceive; and 3. not to make unsubstantiated representations.

Reasonable care, diligence and skill This broad obligation may be translated into a number of specific duties that arise at different times in the life of an insurance policy: 1.

First, a duty to arrange appropriate cover – cover which adequately meets the client’s needs. Brokers are required to understand client instructions, apply their own skill and judgment in identifying

COVER STORY

risks, warn the client about any exclusions and ensure that the policy is clear.

2.

Secondly, a duty to arrange effective cover – cover which the insurer cannot avoid for non-disclosure or misrepresentation. It is especially important that brokers ensure that their clients are aware of the obligation to make full and accurate disclosure to the insurer. The broker must also pass on any material client information to insurers.

3.

Thirdly, a duty to ensure that cover remains effective – this may involve advising the client about the requirements of coverage and notifying risks. This duty is especially important if the broker occupies a special relationship with the client where he or she is able to exercise a broad discretion about their insurance needs or in cases where the client is especially vulnerable.

4.

Fourthly, in some cases there is a duty to assist the insured with a claim if one arises.

5.

Lastly, there is a duty to advise the client that cover is expiring and to seek instructions regarding renewal.

Misleading or deceptive conduct Brokers will be liable for misleading or deceptive conduct, or conduct that is likely to mislead or deceive, not only if they make false or misleading statements, but may also be liable if they: 1. stay silent on a material issue; or 2. tell a half-truth.

A salient example is where a client is advised to change policies at renewal.

Brokers should provide a clear, reasonable and balanced comparison of the

client’s existing policy with the recommended new policy. The FMA has reminded brokers that it would be misleading only to highlight the benefits of changing policies without mentioning any disadvantages.

Unsubstantiated representations An unsubstantiated representation is a statement that is not made on reasonable grounds, regardless of whether it is false or misleading. The Commerce Commission has published the following practical tips to help avoid unsubstantiated representations: 1. do not make claims that are not based on reasonable grounds; 2. rely on facts, figures and credible sources of information, not guesses and unsupported opinions; and 3. keep documentation or other information you have gathered in the process of sourcing a good or service.

Brokers who engage in misleading or deceptive conduct or make unsubstantiated representations to their clients or to an insurer may be exposed to regulatory scrutiny. We understand that some insurance brokers have already been investigated but relevant details have not yet been publicised.

Consequences of breach The FMA has wide-ranging powers to deal with breaches of obligations, including the ability to impose penalties of three times the amount of the gain made or loss avoided (up to $1,000,000 in the case of an individual and $5,000,000 in any other case).

The Commerce Commission can also enforce the FTA by bringing criminal proceedings that may result in fines of up to $200,000 for an individual and $600,000 for a company. www.covernote.co.nz

19

COVER STORY

Dransfield set for new industry, next challenge Vero chief executive is returning to Sydney to head Suncorp’s life insurance business.

D

eparting Vero boss Gary Dransfield says if he knew when he took up his role with the company what the aftermath of the Christchurch earthquakes would really be like, he probably would have thought he was mad to accept the challenge.

Gary Dransfield is stepping down to return to Sydney to head Suncorp’s transtasman life insurance business as chief executive of Suncorp Life from October 1.

He replaces Geoff Summerhayes, who will remain with the group in an advisory role until January 1.

Dransfield has been the chief executive of Vero in New Zealand since May 2011, when he arrived in the country just after the first two big Christchurch earthquakes hit.

Dransfield said, having come from from Australia, he was not daunted by having to deal with the aftermath of a natural disaster.

It sounded like a worthy challenge – a significant claims response required and added complexity as a result of changes to the financial underpinning of the industry because of the moving cost of reinsurance.

“The challenge of trying to respond to a natural disaster, respond to the implications of the natural disaster for the financial strength of the industry and our company and then rebuild the organisation stronger and more resilient and more simplified for the future, it all sounded pretty challenging and interesting and that proved to be the case,” he said.

But it was only as the years progressed that anyone realised how significant and complex the response would be. “With the benefit of hindsight, if I knew then what I know now, I would have thought I was mad - and so would most people - but the magnitude of it all has unfolded before us over the last four or five years.”

The earthquakes are the overarching theme of Dransfield’s time in New Zealand.

“It’s not the whole thing we’ve been doing, but it has been a very big, very long-running, very challenging programme,” he said.

“In the early days the industry as a whole and Vero didn’t really understand the magnitude of the complexity of what we were facing. As time went on the sheer magnitude of how complex the situation is in Canterbury in terms of the insurance response became more evident. It’s almost like every month a new, very unexpected major wrinkle or problem arises in how to deal with some particular aspect of the recovery.”

He said the challenge for Vero and the rest of the insurance industry

20

September 2015

COVER STORY

had been how to manage all those complexities and find solutions to keep things moving, resolving claims for customers.

Vero has now paid 85% of what it thinks it will have to play and has settled 90% of claims. But what is now left is the trickiest portion of residential work.

Dransfield said: “What we’ve done well all the way along is to try to really understand the nature of the problems and the complexities that were there. At times it’s looked maybe like we were taking a bit more time to come to decisions of what to do. But we were taking some time to grapple with the challenges and the complexities to make a decision so we could move forward with a fair bit of certainty for customers in relation to particularly complex issues.”

That was something the rest of the industry could have done well to follow suit on, he said.

“We all dived in from day one with the first earthquake, trying to resolve claims and get moving to settle claims but as we went along we took two steps forward and one step back when we hit a judder bar of complexity.”

Technology is driving change in the way Vero deals with brokers, Dransfield said. But he said Christchurch brokers had had many more changes forced upon them out of necessity.

“With a huge volume of claims and the complexity of them for Canterbury businesses and homeowners, it has made it really hard for brokers to be as involved as they would like to be in the claims process for clients. We have had to be much more directly involved with the policyholder than might normally have been the case, for a lot longer and more often.”

Dransfield said the outlook was bright for New Zealand’s general insurance industry.

It was now a much better capitalised industry that was more strongly prudentially supervised and regulated by the Reserve Bank, he said.

“Companies are in stronger shape around capital and technology. They have had to learn a lot, do a lot and improve a lot on a range of fronts because of Canterbury and that new regulatory regime. It gives the industry a really sound platform.”

Vero would be well placed to deal with the inevitable introduction into the market of new competitors, he said.

DRANSFIELD SAID HE WOULD RETURN TO AUSTRALIA READY TO TELL THE INDUSTRY THERE THAT NEW ZEALAND’S SECTOR WAS STAFFED WITH “ENORMOUSLY CAPABLE” PEOPLE. Dransfield said he would return to Australia ready to tell the industry there that New Zealand’s sector was staffed with “enormously capable” people.

“Businesses in this industry have to work across a range of jobs in many parts of the insurance value chain because it is a smaller market with smaller organisations. You end up getting very deeply and broadly experienced people in the marketplace.”

He is looking forward to the challenge of a new industry – and particularly not having to commute back and forth to see his family in Sydney any more.

“Less time on an aircraft will be an upside.”

Paul Smeaton will take over as Vero’s chief executive in New Zealand.

www.covernote.co.nz

21

FEATURE

Austbrokers reports profit lift A

SX-listed Austbrokers Holdings has reported a 2.5% increase in net profit after tax for the 2015 financial year.

The profit of A$36.3 million was in the middle of the guidance range. There was a 9.4% increase in group revenue to $217.3 million.

Chief executive Mark Searles said: “Our client-focussed strategy is bearing fruit. Not only did we expand our business internationally into New Zealand, but organic growth in underwriting agencies and investments in risk service businesses has meant contribution from non-broking areas has grown in the last three years from 12% to 23%. Furthermore, growth in non-commission-based income sources has helped enhance broking revenue growth despite the challenging premium rate environment.

The group’s ambition of delivering sustainable growth is being achieved through strong focus on execution and increasingly servicing clients’ total risk needs.”

He said Austbrokers was experiencing organic growth in the broking sector, with higher policy

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September 2015

counts, growing premium funding income and increased client numbers.

Average premiums have declined, resulting in lower average commission income, but this rate of decline has been at a lesser level than the average market rate decline.

Searles said: “With 30 years of experience in establishing mutually beneficial partnerships, the Austbrokers owner-driver model is demonstrating resilience in a challenging market – the capability and professionalism of our network positions us well for the future especially when an upswing occurs. Our underwriting agencies have continued to enjoy strong progression with 29% growth in revenue and profit contribution before tax up 35%.We’ve been investing in select start-up underwriting agencies over the last three years, which now contribute 25% to our underwriting agency net profit before tax.

“In its first year, Risk Services is already outperforming plan, delivering over A$2 million of profit before tax and importantly

building increasingly strong relationships with the broking network, underwriting agencies and insurer partners. The outlook for its second year is strong in a sector not impacted by the insurance premium cycle.”

Searles said the commercial lines insurance market outlook remained challenging, and while premium rates were expected to stabilise in FY2016 in Australia and New Zealand, premium growth was unlikely before late FY2016.

"We will continue to build on the strength of our business strategy, our core ‘owner-driver’ business model and to optimise our group operating model to be the leading insurance broking, specialist underwriting and risk services group. As our products and services mix continues to expand, this will enable growth across our business divisions building value for our partners and for our clients in Australia and New Zealand," Searles said.

Austbrokers will offer a dividend of A27.7c per share, bringing the total distribution for 2015 to A39.7c per share.

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23

FEATURE

Major EQC changes on the cards T

here is support from the insurance industry for changes proposed to the Earthquake Commission (EQC).

The EQC scheme provides cover for insured residential property that is damaged by earthquake, volcanic eruption, hydrothermal activity, landslip, tsunami or fire covered by natural disaster.

Properties are covered for up to $20,000 in contents and $100,000 for each dwelling.

But problems with the scheme that came to light in the aftermath of the 2010 and 2011 Christchurch earthquakes have prompted a review of the EQC Act. In a discussion document, the Treasury says EQC is a major reason why New Zealand has high rates of earthquake cover by international standards.

But a number of problems became apparent after the Christchurch earthquakes, including that the dual insurance model, where both EQC and private insurers have obligations for a property, creates unnecessary cost, confusion and complexity.

There are also concerns about the challenges EQC faces when it has to immediately scale up its operations when a natural disaster happens.

In response to the concerns, the Government has developed a package of preferred reforms, which draws on the experiences of the 22 years the EQC scheme has been operating.

It is proposing nine key changes: EQC claims to be lodged with private insurers: Private insurers would receive and then authenticate these claims. Depending on the agreed arrangements, insurers would pass the claim on to EQC for further processing, or complete some or all of the remaining management of the claim on EQC’s behalf.

Building cover to include siteworks: EQC building cover would include additional siteworks associated with repair or reinstatement of the building and access to it. This would involve land works, including tasks such as testing the soil and geotechnical engineering assessments, levelling, cutting and filling the land

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September 2015

A NUMBER OF PROBLEMS BECAME APPARENT AFTER THE CHRISTCHURCH EARTHQUAKES, INCLUDING THAT THE DUAL INSURANCE MODEL, WHERE BOTH EQC AND PRIVATE INSURERS HAVE OBLIGATIONS FOR A PROPERTY, CREATES UNNECESSARY COST, CONFUSION AND COMPLEXITY. and installing retaining walls needed to support or protect the building.This is intended to better align with private insurer practice in commercial claims, and, as some of these works currently fall within EQC land cover, remove a problematic overlap between land and building cover.

Monetary cap on building cover to be increased to $200,000: This is intended to reflect the inclusion of siteworks in the building cover and to help ensure private second loss cover continues to remain affordable for homeowners.

The current building cap has not been adjusted since 1993. This means the value of the cap in real terms has reduced substantially. As a result, EQC is carrying less, as a proportion of total residential building exposure, while private insurers are carrying more.

EQC land cover to apply only where rebuilding is not practicable: EQC land cover would be paid only if it were not practically or

economically feasible to rebuild on the site. If the dwelling could be repaired or rebuilt on site, no separate land cover would be paid and only building cover would apply. This is intended to bring greater clarity to the scheme’s coverage and to refocus land cover on the scheme’s core goal of protecting homes.

Scheme terms and conditions to be better aligned internally and with usual insurer practice: This is intended to reduce frictions within the scheme and between EQC cover and private second loss cover.

A standard building claims excess of $2000 to apply: At present EQC excesses on building claims range from $200 to $1000 per claim. As they can be a percentage of the claim, they often cannot be finalised until the final cost of a claim is known.

EQC to no longer provide contents insurance: the Government, industry and consulted community groups agree EQC should not provide contents insurance.

EQC premiums to reflect the costs of running EQC and the costs and risks of the EQC scheme: monetary caps, prices and excesses to be reviewed at least every five years: The current EQC Act has no legislated premium pricing principles or review provisions. The Government believes that adding these would improve the scheme’s sustainability.

Natural Disaster Fund and Crown guarantee to be retained: The Natural Disaster Fund, in combination with the Crown guarantee, gives homeowners and industry confidence that EQC has the resources to meet its obligations.

Treasury says the reforms would provide simplification of the claims experience for consumers and reduce the risk of uncertainties.

Increasing the caps on EQC building cover would reduce the interaction between EQC and private insurers on over-cap claims by about two-thirds. Over-cap claims have been a major point of friction and uncertainty for claimants in Canterbury.

Insurance Council of New Zealand (ICNZ) chief executive Tim Grafton said there was broad

OUT AND ABOUT

STAFF SERVE COMMUNITIES Marsh has been out in the community as part of its social and corporate responsibility programme.

Through June, a team of people from the Auckland office went to Half Moon Bay to do tree planting as part of the Sustainable Coastlines “Love your Water” campaign. In Wellington, a team went to Kiwi Community Assistance to make up food parcels.

Christchurch Marsh staff helped to clean graffiti in the CBD. Marsh also had 17 volunteers working at the World Press Photo Exhibition and eight at the Variety Monster Book Fair.

support for the changes.

“The thrust of the proposals make sense for customers, and preserves New Zealand’s uniquely high level of insurance protection from the likes of earthquakes, volcanoes, tsunamis and landslips. It paves the way for a more efficient and effective response to major disasters in future,” he said.

“It makes sense that the first contact people make when an earthquake strikes is with their insurer and not EQC, so, requiring by law lodgement of all claims with insurers is a sensible change. Many people will go for years having no direct relationship with EQC at all, but they do know their insurer.We also believe insurers should be handling all claims, some of them on behalf of EQC which had only about 24 staff when the first Canterbury earthquake struck. That required them to scale up to about 1800 staff to manage the claims that poured in.”

He said claims handling was a core daily function of private insurers, and they had thousands of staff on hand to respond to claims as they came in.

“It makes sense for them to not only accept lodgement of claims but, where they are willing and able, to be responsible for handling them too.

The Government says it wants certain pre-conditions to be met before that happens. We meet several of those already and look forward to working with EQC so we can transition to a response that works best for customers

dealing solely with their insurers for damage to their homes,” Grafton said.

“We agree with the proposal for insurers to pick up all contents damage – again it simplifies claims for people.”

Grafton said the level of the EQC cap and several technical issues needed to be looked at in detail. ICNZ has established an expert working group to go through the detail of the discussion document, which it will submit on in due course.

Because the review is a legislative review of the EQC Act, it only addresses issues and sources of difficulty that can be traced to that Act and does not look at the industry more broadly, or other legislation that affects it, such as the Civil Defence Emergency Management Act or the Resource Management Act. Submissions on the EQC review discussion document close on September 11. The Government intends to develop a bill to be introduced to Parliament in early 2016.

Insurers contacted by Covernote did not want to comment until after submissions had been made.

The review is forward-looking and will not affect the status of any past or current EQC claims, including those that are outstanding from the Canterbury earthquakes.

www.covernote.co.nz

25

ASK AN EXPERT

Water damage to floor QUESTION… It would be appreciated if you could provide an opinion on the following situation, where the insurer has claimed that a public liability claim can't be considered as the cost to rectify fault workmanship is no greater than the cost to repair the damage.

Our client was engaged to supply and install tiles in various areas of a third party's residential home as part of extensive repairs and associated renovations. The installation of the tiles, which were completed in March 2014, was sub-contracted out, by our client, to a company that has now gone into liquidation. Water damage to a floor beneath a bedroom en suite was discovered and notified to our client in August 2015. Investigation has revealed that waterproofing did not extend around the edge of the waste fitting, in the shower, and water has pooled on the surface beneath the tiles and leaked around the edge of the waste where it fits into the timber flooring.

In my opinion the cost associated with the faulty workmanship is that attached to the water membrane. It was only due to the resultant damage that this issue became apparent. Do you agree that the insurer should meet the costs of the damage excluding the direct cost of applying the water membrane?

REPLY… CROSSLEY GATES, DLA PIPER It depends what the policy says.

If the insurer is relying on the products exclusion, coverage is determined by the breadth of the definition of products. Usually it captures everything the insured (or someone on the insured's behalf) sells, supplies or installs. This would include all the tiles and the waterproofing (assuming your client did this as well). So damage to all of those is not covered. Is there anything damaged beyond that?

If the insurer is not relying on the products exclusion, you will need to let us know what the insurer is relying on.

Mag wheels

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.

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September 2015

QUESTION… We have a situation whereby an accident has irreparably damaged a mag wheel and that particular model of mag wheel is no longer available, either new or second-hand.

Our position is that the mag wheels come as a set of four so the insurance cover should replace four mag wheels, not just one new mag which would then not match the other three already on the vehicle.

Would appreciate thoughts and comments.

REPLY… CROSSLEY GATES, DLA PIPER A difficult one. Technically, no insured peril has occurred to the other three separate (but aesthetically connected) parts of the vehicle (three undamaged mags) so cover is not triggered for them.

I suggest your only hope is a pairs or sets type of clause in the policy that contractually entitles the insured to claim for all of them when only one or more is damaged.

ASK AN EXPERT

Is a house a product?

REPLY… FAITH OWENS That is why we look very closely as what liability provider we place our builders with, as not all policies are created equal. In my experience, generally builders don't understand that this type of scenario is not automatically covered, which can result from either a “she'll be right” attitude or because the broker hasn't clearly explained the limits of the policy.

Is it possible that the contract works policy could respond?

QUESTION… My client is a builder, contracted to provide $400,000 of building services to a principal to complete his house. The plumber contracted by my client supplied a faulty product which leaked and caused some damage. Now, leaving aside the subbie product liability issue, the insurer has declined my client’s public liability claim on the basis that the whole house is his product, therefore there is no liability cover for damage to his product?

This seems a completely ridiculous assertion and I simply cannot reconcile this. If this is the case, every builder in this country has no cover for damage to any house he is building, even if he is building from the ground up.

REPLY… RICHARD HERN, WYNN WILLIAMS LAWYERS There is case law on this issue. On the basis that I am giving advice on the hoof, this does seem an exceptionally broad view of product.

REPLY…CROSSLEY GATES, DLA PIPER The technical position under the policy depends almost entirely on what the definition of “product” is under the policy. That definition often refers to something constructed by the insured. Sometimes it says “by the insured or on the insured's behalf ”. The precise words will affect the position.

Your disbelief is not uncommon and demonstrates (without reflecting anything on you personally) a general lack of understanding of how the broadform/public liability policy works (and has always worked).

The key issue is that it only covers liability for damage resultant to what the insured sold, supplied or worked on. The worth of the cover varies depending on the nature of the insured's business. On the one hand, if the insured is an electrician, the cover is meaningful when he negligently installs a switchboard in a large warehouse that subsequently burns to the ground. The switchboard is his product and liability for the damage to it is not covered. But the rest of the warehouse is resultant damage to that product and so there is potentially cover for it. On the other hand, if the insured is the head contractor that constructed the whole warehouse and negligently burns it down (ignoring CAR cover for a moment), the whole warehouse is the insured's product and there will be little meaningful cover unless the fire spreads beyond the warehouse to neighbouring (nonproduct) property.

Therefore, I recommend brokers always consider the application of this principle in broadform/public liability policies to their client's business and always make it clear to their clients how it will likely operate in a common scenario for that business.

REPLY… ORIGINAL POSTER If the builder has input $400,000 into a house worth $1million, surely the insurer is wrong to consider the whole house the “product”?

REPLY…CROSSLEY GATES, DLA PIPER The CAR policy is likely to respond if the damage occurs during the indemnity period. This is no help though when the damage, caused by the negligent act, occurs later. Leaky building litigation is a classic example.

The answer to the broker's query is that the definition of products is not normally framed this way, so that way of drawing a distinction between product and resultant damage doesn't help.

REPLY… DAVID PARKER The situation is worse than that! The "insured's product" exclusion can even extend to neighbouring buildings that he may have built years ago.

Or in the instance of a product manufacturer where the failure of a single product item burns down a warehouse full of the "products " even if stored separately or in an adjacent building.

This has been admitted to me by Insurers. It is a potentially catastrophic situation for brokers, with no move by Insurers to remedy the glaring shortcoming.

REPLY… MARK HURREN As we all know, liability policies vary dramatically in the amount and types of cover offered. Whether we like it or not, it is the broker’s responsibility to understand the variables between insurer offerings and advise our clients accordingly. Key triggers for this scenario are "damage to the item being worked on", definition of "product" and if cover is provided, then is it sub-limited or is the full indemnity limit available in the event of a loss. Our philosophy is to identify which occupation types best suit which product offering and then recommend that offering to our client.

REPLY… BLAIR DYER The fifth response is where you need to head with this matter.

If the builder was contracted to build a house, then the entire house would be deemed their product. In this case the builder was only contracted to finish part of the house - it may be a stretch to deem the house in this circumstance is the insured's product. Therefore: 1. Determine what damage was done to the existing structure (this potentially is damage to property that is not the insured's product).

2. Determine what damage was done to the work the builder was doing.

You will also need to consider the actual policy definitions and exclusions that apply to the situation - for example the definition of “insured’s products”.

As you point out the plumber’s PL insurer would ultimately be responding to points (1) and (2).

www.covernote.co.nz

27

FEATURE

DISRUPTION BEING FELT BY INSURANCE SECTOR

T

echnological advances and changing customer behaviours are hitting the insurance industry hard and are reflected in the top 10 risks New Zealand insurers have identified in PwC’s latest report, Exploring the insurance industry’s top risks: a New Zealand perspective. Change management, distribution channels, cyber risk, human talent and social change risks are all named in the top 10 risks.

PwC Insurance Sector Leader Karl Deutschle says the industry is at the tipping point as it grapples with the impact of new technology, new distribution models, changing customer behaviour and more exacting local and global regulations. These

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September 2015

findings are consistent with this year’s PwC Global CEO Survey where insurance industry leaders across the world told us (more than any other commercial sector) that their businesses were facing disruption.

“For some businesses, technology developments are a potential source of disruption and yet for others, change offers competitive advantage. Technology is one of the driving forces behind competitive advantage for new and non-traditional entrants, enabling their ability to quickly respond to customer demands.

“Customers want insurers to offer them the same kind of accessibility, understanding of their needs, and products that fit

their requirements that they’ve become accustomed to from online retailers and other highly customer-centric sectors.

Digital developments offer part of the answer by enabling insurers to deliver anytime, anywhere convenience, streamline operations and reach untapped segments.”

Cyber risk was added for the first time since the survey was initiated in 2007, and is highly placed at number four overall for both New Zealand and global insurers. It’s not only debuted as a top 10 risk for New Zealand, but it’s the top concern among respondents in Australia, UK and the USA Chief concern for insurers in these markets is the vast quantity of data held in the cloud.

FEATURE

PwC Cyber Practice Leader Adrian van Hest says it’s no surprise that insurance is a target for attacks given Financial Services handles large amounts of other people’s money and personal data, and major breaches are inevitable.

“With the impact on organisations growing, cyber risk can be both an internal risk and an underwriting risk – one which has yet to be fully scoped, and the aftermath is expected to cause both financial and reputational damage.

“Ultimately, cyber risk is not just a technology problem. It is a strategy, human and process problem. It requires a response grounded in strategy and judgement about business process, access, authority, delegation, supervision and awareness – not merely tools and technologies.

“Organisations must ask themselves whether they are adequately defending themselves against cybercrime breaches, and if they were discovered, how would they value the loss? Much of the damage caused by these kinds of incidents is not disclosed, either because it is not known, because it is

NATURAL CATASTROPHE RISKS AGAIN TOPPED THE LIST, AS IT DID TWO YEARS AGO. difficult to quantify or because it is not shared.

“We recommend that all New Zealand businesses should keep abreast of pending potential changes to the Privacy Act 1993, as these would likely oblige them to notify customers if their personal information has been breached, or face hefty fines. When considering cyber insurance, organisations need to understand what eventualities they are looking at for protection and ask whether these policies will cover the costs."

Deutschle says the market for insurance products is evolving as companies seek new opportunities to gain insight into and better manage cyber risk.

A third-party market currently exists to cover losses suffered by a company’s customers in the wake of a cyber-related loss. The industry is also expanding into new cyber-risk areas, such as first-party policies to cover the value of lost

intellectual property, reputation and brand, as well as products to cover cyberrelated infrastructure failures.

“There are only a handful of insurance providers in New Zealand who offer cyber insurance at present and we expect that more insurers will include a cyber policy in response to this growing threat.”

Natural catastrophe risks again topped the list, as it did two years ago.Yet nearly five years on from the Canterbury earthquakes, the emphasis has shifted more to reputational damage. Recently this risk has increased further with a rise in both the intensity and frequency of weather-related events.

Many insurers are looking at how they can settle claims more quickly and effectively in the event of a natural catastrophe.

www.covernote.co.nz

29

FEATURE

The revised Fair Insurance Code - brokers as the agent of the insured The revised Fair Insurance Code sets high new standards of practice for the insurance industry.

We have aimed to capture industry best practice in the Code and, when it comes into effect on January 1 next year, we hope that those best practice standards are carried out right across the insurance industry. This article introduces the Code, describes what the key new provisions of the Code are, and identifies some things for brokers to be mindful of.

BY INSURANCE COUNCIL OF NEW ZEALAND

T

he Code is a rule of membership of the Insurance Council and is reviewed every three years. The Insurance Council’s members include 28 fire and general insurers. Until now, the Code has been a brief pamphlet of high-level principles that was out of date and needed extensive revision. When the time came for the most recent Code review our members asked the Code to do more. There were a few good reasons for this: • The Canterbury earthquakes highlighted a need for better communication at claims time, both in business as usual and in catastrophe situations.

• Insurance contracts legislation overseas is far more advanced than in New Zealand, particularly around the insurer’s responses to material non-disclosure by the insured.

• It needed to be more consumer-centric.

The Insurance Council appointed an independent peer reviewer, David Caygill, to oversee the review process, and invited public submissions.

Those submissions came from the likes of the Insurance and Financial Services Ombudsman Scheme, Financial Services Complaints Ltd and the Human Rights Commission, and supported the need for change.

The Council consulted extensively with its own members, but also academics, sister bodies overseas such as the Insurance Council of Australia and the Association of British Insurers, and more consultation with the dispute schemes again.

The product is a much more robust Code, both in terms of high-level principles and the particular standards the industry holds itself out to.The

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key new Code provisions require: • Clear summaries of key information about the policy to be provided to the insured.

• The insurer to respond “reasonably” when faced with a material nondisclosure by the insured.

• Key claims and complaints handling timeframes to be met, both in business as usual and in catastrophes.

Brokers are included in the definition of “you” in the Code. In practice, this means insurers who carry out their Code obligations with the broker will have effectively carried out that obligation with the insured.This means insurers and brokers can continue the commercial arrangements they have in place. However, it could also mean increased scrutiny of brokers.

We hope that brokers will carry out the same service standards as insurers. In our view, there should be no difference in the service standard

IN OUR VIEW, THERE SHOULD BE NO DIFFERENCE IN THE SERVICE STANDARD FOR CUSTOMERS WHO INSURE DIRECT AS OPPOSED TO CUSTOMERS WHO ACCESS INSURANCE THROUGH A BROKER. for customers who insure direct as opposed to customers who access insurance through a broker. Brokers who are unsure about what the Code means for them should consult the insurers they deal with directly and the Insurance Council.

There are many good brokers in the industry and so we expect many will already be complying with the Code. The Code changes are more about publicly communicating a level of industry practice that insurers want to meet as a benchmark. For brokers, it’s about being mindful about the Code standards, and the service expectations that insurers have, and communicating that message to the public. The public does not easily distinguish between brokered and direct business, just like the public does not easily draw a line between fire and general and life and health insurers.

FEATURE

What would you do with $10,000 worth of travel?

S

ee how one of Smith&Smith’s travel promotion winners spent their $10,000 prize.

Mrs Shirley B, who is our third travel prize winner, visited our Blenheim branch to have her windscreen replaced and ended up in Australia as a result.

The day after we presented Shirley with her $10,000 in travel vouchers she was off to Flight Centre to book a sun-filled holiday for her family.

The family spent two weeks in Australia’s, Queensland region exploring the spectacular Barrier Reef and Noosa. Shirley was keen to share the experience with Smith&Smith: “We can truly say we made the most of our time with no days wasted. Heron Island was fantastic.

We saw rays and sharks and snorkelled with turtles while Kerri and Lindsay (my husband)

dived the reef every chance they got.

“Back on the mainland we enjoyed one of the most memorable Italian meals I’ve ever had in Gladstone before driving south on to Noosa Heads. Our apartment was wonderful and yet another daily buffet breakfast threatened any diet ideas. We enjoyed a river cruise with Johnno, one of Australia’s ultimate showmen, his commentary had us in stitches (we dropped Johnno quotes for days).

“The whole family liked Australia’s Zoo with the kids even managing a camel ride. We even treated the girls to a surf lesson and now they are hooked! Much of the rest of the holiday was spent shopping and surfing and lounging by the pool. It was a fantastic family escape that I’m sure we’ll be talking of for years.”

We at Smith&Smith are thrilled to hear our winners had such a fun filled family vacation.

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www.covernote.co.nz

31

FEATURE

The after-effects of the Whanganui flood

by NZI

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Y

he devastation of the Whanganui floods has left a community still trying to recover three months after the event. In June this year, Whanganui found itself cut off from the rest of the country when the biggest flood on record swept through the city.

The Insurance Council of New Zealand has confirmed there have been almost 2500 claims for the area, equating to over $36 million in claim costs for this event alone.

With more than 100 households evacuated by authorities and hundreds more self-evacuated, the Whanganui community has been through an ordeal. The extreme weather event has meant that residents continue to wait for things to dry out before property and clean-up requirements can be assessed, and black water contamination has compounded the situation. To make matters even worse, many of those affected were either underinsured or uninsured.

As with any event of this nature, those affected needed support and information. NZI set out to reassure customers that work was being done to help them and provide them with as much information as possible about its claims response.

On August 10, NZI set up an IAG insurance forum in Whanganui. The forum was wellattended by the local community with more than 100 customers coming to hear what NZI had to say, including local Mayor Annette Main.

Attendees were comprised of some of NZI’s worst-hit customers, as well as local brokers and bank partners. NZI general manager of claims Garry Taylor spoke alongside Shane Muller,

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national manager of loss-adjusting and Phil Barclay, general manager of bank partners.

They shared information about how IAG and NZI were working through the claims, talking about how the process worked and plans to settle the claims. They spoke about using local resources and just what customers should expect going forward, as well as what support was available and how customers could escalate issues if they needed to.

Taylor said his key take-out from the night was the importance of ongoing communication.

“The challenge for us is to improve our interactions so that our customers know exactly what’s happening, why it’s happening, and likely outcomes. It’s vital that we’re proactive in our claims management and maintain regular and open communication with our customers and partners. We have the ability to respond quickly to critical events because of our national footprint and resources.

“We also need to communicate clearly with our customers and invest time to help them through their claims. These events are not going to go away and we’ll constantly be called upon in ‘the moment of truth’, and this is where our true value comes in – processing and paying our customers’ claims. ”Viewing the region’s most flood-affected areas first hand was quite an emotional experience and we all felt for those affected. While we were down there we met with our local broker partners and chatted to customers, which gave me a real sense of how tough the situation was

for all involved. It also highlighted the need for us to be on the ground as much as possible, to speed up customer claims and make a difference with a considered sense of urgency.”

Whanganui Mayor Annette Main and EQC general manager of loss-adjusting contractors Paul Walsh also spoke on the night.

Main, in both her opening and closing remarks, spoke of the efforts of the NZI and IAG team and EQC to reach out to customers and thanked everyone for coming, saying it was good to be able to address issues as they arose and have everyone in the same room because they all had different experiences and knowledge to share.

HELPING PEOPLE STAY INSURED While events like this have an impact on insurance availability for local residents, NZI is determined to do all it can to keep insurance affordable for customers.

Taylor says: “With a large number of those affected in the Whanganui floods being underinsured, or even worse having no insurance at all, it’s clear that we need to continue to focus on insurance affordability for future cover. Whether this means informing customers of voluntary excesses or educating them about reduced product options, it’s critical that we continue to make insurance accessible for people. As a leading insurer, NZI must continue to work with our partners to provide appropriate protection for customers.”

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FEATURE

www.covernote.co.nz

33

FEATURE

NZbrokers sets out to shake up industry N

Zbrokers’ entry into the New Zealand market will benefit the New Zealand broking community and the insurance industry as a whole, its managing director says.

NZ Brokers Holdings was created after Austbrokers acquired 100% of BrokerWeb Management, as well as 50% of BrokerWeb Risk Services, in a deal worth more than $20 million late last year.

Austbrokers Holdings first entered the New Zealand market in 2006 through its partnership with Insurance Advisernet, taking a 38% equity stake in Insurance Advisernet NZ. The BrokerWeb deal was billed as a major shake-up for the New Zealand broking industry.

NZ Brokers Holdings then launched NZbrokers, bringing together the members of BrokerWeb Group and Brokernet Group to become the thirdlargest broking group in New Zealand.

NZbrokers said the combination of the broking groups meant it had $420 million in total gross written premium (GWP) annually and 54 businesses serving more than 120,000 clients spanning the length of New Zealand.

Including Advisernet, the wider group has more than $500 million in GWP and 84 adviser businesses.

Jim Harris, former managing director of BrokerWeb Management, was appointed managing director of NZbrokers.

Harris said there would be a number of benefits to brokers who were part of the group. The size of the organisation would give members access to resources and business systems that would be out of their reach as individual broker businesses. “It reinforces everything we stand for. With greater size we have greater strength and position and influence and the ability to secure more benefits and advantages not only for our members but for their clients,” he said.

He said the combination of BrokerWeb and Brokernet had been a natural fit.

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September 2015

“BrokerWeb and Brokernet were very much aligned in terms of their professionalism and standing and respect in the marketplace. For us it was a very good fit and gives us the ability to do things together in a much more meaningful way than we could have done separately.”

The backing of Austbrokers also provided a number of benefits, he said.

The NZbrokers team was recently in Australia looking at the services Ausbrokers delivers to its members there.

Harris said: “We can tap into those resources, whether it’s marketing or compliance and that gives us a much great ability to deliver additional services in those areas to our members. Our ethos is we operate very much in a collaborative way and it’s relationship- and partnership-based and built on a high level of trust and transparency.”

But Harris said while the level of scale would bring benefits to members, the group was focused on retaining its personal touch. “Size of course matters and gives us additional leverage but it’s very much on a partnership basis recognising we need to work together. There’s value in doing that, recognising that there needs to be value and benefit flowing both ways. But size gives stability and the ability to provide more benefits and secure more advantages going forward.”

First on the to-do list is bringing BrokerWeb and Brokernet advisers together to work on the same broker management platform.

That would mean designing a “best of both worlds” solution, based on the systems they each currently use, Harris said.

“The project is going to examine both systems and the advantages and benefits of both with the view of bringing those together and building a world-class system going forward. Also, while we are doing that we are looking at opportunities for connectivity and streamlining the way we do our business, looking at accessing information for managing the businesses, marketing initiatives… all those sorts of things.”

Harris said the group was formed with the intention of giving respected, professional indigenous brokers the opportunity to not only survive in a

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THERE HAS BEEN A LOT OF CONSOLIDATION IN THE MARKET RECENTLY AS INDIVIDUAL BROKERS MOVED UNDER THE WING OF BIGGER CORPORATES AND INSURERS MERGE... IT WAS INEVITABLE THAT WOULD CONTINUE. changing environment but grow and prosper. “We believe we have that ability and can deliver that to those people.”

There has been a lot of consolidation in the market recently as individual brokers moved under the wing of bigger corporates and insurers merge.

Harris said it was inevitable that would continue.

“Consolidation also creates opportunities and we think we will continue to see people deciding to seek their own fortune and set up their own businesses.With consolidation comes size and corporatisation and that doesn’t fit everyone. In the New Zealand market it’s a very much a personal relationship-based business. I think there’s an opportunity for brokers to operate at that level. If you look at our organisation, we’re very committed to local people serving local people.”

Harris said NZbrokers’ goal was to be New Zealand’s most trusted insurance and risk solutions network.“We have become the true challenger brand in the market and have the ability to compete with anyone. We have very, very good national representation and that in itself creates opportunities.”

Insurance premiums have softened recently and competition has increased, but Harris said having the backing of a group would help brokers navigate that.

“Given the extensive benefits and support provided by NZbrokers, its members and clients are well-positioned to manage their way through and take full advantage.”

David Crick, chairman of Brokernet New Zealand, said: “Our collaboration with NZbrokers brings significant size and scale to our members.This will facilitate robust partnerships with the insurer panel, and ensure our clients’ interests are further protected.”

Harris said: “The emergence of NZbrokers as the challenger brand and a significant player in the market is good for its members and their clients, its strategic partners and the industry as a whole.”

He said the group was based on four pillars – collaboration, respect, tenacity and momentum. “We are building partnerships, standing shoulderto-shoulder with members, acting with integrity and honestly at all times, looking for solutions and looking to work with our partners in a meaningful way and investing in success and striving to create a bright future. Those four pillars underpin the future we have.”

Meanwhile, Austbrokers has announced its new equity partnership with Allied Health Australia, a leading occupational health and safety rehabilitation service provider.

“This acquisition reinforces Austbrokers’ disciplined approach and appetite to deliver on its strategy. Austbrokers has long signalled its intention to expand scale in risk services provision, and take our highly successful Owner-Driver business model further into this market segment,” said Austbrokers Holdings chief executive and managing director Mark Searles.

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35

FEATURE

EQC review not bold enough

by Michael Naylor, senior lecturer, Massey University school of economics and finance

T

he proposals in Treasury’s review of the Earthquake Commission (EQC) are weak and do not solve many of the current problems facing Christchurch residents.

Suggested changes include dropping contents cover and increasing the EQC sum covered to $200,000.While these reforms are sensible, they are unimaginative and go nowhere near far enough.

Given the multiple problems of the dual insurer model exposed during the Christchurch rebuild, the Treasury needs to be bolder and to rethink the purpose of EQC, including the possibility of focusing on offering reinsurance cover to private insurers.

THE DIFFERENCE BETWEEN NATURAL DISASTER INSURANCE AND OTHER TYPES OF INSURANCE IS THAT NATURAL DISASTERS HAVE A CAPACITY TO IMPACT ON A HIGH NUMBER OF INSURED CLIENTS AT THE SAME TIME, CAUSING COMPANY BANKRUPTCY. 36

September 2015

For insurance companies, the difference between natural disaster insurance and other types of insurance is that natural disasters have a capacity to impact on a high number of insured clients at the same time, causing company bankruptcy. This is normally offset by insurance companies purchasing excess-of-loss reinsurance, which involves a large worldwide reinsurer agreeing to pay all losses from an event which are above an agreed sum.

In theory there is no reason why the EQC can’t be replaced by a law requiring all private insurers to hold this type of cover. In practice there are difficulties. One difficulty is that this reinsurance cover can be expensive to obtain at a reasonable price, which pushes up client premiums. This is why AMI purchased fixed-sum reinsurance instead, and went bankrupt after losses exceeded their capital plus the fixed amount of reinsurance.

This difficulty becomes worse for smaller insurers as they have lower client diversity and a higher potential percentage of loss. The area is also quite technical and smaller insurers may lack the skill needed.

Treasury argues that the EQC can provide a small amount of “first insurer” disaster cover cheaper than the private sector can. However the sum they are recommending the EQC cover is only the first $200,000.

Given the average New Zealand house rebuild costs vastly exceed that, this still exposes private insurers to losses above that sum; losses which are uncertain and unlimited.

That’s why Treasury also requires that insurers hold enough capital or reinsurance to survive a one-in-1000-year event.This is very costly, which pushes up premiums and is only secure if actuaries’ estimate of the size of the most extreme event holds true. These proposed EQC arrangements

FEATURE

do not remove the bankruptcy risk from New Zealand insurers, or from the New Zealand taxpayer. They are also very inefficient and costly.

The other issue identified in the report were the problems created by the EQC being first point of contact for all claims. This proved a disaster during the Christchurch earthquakes because the EQC simply didn’t have the systems or staff to cope for at least 18 months.The EQC pre-quake was set up to handle a small number of routine claims, but the Christchurch quake forced them to expand from about 70 staff to over 1800, with a large number needing specific technical skills.

Because all claims had to be screened by the EQC, private insurers could not proceed until the scarce EQC staff had screened customers.This meant they could not use their greater capacity until much later in the process.

The Treasury report sensibly recommends that private insurers act as the first point of contact. Handling a major disaster is easier for private insurers to deal with as they are, in general, large worldwide companies employing thousands of staff with the necessary skills. They can fly in staff or use their armies of foreign staff, rather than poaching them from existing insurers or using expensive contractors, as EQC did.

Under the Treasury recommendations, however, the EQC would still have to deal with thousands of claims and private insurers will have to handle claims which they will not ultimately pay for – and this will push up premiums.

There is really no justification for the EQC to be involved in quakes that are smaller than disasters, and when large disasters happen the EQC will never be ready, given their small staff size during non-crisis periods. The Treasury proposals still leave us stuck in the quagmire of the two-insurer

problem.

The Treasury needs to take a step back and think a bit deeper. The ultimate objective of providing widespread and low-cost disaster insurance could be better achieved at a cheaper price if the EQC removed itself from customer contact. A superior option could be for the government to require all private insurers to provide disaster cover as part of house insurance at a fixed price nationally, and then to require those private insurers to arrange adequate excess-of-loss reinsurance. The EQC would then focus on helping arrange that reinsurance for those insurers unable to arrange it themselves at an attractive cost. The government’s size and sovereign rating would enable it to buy this cheaper than most private insurers. This would also enable the removal of the 1-in-1000-year capital requirements, further reducing premiums.

Private insurers would be able to deal with the routine quake claims at little extra cost to their administration systems. Bare land could be covered via new products created by private insurers but backed by the EQC. An alternative to reinsurance would be the issue of ‘cat bonds’. These are bonds that do not pay out to investors if a selected event occurs, which could be defined as an earthquake above a certain cost. These bonds could be issued far cheaper and easier by the EQC than private insurers but they are are currently, and bizarrely, banned from use.

The EQC would then be a small group of specialists who could focus on financial arrangements, on funding earthquake and building science and on researching and preparing post-disaster management. The EQC could take on a role equivalent to Cera, as well as overseeing and regulating the work of private insurers during a rebuild. www.covernote.co.nz

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FEATURE

IBANZ weighs in on regulation review A dviser competence is more important than qualifications, the Insurance Brokers Association has argued.

The Ministry of Business, Innovation and Employment has received submissions in response to its issues paper on the Financial Advisers Act review.

IBANZ submitted to make its case for the country’s general insurance brokers, most of whom are operating as registered financial advisers, or within a qualifying financial entity.

Much of the discussion about the review has focused on whether adviser education standards are high enough.

At the moment, only authorised financial advisers – generally those dealing in investment products - have a qualification requirement.

They are required to complete a level five certificate.

It has been suggested that all advisers should be required to reach that level, or higher.

But IBANZ chief executive Gary Young said the key is to ensure advisers are clearly competent in their dealing with their clients.

“A qualification doesn’t necessarily make you competent; it just lets you tick a box. If you say everyone should do level five, is that going to achieve what you want it to achieve?”

He said determining competency was harder than working out whether every adviser had completed the qualification. “Measuring competence is nowhere near as easy but that does not make it wrong.”

The IBANZ submission also argued the financial adviser regulation was heavily focused on investment advisers and financial planners and did not give enough thought to how insurance brokers fit in.

“The general insurance sector is distinctly different to the investment sector in significant ways, particularly in terms of risk of advice to the client.”

Young said the current system of RFAs, AFAs and QFEs was a mystery to many within the industry, let alone consumers, and needed to change.

He said IBANZ’s members’ preference was to be called insurance brokers. An alternative could be to have one term for all financial advisers, then a disclosure statement identifying the areas of advice they dealt in.

Other professional associations and industry groups have argued that all advisers should be held to the same compliance standards.

But the IBANZ submission said it was appropriate to continue to make a regulatory distinction based on the complexity of the product and the risk posed in relation to advice. “We agree that there is a distinction between complex investment products and, for example, personal lines insurance for consumers.”

But Young said

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September 2015

SOME THINGS, SUCH AS PUTTING CLIENTS FIRST, SHOULD BE IN ALL CODES. IBANZ also wanted to see everyone in the industry operate under a code of practice. “We don’t want one size fits all, we don’t think that will work. Some things, such as putting clients first, should be in all codes. But other things should be adaptable to fit each sector.”

That could be driven by a Code Committee or by the different professional associations, he said.

There was support within IBANZ for a code for all advisers because it would provide a level playing field, Young said.

But he said there needed to be more transparency around the QFE model. “We believe the requirements for advisers within the QFE should be openly disclosed so that consumers can understand the type and quality of advice they are receiving. There is considerable disquiet among our members with the advice given by many QFE advisers.

They believe the average consumer does not differentiate between class and personalised advice. When QFE advisers are ‘selling’ their entities’ own product, we believe the consumer believes they have received advice on that product. There is no independent advice in such circumstances and the client is not made fully aware of the significance of this.”

The IBANZ submission suggested QFEs could come under the Financial Markets Conduct Act, rather than the Financial Advisers Act, to remove confusion.

Young said it was important for regulators to note that commission issues that affect the life insurance industry are quite different to those that apply in general insurance, reflecting a different business model.

“The general insurance sector operates primarily annual insurance contracts where the remuneration is received each and every year. This is unlike the life insurance sector where remuneration is typically high following the initial sale and much lower in the following years.”

Banning commission would limit the access to advice of lower-income consumers, IBANZ argued.

MBIE is now conducting further consultation.

An options paper will be released later this year and recommendations given to the Commerce Minister in the middle of next year.

FEATURE

What's in a name?

Tips for navigating trade mark territory

T

rade marking your business name has advantages, says Alex McDonald, a barrister specialising in intellectual property law.

Remaining top-of-mind with your customers is essential for any business, but even more so in the financial services industry where a client book is often built on exceptional service and word-of-mouth recommendations.

So what happens when another player enters your patch with a similar business name or wants to use part of your name?

Registering your business name as a trade mark is the best way to protect its use and maintain its exclusivity. A trade mark registration gives a business the right to stop competing businesses using the same trade mark. However, it seems the more unique the name, the easier it is to protect.

In a string of recent decisions the courts have consistently been unsympathetic to businesses that seek to monopolise common or descriptive terms. One such example is the Public Service Investment Society and the New Zealand Association of Credit Unions.

The Public Service Investment Society, or PSIS as it came to be known, was established in 1928 to help public servants (who were often poorly paid) from falling into the clutches of loan sharks. It came into its own when in 1931 public servant salaries were cut by 10 percent after the New Zealand economy faltered.

Fast forward to 2011 and PSIS was offering a wide range of financial services. It decided a brand refresh was in order and PSIS became The Cooperative Bank.

In 2014 the company became aware that the New Zealand Association of Credit Unions was also planning to rebrand its business under trade marks including Co-op Services NZ, Co-op Insurance NZ and Co-op Money NZ. The Cooperative Bank baulked at the similarity of the trade marks proposed by the credit union (in particular the use of the word ‘co-op’) and filed an application with the High Court to seek an interim injunction to stop the rebrand. However, they were not successful with the High Court refusing to grant the injunction.

So what exactly was the problem? Alex McDonald says the courts have made it clear that common words, like co-op, cannot be monopolised by way of trade mark registrations.

“If there is a risk of confusion, generally speaking that risk has to be tolerated by businesses

REGISTERING YOUR BUSINESS NAME AS A TRADE MARK IS THE BEST WAY TO PROTECT ITS USE AND MAINTAIN ITS EXCLUSIVITY. that adopt descriptive brands. What’s more, The Cooperative Bank had not been using its mark for long enough to establish what’s known as a ‘secondary meaning’ based on established use.”

The Cooperative Bank is the latest in a long line of decisions involving the insurance and financial services sector in which wellestablished businesses have been confronted with trade mark law issues, often after the horse has already bolted. So what can brokers learn from this decision and from trade mark law in general?

McDonald says there are five points insurance brokers should be aware of: 1. It takes courage to stand out from the market.

But business names that stand out carry huge benefits from both a marketing and legal perspective. Customers remember them. If a customer can’t remember whether the name of your business is CBD Insurance or BCD Financial Services, it will be hard for them to recommend you to friends and family.

2. A trade mark registration has clear advantages over relying on breaches of the Fair Trading Act and claims of ‘passing off ’, which both require hard evidence of reputation, goodwill and customer confusion. Business names that

stand out are easy to register as trade marks.

A trade mark registration gives a business the right to stop competing businesses using the same trade mark, and it’s fairly black or white.

The flipside of that principle is that Takapuna Insurance Brokers is going to find it hard to stop a business opening two doors away under Takapuna Financial Services Ltd. 3. If your business name is not one that stands out, but you have been using it for a long time, all is not lost. It is possible to obtain a trade mark registration for descriptive business names which have gained a “secondary meaning” based on long established use. For example, while MY INSURANCE could not be registered as a trade mark because it was too commonplace and there had been no use of the mark, CHARTERED SURVEYOR was able to be registered by The Royal Institution of Chartered Surveyors because of longstanding, exclusive use of the mark.

4. Business names based around the name of the broker e.g. Godfrey Agnew Insurance Services can be registered as trade marks provided the broker’s name is Godfrey Agnew.

5. Finally, ask yourself: “What have I got to lose by treating my brand as a valuable contributor to my business?” If you’re planning to grow the business and one day sell it, what’s the downside of having invested in a brand that’s easily transferable and usable by a buyer as opposed to one that a buyer will be happy to ditch?

When asked to sum up her advice to brokers and their clients, Alex McDonald says the key point is to be proactive.

“Don’t wait until there is a competitor in the market with a confusingly similar mark – or worse still, a trade mark registration – to obtain your own registration to protect the name of your business.

“Simply relying on a company registration and use is, too often, not enough. The cost of obtaining registration is tiny compared to the real benefits it brings and the potential conflicts it avoids.”

Alex McDonald has over 20 years’ experience dealing with a wide range commercial and civil disputes. She has particular expertise in intellectual property law involving copyright, patents, trade marks, passing off, the Fair Trading Act, domain names, parallel importation and breach of confidence. www.amcdonald.co.nz www.covernote.co.nz

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FEATURE

Small businesses have a new way to ensure they are prepared for a worst-case scenario.

N

ew Zealand-based software firm HealthPoint, which develops support tools for the health sector on both sides of the Tasman including cloud-based emergency planning systems, has launched risk identification software EmePoint.

It is a cloud-based, software-as-a-service model that helps small companies protect their business, infrastructure and staff.

EmePoint is made up of three main components: risk identification, response planning and business continuity planning.

Business development manager Andy Wisheart said most New Zealand small businesses did not have good business resilience practices in place and were left vulnerable in the event of a disaster, whether it was large or small.

“If they have a disruptive incident and cannot recover quickly, they risk long-term damage to their business through loss of custom and loss of contracts.”

Wisheart said EmePoint could help brokers who wanted to add another level of value to their conversations with clients.

“In a softening market like we have at the moment, brokers are trying to find ways to add value to ensure they keep their clients. This is definitely an area where they can add value.”

He said insurance should be the last step in the process of risk management.

Before they got to the point of insuring against risks, businesses should be encouraged to see what they could do to mitigate and change

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September 2015

IT’S NOT JUST THINGS LIKE THE EARTHQUAKES OR CYCLONES, BUT WHAT CAUSES BUSINESS DISRUPTION CAN BE MORE DAY-TODAY THINGS. them. Insurance could then step in for the risks that could not be removed, Wisheart said.

“This emergency planning tool takes them through the process and looks at what are the risks around the business, and if the risks can’t be mitigated what can be done to respond to and recover from them,” he said.

Businesses would be guided through thinking about what they would need to do immediately and in terms of business recovery. That could be in the case of a widespread natural disaster, or a more specific incident that affected their business alone.

Wisheart said: “It’s not just things like the earthquakes in Christchurch or cyclones, but what causes business disruption can be more day-to-day things such as small-scale flooding when a tap is left on over the weekend. If a client has an emergency plan, they are going to recover

quickly.”

If it was a widespread disaster, a management plan would mean they recovered more quickly than competitors and would not only get back into the market to cater for their own customers but could potentially take customers from other businesses, he said.

EmePoint costs $300 a year plus GST. “Put that in terms of savings from that planning in being able to respond and recover from a disruption – it’s not just the dollar amount but the reputation, it helps to manage their reputation in a competitive market,” Wisheart said.

Small businesses often did not have the in-house resources to handle emergency planning, he said, but found a specialist’s advice prohibitively expensive.

He said EmePoint could guide even the most inexperienced emergency planners. “You don’t need to have expertise to be able to do it, you just need the intent.”

Having written the plan themselves, rather than using one written by a consultant, would mean it would be easier to implement, too.

IBANZ chief executive Gary Young said good emergency planning could lead to lower premiums in some cases. “Either better terms or in the case of high-risk clients it would be helpful in actually getting cover at all. An underwriter will always be looking to assess the risk so a good risk management plan can be a positive component of the overall risk profile.”

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FSCL CASE STUDY

FSCL case studies CASE STUDY ONE: APARTMENT LOSS OF RENT COVER Marilyn and Peter were experienced property owners and investors in Christchurch, interested in buying an earthquake-damaged apartment. The apartment was owned as a body corporate. The body corporate’s insurance policy would pay for the apartment’s repairs, but Marilyn and Peter wanted to know whether the policy would cover them, if they purchased the apartment, for lost rent while the repairs were carried out.

Marilyn called the body corporate’s insurance broker, Roger, the day before the apartment was due to be auctioned. Marilyn said Roger confirmed the loss of rent cover was transferable to them as the new apartment owners.

After the conversation Marilyn emailed Roger and asked him to confirm the loss of rent cover was transferable. Roger emailed the insurer asking for its advice. The insurer replied to Roger the following day, before the auction, advising that only the original owner could benefit from the loss of rent cover. Roger emailed the insurer asking it to check, because there had been no change in the policy holder – the body corporate was the policy owner.

Marilyn and Peter purchased the apartment, believing they would be covered for loss of rent while the repairs were carried out.

The day after the auction, the insurer advised that the loss of rent cover was not transferable and Roger immediately emailed Marilyn and Peter saying they would not be covered for loss of rent.

DISPUTE MARILYN AND PETER SAID ROGER TOLD THEM THE COVER WAS TRANSFERABLE Marilyn and Peter complained to Roger that they bought the apartment relying on his advice that loss of rent cover was transferable. Marilyn and Peter believed Roger was liable for the loss they would experience while the apartment was empty for earthquake repairs.

Marilyn and Peter did not know when the repairs would start or how long it would take. Marilyn and Peter suggested Roger put $25,000 (the maximum loss of rent cover available under the policy) into their solicitor’s trust account until the loss was known. The solicitor would then pay them the compensation for the lost rent and return the balance to Roger.

ROGER, UNSURE ABOUT LOSS OF RENT COVER, SAID HE WOULD CHECK Roger agreed they discussed loss of rent cover but said he was uncertain about whether the loss of rent policy was transferable and had undertaken to check the situation with the insurer. Roger considered he could have been clearer with Marilyn, but did not accept full responsibility for their loss. To resolve the complaint at an early stage Roger offered Marilyn and Peter $6000. Roger observed that the policy entitled the original owner to 52 weeks’ rent to a maximum of $25,000. As the apartment was currently rented at $355 a week, the maximum claim would be $18,460.

Marilyn and Peter did not accept Roger’s offer and asked us to determine reasonable compensation.

FSCL’S REVIEW After careful consideration we could not decide what Roger said to Marilyn before the auction.

ROGER’S DELAY Roger knew Marilyn and Peter were taking his advice into consideration when bidding at the auction the following day. We considered Roger’s delay in passing on the insurer’s initial advice contributed to Marilyn’s and Peter’s decision to buy the apartment under the mistaken belief that the loss 42

September 2015

of rent cover was transferable.

MARILYN AND PETER’S CONTRIBUTION However, it was ultimately Marilyn’s and Peter’s decision to buy the apartment. We considered Marilyn and Peter also contributed to the situation in which they found themselves. We noted that Marilyn and Peter: • called Roger for advice the day before the auction • emailed him for confirmation and did not wait to hear back before bidding at the auction • did not ask their lawyer for advice before buying the apartment • may still have been interested in the property, even had they known lost rents were not covered by insurance, although possibly at a lower price.

OUTCOME We considered Roger’s overall contribution was less than Marilyn’s and Peter’s contribution. We suggested Roger contribute 25% of the rent Marilyn and Peter will lose while the apartment was untenanted and undergoing repairs. The policy allowed 52 weeks’ compensation to a maximum of $25,000. As the apartment was rented at $355 a week, the maximum compensation Roger could be liable for was $4615.

Roger accepted our suggestion. Marilyn and Peter asked whether Roger would consider paying them the $6000 he originally offered. Roger declined but said he would pay the $4615 immediately, rather than wait for the loss to be known. Marilyn and Peter accepted Roger’s offer and the complaint was resolved.

AN ASIDE We were somewhat surprised that the loss of rent cover was not transferable to the purchaser of a body corporate apartment. The previous owner had paid the insurer for loss of rent cover as part of the body corporate levies. It seemed a little unjust that the insurer should benefit from the payment of premiums, and avoid liability, simply because the apartment had been sold. We wondered whether the body corporate members could put pressure on the insurer to provide cover to Marilyn and Peter and all future purchasers.

CASE STUDY TWO: UNAFFORDABLE PREMIUMS Daniel cannot afford his insurance premiums.

Daniel owned a number of commercial properties in Levin. At the start of 2011 Daniel entered into a period of financial hardship. In April 2011

FSCL CASE STUDY

Daniel contacted his insurance broker, Direct-Insure Limited, to say that he was experiencing financial hardship and he anticipated that he would be unable to pay the premiums for his commercial properties when they fell due. Daniel’s properties were insured with VVV Insurance (“VVV”).

The premiums were due on May 31, 2011. Direct-Insure paid the insurance premiums of around $30,000 on Daniel’s behalf. Direct-Insure paid the premiums because, due to the age and condition of the buildings, if the policies were to lapse it would be difficult to find new insurance cover.

Direct-Insure paid the premiums for the insurance period June 1, 2011 until May 30, 2012, effectively lending the premiums amount to Daniel.

There was no written record of the terms of the loan for the insurance premiums or how repayments were to be made. It appeared the entire arrangement was discussed in person.

When the premiums for the next insurance period fell due, Daniel was still in financial hardship and had not made any repayments to DirectInsure. Direct-Insure was not in the position to continue to pay Daniel’s premiums. The VVV policies lapsed on June 26, 2012.

On July 25, 2013, Daniel visited Direct-Insure’s offices and passed over a cheque for $4245.08. Direct-Insure applied the $4245.08 to the $30,000 debt Daniel owed for the 2011-12 premiums.

On January 20, 2014, an earthquake caused damage to several buildings in Levin, including one of Daniel’s properties on King St. On January 23, Daniel contacted Direct-Insure to discuss insurance cover for the King St property. Daniel was told that there was no insurance cover in place.

Because the King St property was uninsured, this also meant that Daniel could not make a claim to the Earthquake Commission (EQC). The King St building needed to be demolished by Daniel at a cost of $150,000.

DANIEL’S VIEW Daniel said that on July 25, 2013, Direct-Insure did not tell him that his payment of $4245.08 was to be applied to the debt. Daniel said that he intended the payment to be paid by Direct-Insure to VVV for a year’s insurance cover beginning July 25, 2013.

Daniel argued that Direct-Insure acted negligently when managing the insurance cover for his King St property and if Direct-Insure had paid the $4245.08 to VVV, then he would have had insurance cover for the King St property demolition costs. Daniel wanted Direct-Insure to pay him $150,000 for the demolition costs.

DIRECT-INSURE’S VIEW Direct-Insure said there was no way Daniel could have thought that

the $4245.08 payment was to be paid to VVV to reinstate the King St property’s policy from July 25, 2013. Direct-Insure said it had warned Daniel that it would be difficult to find an insurance company to provide cover once the VVV policies lapsed. In Direct-Insure’s view it was clear that Daniel could not expect that a policy which had lapsed over a year before would be automatically reinstated.

Direct-Insure also said that it had contacted Daniel multiple times reminding him of his outstanding debt and believed Daniel understood that the $4245.08 payment on July 25, 2013, was being applied to his debt.

Further, Direct-Insure said that under Daniel’s VVV insurance policy for the King St property, there was no cover for damage caused by earthquakes, so even if the policy was reinstated, VVV would not have provided any cover for the demolition costs.

FSCL’S VIEW We were satisfied that Daniel was aware that his VVV policy did not cover losses resulting from earthquakes. However, if the VVV policy had been in place at the time of the earthquake, then the EQC may have considered a claim.

From file notes and emails between Direct-Insure and Daniel, we found that Daniel had been warned that given the age and condition of the King St property it would be difficult to find insurance cover in the event that the VVV policy lapsed. We also found that Daniel was aware that the VVV policy lapsed on June 26, 2012.

Direct-Insure’s file note dated July 25, 2013, clearly showed that when Daniel paid Direct-Insure the $4245.08 amount, Direct-Insured advised Daniel that VVV’s policy could not be reinstated.

We accepted Direct-Insure’s argument that Daniel could not reasonably expect that when he made the payment of $4245.08, the lapsed policy would be reinstated from July 25, 2013, onwards.

In our view, Direct-Insure adequately advised Daniel that there was no insurance cover in place and that the $4245.08 payment was to repay his debt to Direct-Insure. We recommended that Daniel’s complaint was not upheld.

LESSON This case highlights the importance of keeping good file notes and email records.

The clear evidence we had from the broker’s file was of considerable assistance in determining that the broker had no liability to Daniel.

www.covernote.co.nz

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ISO CASE STUDY

LEARNING FROM COMPLAINTS Tips to avoid common misunderstandings

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omplaints made to the Insurance and Savings Ombudsman Scheme can provide valuable insights into how to manage customer expectations and avoid dissatisfaction at claim time.

The ISO Scheme has been resolving complaints about insurance and financial services for 20 years. Complaint data illustrates what does and doesn’t work, common issues, and steps you can take to help your customers avoid nasty surprises.

The ISO Scheme recently presented a series of webinars in conjunction with Professional IQ College.The importance of clear communication between advisers and customers is a recurring theme, together with the following tips on how you can add value for your customers: • Ask your client what risks they would expect to be covered • Understand any risks and explain if the policy covers these • Explain any limitations on scope of cover and show where these are in policy documents • Explain exclusions and point to where these are in the policy document • Ask customers to read and understand the scope and exclusions, and confirm that they understand and are happy with the policy • Remind customers to read the policy before making a claim.

Case examples below highlight common

44

September 2015

customer misunderstandings. Names have been changed to preserve anonymity. The full cases can be found on our website: www.iombudsman. org.nz 1. UNDERSTANDING COVER CASE STUDY 129266 (2014) When a truck pushed flood water into Carl’s* garage and house, damaging the carpet in the lounge, Carl made a claim to his insurer.

The insurer declined the claim on the basis that there was no cover, because the carpet at the house was tacked down rather than glued.

The policy provided cover for “carpets ... that are glued to the floor”, but excluded “carpets and floor coverings that are not glued to the floor”.

Carl said he was unaware of carpet restriction, and he thought his insurer was meeting the claim as it paid for a carpet cleaner to lift and dispose of the damaged carpet.

ISO Scheme decision: The insurer was not obliged to meet the claim.

Lesson learnt: If Carl had understood his carpets were not covered under his house insurance policy at inception, he could have ensured the correct cover was in place.

2. INCEPTION CASE STUDY 128116 (2014) When a tree blew over during a storm and damaged a freestanding double garage used by Cory* as workshop, Cory made a claim to his insurer.

Cory’s engineering business, which had an annual turnover of up to $120,000, was partially run from the home workshop. His equipment was insured under a commercial policy with another insurer.The insurer declined the claim; the home workshop was not covered by the policy, because it did not fit the definition of “home” under the policy, which included “garage, carport, domestic glasshouse or domestic outbuilding”. The policy specifically excluded any part of the home used for “business or commercial purposes”.

Cory said that his bank, which sold the policy to him, was aware that he operated his business from home and that he had been assured the workshop would be covered. But the insurer was unable to find any mention in its own, or the bank’s, records of Cory’s business operation. The ISO Scheme’s review of records could not find any reference to the workshop being covered, or to Cory’s business operation from home.

ISO Scheme decision:The insurer was entitled to decline the claim.

What would you have done?

• If Cory told you he was running his business from his home, what documentation would you have?

• What would you advise him about his business/ property?

• What would you do during his application, or any other conversations you had with Cory?

ISO CASE STUDY

BY PROVIDING SIMPLE EXPLANATIONS TO YOUR CUSTOMERS ABOUT WHAT IS/ IS NOT COVERED BY THE POLICY, YOU CAN DEMONSTRATE THE VALUE YOU ADD FOR YOUR CUSTOMERS AND ASSIST THEM TO AVOID NASTY SURPRISES AT CLAIM TIME.

CASE STUDY 130398 (2014) Cameron*, who has a seed exporting business, held a material damage policy. A line of Cameron’s seeds was accidentally mixed with different seeds during a cleaning process, and Cameron was alerted by a buyer that the seeds were growing different plants. Cameron made a claim to his insurer for the value of the damaged seed.The insurer declined the claim on the basis of the policy exclusions for contamination and defective workmanship.

The policy excluded cover for loss or damage to the property immediately affected, directly caused by “pollution or contamination”.

The seeds were damaged because they were contaminated by another line of seeds.

There was a third party responsible for ensuring that the seeds were cleaned and packed for exporting. The cause of loss was most likely the third party either failing to properly clean out the seed cleaning equipment, or accidently mixing the seeds.

ISO Scheme decision: The insurer was entitled to decline claim.

How do you: • Understand customers and their likely risks?

• Consider whether exclusions/ terms cover key risks?

• Explain how exclusions apply?

• Assist customers to understand the

limitations of cover and make informed decisions about whether the product is right for them?

3. EXCLUSIONS CASE STUDY – 128816 (2014) Carole* had contract works insurance for her house. After heavy rain caused water damage to the walls and ceilings, Carole made a claim to her insurer for damage to the roof tiles, which she believed was caused by “inappropriate handling” by contractors.

The insurer declined the water damage claim, on the basis that there were insufficient tarpaulins covering the roof, in breach of a policy warranty. The insurer declined the claim for the tile damage, because it occurred prior to the inception of the policy and was caused by defective workmanship, which was excluded under the policy.

The tarpaulins warranty stated “[i]t is warranted that tarpaulins will be securely fastened over any part of the roof or other exposed openings at the end of each day’s work or when work ceases due to weather conditions”. Photos of the house during the contract works showed only the part of the roof covered with tarpaulins.

ISO Scheme decision: Carole failed to comply with warranty as “tarpaulins [were not] securely fastened over ... the roof ”. Also, if the tiles were damaged by “inappropriate handling” this would amount to “defective workmanship”.

The insurer was entitled to rely on exclusions and breach of warranty.

Lessons learnt: Customers often do not read the policy in full and do not understand how warranties or exclusions may apply to them.

Reminding customers to read the policy again when they get home and at claim time can assist them to understand what will/ will not be covered by their policy and what they must do in order to ensure the policy will cover them in the event of a loss.

CASE STUDY – 128015 (2014) A year after Charlotte* renewed her vehicle insurance, her son Damien* was driving her car at 10.40pm when he failed to give way at an intersection and collided with a vehicle. This caused damage to both vehicles.

Damien was driving on a restricted

driver’s licence.

Charlotte made a claim to her insurer for the damage to both vehicles. The insurer declined the claim on the basis of a policy exclusion, as Damien was driving outside the terms of his licence when the accident occurred.

Under his restricted licence, Damien was required to be accompanied by a suitably qualified person if driving between 10pm and 5am. Charlotte said this would not have made any difference to the accident.

ISO Scheme decision: on the balance of probabilities, a suitably qualified person would have alerted Damien to the third party vehicle, and the need to give way until the intersection was clear.

Lessons learnt: Customers who have children, or others, who regularly drive their vehicle, often do not appreciate that they will not have cover under the policy if that person does not comply with the terms of their licence, or they fail to meet their policy obligations.

Customers do not understand that can mean that they will not be covered for the damage to their own vehicle and the driver will be liable for any damage caused to a third party’s vehicle.

By providing simple explanations to your customers about what is/ is not covered by the policy, you can demonstrate the value you add for your customers and assist them to avoid nasty surprises at claim time. The best time to add this value is when you are setting up the cover for the customer and then again at claim time.

Issues for you to consider in your business: • How do you document discussions at inception/ claim time?

• How do you explain cover/ exclusions and how you record these explanations?

• How can you better assist customers to understand any limitations on cover, or obligations they have under a policy?

• How can you help your customers learn from the nasty surprises other customers may experience at claim time?

Contact the ISO Scheme: 0800 888 202 info@iombudsman.org.nz www.iombudsman.org.nz *All names have been changed www.covernotemag.co.nz

45

FEATURE

NZI's Ryan Clark talks liability

by NZI

N

ZI’s new national underwriting manager for liability, Ryan Clark, has hit the ground running – on the 14th floor of the Lumley building in Auckland.

Since joining the company four months ago Clark has been restructuring his leadership and underwriting team to create a new-look NZI liability team and strategy.

Coming from a leadership position at AIG and with 15 years’ experience in the sector under his belt, Clark is known for developing innovative policy solutions in response to today’s rapidly evolving business and legal environments.

Clark has not been daunted by the challenge of bringing together the NZI and Lumley liability departments, as he sees this as an opportunity to create an industry-leading liability team that will service brokers and end-customers across the country.

The plan has been to update and expand upon the current NZI and Lumley product offerings.

“But a competitive product suite and good underwriting are really just a ticket to the game,” says Clark.

“To be the ‘go-to’ liability insurer in New Zealand, we’ll be backing this up with our experienced and proactive claims team.

We’ll also be focusing on thought leadership in risk management and will be providing ongoing education for our brokers, including product awareness, regulatory changes and sample claims workshops."

While traditionally NZI and Lumley may have focused more on the SME market,

46

September 2015

Clark hopes to underwrite more complex risks and leverage from NZI’s extensive branch network and already significant portfolios in other areas.

Work has started on refreshing the existing policy wordings, with the first cab off the rank being an updated general liability offering.

“As customers’ behaviours, preferences and needs change with the evolving legal and regulatory environment, it’s up to us to provide responsive solutions that allow our end-customers to trade and make business decisions with confidence. It’s important that businesses are aware of the changing risks against which they ought to mitigate and that brokers are well placed to advise them,” he said.

“While larger companies are putting more focus on risk mitigation, the ‘she’ll-be-right’ attitude that has dominated in the past at SME level could expose smaller businesses to the risk of infringement in today’s much tougher regulatory environment, and they could face some serious consequences for non-compliance.”

Clark sees great opportunities in this regard, not just for the newly integrated NZI and Lumley portfolio, but for NZI’s broker partners too.

“Our products will be packaged and tailored towards industries with different risk factors depending on their size, sector and what stage they are at in their life cycle – whether that’s start-up, expansion or maturity.

Insurers that take the time to understand the behaviours and changing preferences of their customers are the ones that will succeed in the long term.”

And that’s exactly where Clark plans to take the new-look, newapproach NZI Liability team in the future.

CLARK SEES AN OPPORTUNITY TO CREATE A NEW LOOK NZI LIABLITY TEAM AND STRATEGY.

FSCL CASE STUDY

What’s the real cost of that complaint?

AN UNINSURED SHOCK Hannah’s Homes, a successful real estate firm in the North Island, renewed its insurance with Calamity Coverage. Hannah's Homes had been a long-term client of Calamity Coverage and paid it annual premiums of $8000. As part of the insurance renewal, Calamity told Hannah's about its latest insurance product, employer liability insurance. Hannah's was interested in the employer liability insurance and asked for more details.

Calamity sent Hannah's two forms, one to renew its existing policies and another to add employer liability insurance to Hannah's’ insurance package. Hannah's completed the renewal form only but, in its response, said it was glad the extra cover had been incorporated and asked whether Calamity had received everything it needed to update the policies.

To complicate matters, Calamity also increased the annual premium due to changes in market conditions; but Hannahs believed the premium increase reflected the addition of employer liability insurance to its insurance package.

Six months later a Hannahs’ employee had a personal grievance. Hannahs asked Calamity what it needed to do under its employer liability insurance cover. This was only the second time Hannah's had ever made a claim.

Calamity was surprised and said employer liability cover hadn’t been added to Hannahs’ insurance package because Hannah's hadn’t returned the form.

THE COMPLAINT Hannah's complained that Calamity should have placed employer liability cover as it knew it was interested and, if not, it should have followed up with Hannah's directly, which it hadn’t.

Calamity checked its insurance placement procedure. Calamity felt it had correctly applied its procedure and wrote to Hannah's. Calamity explained the law and said it was confident its legal position was correct and would not be making any payment.

Hannah's didn’t feel its complaint had been heard and s contacted FSCL. OUTCOME When we called Calamity it said the complaint had had been resolved.

When we called Hannah's it explained that the employment matter had been small and it had been settled for under $4000. The employee concerned had left Hannah's and there were no ongoing issues.

Hannah's said the real issue for it was customer service; it did not feel that Calamity had listened to its needs at the time of insurance placement and this had been reinforced by how Calamity had dealt with Hannah's’ complaint.

After further discussion, Hannah's agreed to withdraw its complaint, but said that it had decided it would not renew its business with Calamity because it had not handled the complaint well and was lacking in customer service. Hannah's said it had no trouble in finding a new insurance broker to work with.

Calamity lost a good customer and regular premium income of $8000 per annum because of how it had handled a $4000 dispute. In this situation, Hannah's wasn’t so concerned about the money, but it felt it hadn’t received a reasonable service for what it was paying to Calamity and had paid over a long period of time.

LESSON It is important to engage with and listen to a customer or client with a complaint. Sometimes being correct is not enough as there can be other interests, values and feelings that are important to acknowledge.

Handling a complaint in a well-timed, professional and reasonable manner can strengthen a relationship with a customer and increase value for both parties. Likewise, poor complaint handling can lead to loss of relationships, loss of business and an increased reputational risk.

HANNAH'S SAID THE REAL ISSUE FOR IT WAS CUSTOMER SERVICE; IT DID NOT FEEL THAT CALAMITY HAD LISTENED TO ITS NEEDS AT THE TIME OF INSURANCE PLACEMENT AND THIS HAD BEEN REINFORCED

BY HOW CALAMITY HAD DEALT WITH HANNAH'S’ COMPLAINT.

www.covernote.co.nz

47

Professional

College Professional

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

College

Principal’s Update T

he last couple of months have been busy, with the IBANZ roadshows around the country enabling me to meet a lot of our students and update the membership on the new qualifications the College is offering.

The review of the Financial Advisers Act has got people thinking about education and what might happen in terms of qualifications going forward.

Whatever happens, the new level five qualification is the likely contender for any compulsion the review might impose on broker's and this has seen a surge in inquiry about how best to gain the NZ Certificate.

The Industry Skills Survey has some surprising results and sees the sector in good heart from a skills and talent-retention view.The survey was modelled on the UK CII survey so that we could compare our position to that of the UK in key areas. (See the skills survey article.)

One of the challenges for the College has been to get across to brokers the difference between the NZQA qualifications, the PIQ Certificates and the ANZIIF qualifications. In light of all the talk about health and safety I have likened the differences to health and safety.

When an apprentice does his/her trade qualifications most of the qualification is about how to keep themselves safe. So for insurance brokers the NZ Certificates in Financial Services L5 is about how to keep you safe in your daily work. This means they are primarily about legislation, regulation and finding fit-for-purpose solutions for your clients within the legislative requirements. It is not about the detail of product types, but how to apply the product knowledge to a client’s situation.

The professional development qualifications such as the PIQ Certificates and to a certain extent ANZIIF qualifications are about product knowledge.

Professional development is about the technical product knowledge needed to provide insurance solutions for your clients.

Brokers need both, so in choosing where to start, think about what is most important to you initially and where your skill/knowledge gap is.

Then choose either the Regulatory Qualification (NZQA qualifications) (to keep you safe) or the Professional Development Certificates to fill that technical gap.

The ANZIIF qualifications are a membership qualification for ANZIIF members. The courses and qualifications the College offer don’t rely on you being a member. We aim to provide quality education and training to all.

48

September 2015

ONE OF THE CHALLENGES FOR THE COLLEGE HAS BEEN TO GET ACROSS TO BROKERS THE DIFFERENCE BETWEEN THE NZQA QUALIFICATIONS, THE PIQ CERTIFICATES AND THE ANZIIF QUALIFICATIONS.

QBE Scholarship winner talks to Lesley Southwick about life as a broker

Q

BE Scholarship winner Samuel Kerr has grown up around broking. His father isone of the directors of the Seneca group.

But Sam is very much his own person and left school not intending to go into broking.

He did a two-year course in film and television, but quickly realised that wasn’t really him and that his passion was big machines.

He became an assistant manager at age 17 at McEntee Hire. With a thirst for knowledge, Sam completed a management and marketing level four certificate.This fuelled a passion for business and management.

Next on his journey to becoming a broker was managing an electrical contracting business, and he also started his own paintball business with a friend.

Following several roles in sales, Sam finally agreed to join the Seneca group in a diverse role in 2014. Today his role encompasses broker DATE

support, mixed with new business development and project management.

Sam says his life experience enabled him to build skill sets that helped him form relationships which are a vital part of broking.

A big part of sales is building relationships and it was this that he liked. Coupled with good communication skills and a desire to make insurance easy for the client to understand, that

has seen him grow into the broker role.

"To be a good broker you need to be adaptable and versatile as no two businesses are the same," Sam says. Working in a boutique brokerage allows you to build relationships and to develop insurance programmes that truly fit the client needs, he says. Sam says a lot of his insurance learning has come from the mentoring by senior brokers and the technical insurance workshops and webinars delivered by Professional IQ College. The QBE scholarship will allow him to gain valuable knowledge and achieve his goal of becoming a Qualified Insurance Broker by increasing his professionalism. Sam's application was outstanding and the judges felt he truly deserved the scholarship.

Thanks to QBE for their support of the College through this scholarship, and good luck to Sam on his study journey through the NZ Certificate in Financial Services Level 5.

TITLE

PRESENTER

WHERE

TIME

COURSE DESCRIPTION

13

EQ issues and trends

Karen Stevens

Auckland & webinar

9.30-10.30

The ISO Scheme continues to be contacted by customers who have problems with their claims for their Earthquake damaged homes and/or contents.

14-15

Module 6 Mortgage Advice Course Workshop

John Melton

Auckland

2 days

Approved for new and existing mortgage advisers. This 2 day workshop focuses on completing professional mortgage applications while giving you the knowledge required to give excellent customer service to your clients.

19

Environmental Liability

Dinesh Murali & Craig Kirk

Auckland & Webinar

9.30-10.30

Pollution events and resultant Environmental issues are becoming an increasingly topical issue for the NZ public with increased regulator activity and enforcement. The cost to businesses through fines, clean-up costs, civil claims and reputational damage can be significant.

20

Business Interruption – Importance of cover for Additional Increase in Cost of Working

Mark Anderson

Auckland & Webinar

9.30-10.30

BI is more than just the insurance of Gross Profit. Cover is automatically provided for Increased Costs as part of the Gross Profit item. But there are limitations to what can be claimed under this item – often referred to as Item 1(b).

21

The Ins and Out of Insurance Broking

Kevin Allen

Auckland & Webinar

9.30-11.30

Learn how the professional broker; gets new business, quotes on new and renewal business, & understand the importance of claims management, policy adjustments & policy cancellations

28

Professional & Effective Broker

Kevin Allen

Wellington

9.30-11.30

Learn about how to improve your skills as a broker

OCTOBER

NOVEMBER 10

Wrap Up for 2015

Andrew Hooker

Auckland & webinar

9.30-11.00

Wrap up of 2015 cases.

12

Business Interruption – Common problems, preloss & post loss – & how to minimise or eliminate these

Mark Anderson

Auckland & Webinar

9.3010.3000

It is often only when a loss occurs that a broker finds out how good their clients BI policy is. It is too late after a loss to retrospectively change the cover. You may not have seen your client’s financial accounts.

18

Ethical Dilemmas Conflict of Interest and more

Ngaire Newland

Auckland & Webinar

9.30-11.00

Where do we draw the ethical line? It can be like finding a needle in a hay stack or drawing a line in the sand. What is ethics? What are the ethical challenges in the insurance and financial services industry?

24

Complaints compliance and record keeping

Karen Stevens

Auckland & Webinar

9.30-10.30

The regulations affecting the financial services industry require you to tell your customers about your complaints processes. Using real examples from complaints and complaint enquiries to the ISO Scheme, this webinar will look at how complaints processes and record keeping helped or hindered the resolution of the customer’s complaint

25

Technology Liability

John Moore

Auckland & Webinar

9.30-10.30

The ICT sector is one of the fastest growing segments in the NZ economy. New Zealand is increasingly getting a higher profile as a developer and incubator of new technologies and as a technology services exporter. This webinar will look at some of the key trends in the technology industry, some of the emerging risks and key coverage considerations for brokers involved in placing technology liability policies.

30

Lessons learnt from complaints to the ISO Scheme in 2015

Karen Stevens

Auckland & Webinar

9.30-10.30

Every year more than 3000 customers of financial service providers call the ISO Scheme to complain about their financial service provider. This webinar will look at the trends for these complaints and any key issues that emerge in 2015.

www.covernotemag.co.nz

49

Professional

Professional Development: Professional IQ College

College

Industry Skills Survey

T

he Industry Skills survey points to a continuation of the current employment rates within the sector.

This is supported by Infometrics employment forecast for the whole financial services sector of a 1.9% increase in employment across the whole of the financial services sector in the next three years.

remain competitive, it was interesting to see that while Technical Skills dominated there was a healthy need shown for soft skills, leadership and management as well as business competence. Access to skill development through workshops, webinars and closely followed by NZQA certificate training shows that there is a desire to develop people and that organisations support professional development.

Is retaining talent an issue for your organisation?

Half of those who answered the survey said they did not have a problem attracting or retaining talent in their sector, which is encouraging to see.

About 71% supported the idea of remunerated internships. In the UK there is a government initiative to encourage apprenticeships in insurance and risk, and this has seen an increase in young people getting into insurance and risk, directly from high school. In New Zealand it is becoming apparent that apprenticeships (internships) are becoming more popular with young people and there is a concerted effort to continue to increase the number of young people in apprenticeships, although this is mainly focused on the trades. It would be interesting to begin to develop a similar programme for insurance here. Although insurance and insurance broking is not seen as a career destination of choice, people often stay once they are part of it.

Many employers offer their staff structured professional development programmes (33%) with 54% giving access to industry-recognised qualifications as opposed to only 37% giving staff access to NZQA qualifications. This supports the continued dominance of professional development over regulatory and compliance qualifications. While both have a place and both have different purposes, there is a clear need for both but perhaps more awareness of the benefits of each needs to occur. Just over 42% of those respondents didn’t have a tertiary qualification but may have an industry body’s qualification.

How long have you been in your current role?

The survey shows that 25% of people have been in the industry for one to five years, with 32% having working in the industry for longer than five years. Of concern is the continuation of the dominance of the 41 to 65-year-olds (61.7%) with only 12.7% in the 20 to 30-year-old space.

Encouraging the development of an internship-type model, would help address the looming succession issues especially in the insurance broking sector.

When we looked at what skills the profession needed to focus on to 50

September 2015

Again it was interesting that employees had good contact with their local secondary schools (55%) and universities (44%), whereas when organisations were asked the same question an overwhelming 75% said they had no contact with local secondary schools or universities. If we are to attract younger people to the sector, then secondary schools and universities are the place to start.

RESPONDENTS' QUALIFICATION LEVELS

PERCENTAGE

Nat/NZ Certificate in Financial Services Level 4

12.7%

Nat/NZ Certificate in Financial Services Level 5

13.9%

NZ tertiary qualification at degree level or above in or majoring in accountancy

3.4%

NZ tertiary qualification at degree level or above in business administration

6.9%

NZ tertiary qualification at degree level or above in business analysis

2.3%

NZ tertiary qualification at degree level or above in commerce

4.6%

NZ tertiary qualification at degree level or above in economics

4.6%

NZ tertiary qualification at degree level or above in finance

2.3%

NZ tertiary qualification at degree level or above in management studies

9.3%

Graduate Diploma in Business Studies

17.4%

Postgraduate Diploma in Personal Financial Planning

6.9%

Certificate in Financial Services from Adviserlink Learning Limited

6.9%

NZ Stock Exchange Diploma

1.1%

NZX Diploma

2.3%

Graduate Diploma in Business Studies

4.6%

Industry based or other qualification

43.0%

The College will use this information as a basis to discuss what programmes you and your organisations might want the College to deliver.

There is certainly plenty to think about when we look at the big picture and some things need to change if we are to professionalise the insurance sector and if we are to attract younger people to the insurance industry to fill the looming gap when those baby boomers retire.

KWT Scholarship winner at 2015

W

inner of the Kerry Wilson Trust Scholarship Scholarship, Casey Jenkins from Rothbury's in Takapuna, says the scholarship will allow her to work to gain valuable knowledge and confidence towards her goal of having her own book. This scholarship means Casey will be able to begin her journey to eventually gaining the level five NZ Certificate after completing the NZ Certificate in Financial Services level four.

Casey fell into insurance, as many have, when after completing her Bachelor of Business in Human Resources and Management at Auckland University, she needed a job. She reckons many more young people would love insurance and especially broking but don’t know about it. “The perception isn’t good and this needs to change,” she says.

Broking is all about the people and there is plenty of opportunity for personal growth and technical skills in insurance broking.

Moving from her initial job in a call centre for NZI to Marsh to IC Frith, Casey eventually landed at Rothbury Insurance Brokers in Takapuna in a broker support role.

Rothbury’s have enabled her to gain skills and confidence with what she says is the best training in the business.

With regular IBANZ & PIQ College-accredited webinars, and a focus on gaining NZ qualifications, Rothbury is a leader in broking education in NZ. Casey would like to see more internships in broking and Lesley Southwick, Principal of PIQ College, agrees.

Internships begin to address the looming succession issues within the insurance broking sector.

The key attributes needed to be a broker, according to Casey, are having a client focus and asking yourself “what can I do for the client?” rather than “what can they do for me?” Casey loves the variety of broking and wants one day to have her own “book” where her organisational skills, ability to ask questions and a focus on the client should see her succeed. She would like to one day mentor others, beginning their careers in insurance.

Professional IQ College and the Kerry Wilson Trust thank Casey Jenkins for her outstanding application and wish her well in her studies. Thank you to all those who applied for the scholarship, the level of applicants this year was outstanding but Casey shone through and is a deserving recipient of the scholarship for 2015.

www.covernotemag.co.nz

51

CONTACTS: IBANZ CORPORATE COMPANY LIST

PIQ BOARD

IBANZ BOARD

Richard Russell

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

(Chair) Branch Director, Crombie Lockwood NZ Ltd

PO Box 34, Invercargill 9840 Tel: 03 218 8994 Fax: 03 218 8996 Mob: 027 258 8433 richard.russell@crombie.co.nz Ruth Steele Brokerage Manager, Seneca Group Ltd

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

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

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

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

Auckland Ph: 09 600 5171 rod.severn@paa.co.nz

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

Shortland Street Auckland 1140 Tel: 09 477 0277 Tel: 09 3629000 Fax: 09 3092536 angus.mccullough@aon.com Allan Daly Managing Director Avon Insurance Brokers PO Box 3923 Christchurch Mail Centre Christchurch 8140 Tel: 03 3710301 Fax: 03 3666589 Mob: 0275 358128 allan@avoninsurance.co.nz

David Crawford Chief Executive Officer Insurance Advisernet NZ Ltd PO Box 74557 Market Road Auckland 1051 Tel: 09 926 2062 Fax: 09 524 2226 Mob: 021 905 537 davidc@insuranceadvisernet. co.nz

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

Angus McCullough Chief Broking Officer / Marketing Manager Aon New Zealand PO Box 1184

Craig Buckle Willis New Zealand Ltd PO Box 369 Auckland 1140 Tel: 09 356 9368

STAFF

Stuart Speirs Director Abbott Group PO Box 3086 Christchurch 8011 Tel: 03 366 7536 Fax: 03 379 5395 Mob: 021 358341 Jason Smith Managing Director Property & Commercial Insurance Brokers PO Box 4 Feilding 4740 Tel: 06 323 8820 Fax: 06 323 8872 Mob: 027 293 8724 jase@pcinsurance.co.nz Ruth Steele (Vice President) Brokerage Manager Seneca Group Ltd PO Box 305415 Triton Plaza Auckland 0757 Tel: 09 476 1670 Fax: 09 4761679 Mob: 021 590 698 ruth@senecagroup.co.nz

WANT YOUR VERY OWN COPY OF

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

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

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

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

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

by IBANZ, the Insurance Brokers Association of New Zealand.

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

Next issue is due out: DECEMBER 2015

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Fax: 03 358 3343 Mob: 021 909 148 bucklec@willis.com

September 2015

REINFORCI NG

September 201 5

BROKERS'

The profess

DUTIES

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IBANZ

NZ BUSIN E FACE BIG SSES BILLS FOR ENVIRONM ENTAL DA Dransfield MAGE set for new new challeng industry, e

CONTACTS: IBANZ CORPORATE COMPANY LIST

IBANZ CORPORATE COMPANY LIST Abbott Group Adams Trimmer Insurance 1992 Ltd Adams Trimmer Nauman Insurance Ltd Addex Ltd Advice First Limited Affiliated Insurance Brokers Ltd AIB Group Insurance Ltd AJIB Insurance Brokers Ltd Albany Insurance Services Ltd Andrew Scragg & Associates AMP Services (NZ) Ltd Aon New Zealand Apex General Ltd API Insurance Ascot Insurance Brokers Ltd Atlas Insurance Brokers Ltd Austinsure Ltd Avon Insurance Brokers Baileys Insurance Brokers Ltd Barley Insurances Limited Bay Insurance Brokers Ltd Benson Insurance Brokers Ltd Bill Boyd & Associates Ltd Boston Marks Group Ltd Bridges Insurance Services Limited Broker Direct Services Ltd BrokerWeb Risk Services Limited Card Marketing International Ltd Cartwright General Insurance Limited CBA Insurances Limited Certus Insurance Brokers NZ Ltd Commercial & Rural Insurance Brokers Ltd Crombie Lockwood (NZ) Ltd Dawson Ins. Brokers (Whakatane) Ltd Dawson Insurance Brokers (Rotorua) Ltd Edward Ruys & Co Ltd Elders Insurance Limited Emerre & Hathaway Insurances Limited Frank Risk Management FundAGroup Insurance Brokers Limited Future Agency Co. NZ Ltd Gary Jamieson Insurance Brokers Ltd Glenn Stone Insurance Limited Graeme England Insurance Services Ltd Grayson & Associates Ltd Gregan & Company Ltd Harden & Hart Insurances Ltd Hawke's Bay Insurances Ltd Hazlett Insurance Brokers Ltd Hood Insurance Brokers Ltd Hugh Vercoe and Associates Ltd Hurford Parker Insurance Brokers Ltd Hutchison Rodway Ltd I C Frith (NZ) Ltd i2i Insurance Brokers Ltd Ian K Everett Ltd ICIB Limited ILG Insurance Brokers Inbroke Ltd Ingerson Insurances Ltd Insurance Advisernet NZ Ltd Insurance Brokers Alliance Ltd Insurance People (Fire & General) Limited JLT Holdings (NZ) Limited JRI Ltd Ken McNee Family Trust Lifetime Insurance Brokers Ltd Lloyd East & Associates Insurance Brokers Ltd Lowe Schollum & Jones Ltd Luxor Insurance Brokers Ltd

Christchurch Whangarei Dargaville North Shore City Wellington Wellington Lower Hutt Lower Hutt Albany Village Manukau Auckland Auckland Auckland Manukau Whangarei Christchurch North Shore City Christchurch Auckland Waitakere Tauranga Christchurch Palmerston North Auckland Hamilton Christchurch Auckland Wellington Ashburton Tauranga Auckland Alexandra Auckland Whakatane Rotorua Hamilton NULL Gisborne Cambridge Auckland Auckland Thames Waitakere Auckland Auckland Papakura Auckland Napier Christchurch Auckland Morrinsville Hastings Auckland Auckland Wellington Auckland Auckland North Shore City Auckland Wellington Auckland Invercargill Auckland Auckland New Plymouth Christchurch Christchurch Auckland Hamilton Auckland

MA Risk Solutions NZ Limited Auckland Mainprice King Chartered Brokers Ltd Auckland Malcolm Flowers Insurances Ltd Taupo Marsh Ltd Auckland Matt Jensen Insurance Brokers Ltd Taupo McDonald Everest Insurance Brokers Ltd New Plymouth Montage General Insurance Ltd Auckland Multisure Ltd Auckland Nelson Bays Insurance Brokers Ltd (NIB) Nelson Neville Newcomb Insurance Brokers Ltd Auckland Nexus Insurance Brokers Ltd Auckland North Harbour Ins Services (1985) Ltd incl Northsure Group Limited Orewa Northco Insurance Brokers Ltd Masterton Northcrest Insurance Brokers Ltd Auckland Oamaru Insurance Brokers Oamaru O'Connor Warren Insurance Brokers Tauranga OFS Insurance Brokers Ltd Dunedin Omni Fire & General Ltd Auckland One 50 Group Insurance Limited Auckland Paramount Insurance Agencies Ltd Auckland Paterson & Co NZ Ltd Auckland Penberthy Insurance Ltd Auckland Peter C Cranshaw Insurance Broker Ltd Levin PIC Insurance Brokers Ltd Manukau Primesure Brokers Ltd Auckland Property and Commercial Insurance Brokers Feilding Protekt Insurance Brokers 2008 Ltd Auckland Provincial Insurance Brokers Limited Masterton PSC Connect NZ Limited Auckland Pulsar Insurance Agency Auckland Reid Manson Ltd Timaru River City Insurance Brokers 2000 Ltd Wanganui RMA General Ltd Warkworth Rothbury Group Ltd Auckland Runacres & Asssociates Limited Christchurch Seneca Insurance Brokers Ltd Auckland Sit & Blake Limited Auckland South Pacific Insurance Brokers Ltd Auckland Sweeney Townsend & Associates Ltd Rotorua Thames Valley Insurance Ltd Thames The Advisers 1 Limited New Plymouth The Stoneman Group Wanganui Thorner General Insurances Ltd Upper Hutt Towes Insurance Brokers Ltd Te Aroha Trevor Strong Ins Ltd Auckland Vision Insurance (S.I.) Ltd Ashburton Waikato Insurance Brokers Limited Hamilton Wallace McLean Ltd Auckland Wanganui Insurance Brokers Ltd Wanganui Wholesale Insurance Brokers Ltd Papakura Willis New Zealand Ltd Auckland Yesberg Insurance Services Ltd Christchurch

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OUR POLICYHOLDERS ARE ANYTHING BUT RUN-OF-THE-MILL.

Our customers own unique, classic or prestige cars, motorcycles or travel in homes on wheels. They don’t fit neatly in a box which is why we don’t offer run-of-the-mill policies.

Your customers will feel appreciated with customised policies that tick all their boxes. And you’ll appreciate our high performance team who are super-fast and easy to deal with. That’s because we have no apron strings.

We’re fully autonomous in our no-fuss dealings with you. We write our own specialised, custom policies and terms, calculate rates, communicate one-on-one with you and pay claims quick-smart; all with a smile.

Call us for a friendly chat about quality, customised insurance you can trust.

Call us on 09 250 6009 or email admin@sual.co.nz

sual.co.nz