ITâ€™S TIME TO REMOVE THE INSURANCE DISCLOSURE REQUIREMENT
INSURANCE CONDUCT AND CULTURE - A NEW REGULATORY FOCUS
Brokers told to adapt for online world Boosting your social media presence SMEs left vulnerable
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Gary Young CEO, IBANZ
Biggest change yet for brokers
s we close in on the end of 2018 and look back over the last 12 months will see two dominant issues. Both revolve around government and legislation and regulation. That will hardly come as a surprise to those of you who have followed our activity over the year. Ten years ago, the government began to implement new regulation of financial services. Since then, there has been an increasing focus driven partly by events at home, such as finance company failures, and partly by increased pressure from overseas regulators. We have now reached a point where the impact on our sector of financial services is becoming very significant. The next couple of years will bring the biggest change in compliance we have ever seen for insurance brokers. So what are the most significant changes? The review of the Financial Advisers Act will have the biggest impact for both individual brokers and their employers. Second in line is the change to the way the Fire Service, or FENZ as they are now known, will be funded through insurance. The FENZ changes due to be implemented next year have now been pushed out by one to two years as the struggle to create a practical levy regime drags on. IBANZ, together with the Insurance Council, have poured a huge amount of resources into trying to reach a pragmatic solution. An obvious question we have both asked is why we are doing this. The existing regime may not be perfect but it is better than what is proposed and it will not require spending tens of millions of dollars to implement. The new regime is a huge imposition in relation to necessary system changes and ongoing running costs for the insurance industry. Costs, which ultimately those who purchase insurance protection will pay. Turning to the new adviser regime, at least in this we have something that is positive, in that it will raise professionalism across financial services. Raising the bar enhances insurance broking as a career. Our focus in working with government on these changes is to ensure they do not decimate current broker numbers through excessive compliance requirements. In particular the new code of conduct is a key area with its standards for competence, knowledge and skill. The question is how to achieve standards that are befitting a profession without losing the experience, knowledge and wisdom of existing brokers. A professional standard requires a benchmark. That has been set as an NZQA qualification. Next is how brokers achieve that mark through what must be a valid, transparent, independent and quality assured process. That is a challenge for the coming year. In the meantime I hope you all take a well-deserved break over the holiday season. Next year will be a testing time; let’s be ready for it.
Gary Young, CEO, IBANZ
Features 12. Five changes new code of conduct could bring to your business 14. New Zealand’s largest infrastructure project takes out Supreme Sustainability Award 20. Rural innovation and entrepreneurship showcased at business awards 22. A new entitlement to replacement vehicle hire costs
34. COVER STORY: Insurance conduct and culture a new regulatory focus 38. Residential property inspections you can rely on 39. My Rothbury App hits the mark with clients. 40. Delta launches IP protection product
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INSURA - A NEWNCE CONDUCT
Brokers toldREGULATORY AND CULTUR to ada E FO Boosting your social pt for online world CUS media pre SMEs left sence vulnerabl e
Kiwis worry about online security New Zealanders are more concerned about data security issues spanning identity theft, credit card fraud and internet viruses or hacking, than natural disasters or terrorism. Thatâ€™s according to the 2018 Unisys Security Index. The index of security concerns of the New Zealand public sits at 138 out of 300 this year, down from 154 in 2017, and returning to previous levels of concern recorded in 2013 and 2014. This is the largest decrease in concern over the last year of the 13 countries surveyed, with New Zealand recording the third lowest index score. The drop was largely driven by a decrease in concern around natural disasters, with 41% concerned about a serious event such as an earthquake, flood or epidemic occurring in New Zealand - down from 51% in 2017. Overall concern is higher among women than men, and 18- to 24-year olds are more concerned than 55- to 65-year olds. More than half of New Zealanders said they were extremely or very concerned about unauthorised access to, or misuse of, personal information. Half said they were worried about people using their credit card details. Just under 50% said they were worried about being hacked or getting a virus. "While New Zealanders experienced a relatively calm year in terms of politics and natural disasters, local and global data breaches dominated media headlines and impacted many of us personally - so data security is top of mind," said Andrew Whelan, vice-president commercial industries, Unisys Asia Pacific.
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NZ second-riskiest in the world New Zealand has been ranked as the second-riskiest country in the world in a major international study released by Lloyd’s of London. The report looks at non-life underinsurance and insurance penetration data for 43 countries. It’s the second report of its kind, the first of which was published in 2012. "This report shows how risky New Zealand really is," Insurance Council chief executive Tim Grafton said. "Since the last report in 2012, we’ve seen the cost of the Canterbury earthquakes continue to rise, a second major earthquake striking Kaikõura and Wellington and a major flood in Edgecumbe. "As a risky country, it’s important we remain well-insured. That means not only ensuring we insure our assets but making sure coverage of those assets is sufficient to replace them. Fortunately, New Zealanders understand the value of insurance and demonstrate this in consistently high uptake levels." New Zealand has the fourth-highest rate of insurance penetration globally, dropping one place from third in 2012. There is a word of caution around this statistic, however. "It’s important to note that although we have relatively high insurance penetration rates, that doesn’t mean all our assets are adequately insured," said Grafton. "It’s possible that people are under-estimating the cost to replace their assets, which could leave them vulnerable should another major disaster strike. "We recommend everyone checks their current cover to ensure it’s fit for purpose and will give you what you need in the event of a total loss.”
ICNZ addresses mesh concerns The Insurance Council is reassuring homeowners that they should not be unduly concerned about insurance claims being declined for homes built with steel mesh sourced from Steel and Tube. The reassurance follows the Commerce Commission’s decision to fine Steel and Tube for making misleading representations about the strength and stability of its steel mesh. The company sold mesh with test certificates displaying the logo of an independent lab and the signature of a lab manager. The commission found the signature of the lab manager was a Steel and Tube manager. Following the Canterbury earthquakes, steel mesh standards were increased. Complaints were made to the Commerce Commission in 2015 that some manufacturers were not meeting those new, higher standards and subsequent testing confirmed that to be the case for
some samples tested - including those of Steel and Tube. "Insurers insure homes throughout New Zealand, from those built as far back as the 19th century through to the most modern homes that fully meet the 2018 building code requirements", said ICNZ chief executive Tim Grafton. "Even if homes have been built using steel mesh that does not meet today’s standard it does not mean the construction is unsafe. It may even be of a standard that exceeds that in many homes that were constructed before the standard was raised. "If insurers have agreed to insure a house, then in the event of an earthquake the steel mesh standard used would not lead to declinature. If non-compliant mesh had contributed to the damage incurred, insurers could consider pursuing the at-fault party for recoveries."
Chubb expands Australasian offering Chubb has established a major accounts division in Australia and New Zealand, with the aim of delivering dedicated premium service encompassing underwriting, risk engineering and claims for large, global and multinational clients and business partners. Demetra Day has been appointed to lead the new division as major accounts division manager Australia and New Zealand. In her new role, she will be responsible for the management of major accounts underwriting teams, global client executives, claims client relationship managers and risk engineers, all of whom will be focused on providing crafted solutions and bespoke services for large, global and multinational clients and business partners. This development reflects Chubb’s ongoing strategy to be more client4
centric across all product offerings. Chubb already has a structure in place to support SME clients, so the new division supporting larger clients is a further step towards enhancing the client experience. Jarrod Hill, Chubb’s country president, Australia and New Zealand said: "Over the years, Chubb has developed a well-known reputation for servicing clients in the major accounts segment. The creation of the new division in Australia and New Zealand will only boost the delivery of product, service and advice to this key client segment where we have strong business relationships. With Demetra’s depth of experience and understanding of the risk management landscape our clients operate in, she is well-placed to lead the charge for this important client segment."
Suncorp focuses on flexible working solutions Suncorp New Zealand is using technology to create a more flexible and collaborative working environment for its global workforce. This includes leveraging Nutanix Enterprise Cloud OS software to support Suncorp’s Citrix virtual desktop infrastructure (VDI) delivering 700 virtual desktops, enabling staff to work remotely in any space. In response to the growing demand for flexible working options by existing and potential staff, Suncorp renovated its Auckland offices to transform its way of working and bring its flexible working strategy to life. It selected Nutanix as its technology partner to help ensure the technological resources to enable staff to work remotely were available at all times. “One of the top questions asked by our potential employees is – do you offer flexible working options?” said Terry Gaze, executive general manager for technology, data and labs. “We’re meeting this desire with an easy-to-use IT environment and offices that encourage staff to work in a collaborative way from anywhere. We’re now looking at how else we can use the Nutanix operating system to further support our flexible working strategy.” The new environment has proven particularly beneficial to new parents in the company, who often require varying levels of flexibility to balance their working lives and family commitments. Supported by trusted Nutanix and Suncorp’s IT partner Deptive, the new IT environment not only improved workspace access but also improved desktop resilience and availability across Suncorp’s enduser environment, while improving employee productivity. This is an important consideration for the company now that more staff are working remotely, and also given the amount of data and multitude of workloads it holds and manages. As an early adopter of Amazon Web Services (AWS), Suncorp uses the public cloud to manage many applications and services central to its business. However, the company chose to host its VDI services on-premises as they require more control over data and security and needed to minimise the risk of downtime. The combination of Citrix with Nutanix offered a true best-of-breed on-premises solution.
FSCL reports surge in complaints External disputes resolution scheme Financial Services Complaints Ltd has ticked off its busiest year yet. In its annual report, FSCL reported a 35% increase in complaints opened for investigation in the year ending June 30. There were 245 investigations completed in the year, 29% of which were settled and 37% discontinued. Ten per cent were resolved early by the participant. Complaints against insurers, in particular relating to travel insurance, once again made up the greatest proportion of cases investigated at just over a third. Complaints against lenders were the second-largest category at about 21%. There were 20 complaints about insurance brokers and another 18 about financial advisers. Sixty-five cases were about travel insurance, six about pet insurance, four about health insurance, two about business interruption insurance and two about marine insurance. Chief executive Susan Taylor said the rise in travel insurance complaints correlated with more Kiwis travelling overseas and more travel insurance being sold. “We think the overall increase in complaints partly reflects the growing consumer awareness of the dispute resolution services available along with the extra resources we have put into publicising
our services and working with consumer advocates. However, there is still room for improvement.” FSCL submitted during the year on regulations under the Financial Services Law Amendment Bill, that it should be mandatory for advisers to tell their clients about their external dispute resolution scheme, at the time that a complaint arises. “The best way for a consumer to find out about us when they need us is through their financial services provider.” www.covernote.co.nz
AMI launches on WeChat Chinese-Kiwis can now connect more closely with AMI, as the general insurer becomes the first in New Zealand to establish itself on social network WeChat. WeChat is one of the most popular social networks in the world, with more than 1 billion active users globally. In Aotearoa, more than 200,000 Kiwis are active on WeChat. The app includes instant messaging and calls, as well as the ability to share photos, videos and updates with a friends network. Since October 1, AMI has been connecting with the WeChat community through sharing information and content about how insurance works, the benefits and support it provides to families. AMI has partnered with Skykiwi, New Zealand’s largest Chineselanguage media agency to deliver content to WeChat users. Both Skykiwi and AMI’s business unit, which has team members who speak both Mandarin and Cantonese, will work together on content for WeChat, as a way to bring AMI closer to its customers and communities. "For many Chinese migrants moving to New Zealand, insurance is generally unfamiliar territory, with insurance being only recently introduced in mainland China," AMI’s executive general manager Kevin Hughes said. "In New Zealand home insurance is intrinsically linked with getting a mortgage, and having contents and car insurance is about helping our communities recover after a loss. So we’re keen to work with WeChat users to help the community better understand its importance. "It’s also an opportunity for us to collaborate with our customers on insurance that is right for their needs," Hughes said.
Vincent Hsu, a team leader in AMI’s business unit, will help manage AMI’s WeChat. He said he was excited to bring the Chinese-Kiwi community and AMI closer together. "My family first moved from Taiwan to New Zealand in 1992 and I began a career in the insurance industry, which I’ve been in for a decade now. I’ve seen first-hand why it’s important to have the right insurance cover to help protect you and your family," Hsu says. "It’s about making sure you and your family can recover after a flood or fire, when someone has broken into your home or stolen your car. These moments can be devastating but we are there to help you get back on your feet.” Chao Xu, head of strategy at Skykiwi said: "We are excited to be appointed the WeChat partner of this prominent New Zealand organisation and believe that we are well-positioned with our social content experience, as well as our promotional channels with the Chinese community, to deliver some fantastic results. "One of Skykiwi’s business objectives is to help brands reach and engage with the Chinese community in NZ. To work with AMI on its WeChat campaign is a clear indication of mainstream businesses valuing the importance of reaching and engaging consumers who are from different cultural backgrounds with different media consumption habits."
Bill to extend transitional levy A bill that will extend the transitional levy rate for Fire and Emergency New Zealand to June 30, 2020, was introduced to Parliament at the end of October by Internal Affairs Minister Tracey Martin. Martin said the introduction of a new levy regime – which applies to homeowners and businesses and is collected through insurance premiums – was a large undertaking and it was important that it was done right. “There are technical issues that need to be thought through and we want to have more information about what FENZ’s costs are before setting the new levy rates to fund it.” She said that the bill meant levy-payers would continue to pay the amounts they currently did until the introduction of the new levy regime from July 1, 2020. Rural and urban fire services were unified across the country into a national organisation, Fire and Emergency New Zealand (FENZ), in mid-2017 and a transitional levy regime was established.
At the time the Government decided to delay the introduction of the levy until the new national organisation was well-established. “It was originally planned that a new levy regime would take effect from July 1 2019, but this date will be extended. “This is a short, sharp bill. It deals with the commencement date for the new levy regime, and we are introducing it now because it must be passed prior to July 1 2019. It also contains a small number of consequential changes, such as bringing forward the planned levy exemption for the collections of public museums, public art galleries and whare taonga.” A further tranche of amendments, that will finalise the details of the new levy regime, will be promoted through a second bill to be introduced next year. “Our legislation must enable FENZ to serve the New Zealand public in the best way possible,” Martin said.
ICNZ welcomes mapping decision The Insurance Council of New Zealand is pleased with the decision of Regional Economic Development Minister Shane Jones to provide funding through the Provincial Growth Fund for expanded LiDAR data mapping in the regions. LiDAR uses lasers to create precise measurements of the earth’s surface. From those, sophisticated 3D models and maps can be developed that accurately depict an area’s topography. ICNZ said it was an important tool in helping councils and regional authorities understand the impacts of severe weather, climate change, erosion, flooding and sea level rise.
With it, authorities are able to make better decisions about land use and risk management, which allows them to be more resilient and better protect people and assets. Open access to this data will have benefits for insurers and customers. "Access to this data will provide insurers with tools to better understand the risks a property they’re insuring faces," said ICNZ chief executive, Tim Grafton. "It will also help homeowners understand the sorts of risks any property they’re looking to purchase faces, be it from erosion, flood or sea level rise, so they can make more informed decisions."
Breakdown insurance stoush breaks out Consumer NZ is advising car buyers who have been mis-sold mechanical breakdown insurance to demand a refund. Consumer NZ chief executive Sue Chetwin said the insurance was heavily promoted by car dealers and could add more than $1000 to a vehicle purchase. But she said the cover was hardly worth having and complaints showed the insurance continued to be sold with misleading claims about the protection it provided.
Comedian Raybon Kan, a Consumer NZ member, was sold the insurance by Palmerston North car dealer Lee European. The dealer claimed the policy would cover faults with the vehicle’s airconditioning and transmission, which a pre-purchase inspection had indicated may require repair. However, the dealer not only failed to provide a copy of the policy, it also didn’t tell Kan the insurance excluded pre-existing faults and he wouldn’t be able to claim on it if the air-conditioning or transmission problems turned into a major expense. Kan successfully took Lee European to the Motor Vehicle Disputes Tribunal, which ordered the dealer to pay $2000 for the insurance and $2200 for subsequent repairs to the air-conditioning system. “Dealers claim the insurance will protect you if vehicle parts suddenly fail and need repair. But the policies typically have long lists of
problems that aren’t covered, including any pre-existing faults with the car and anything deemed the result of faulty repairs,” Chetwin said. Car buyers already had protection under the Consumer Guarantees Act (CGA) and didn’t need to rely on mechanical breakdown insurance, she said. “If a car dealer sells a vehicle that’s not of acceptable quality, it has a legal obligation to sort out the problem.” But an Insurance Council spokesperson said the policies should offer protection beyond the CGA. “Most mechanical breakdown warranty policies cover wear and tear, as opposed to only manufacturing defects and parts failure, and are available to purchase on second-hand cars. With many secondhand cars in New Zealand being imported from overseas without comprehensive histories, a mechanical warranty offers an opportunity for consumers to be covered for breakdowns of their vehicle which would not otherwise be covered under the CGA. “Under the Fair Trading Act, warranty providers are required to outline at the front of their policy documentation the rights consumers have under the Consumer Guarantees Act and what benefits and features their warranty provides over and above those rights.” The sale of a mechanical breakdown warranty at the time of vehicle purchase via credit is covered under the Credit Contracts and Consumer Finance Act (CCCFA). This requires that the dealer discloses the existence of the mechanical warranty being sold, the cost of the policy and the cool down period applicable. “The dealer must explain the key features and benefits of the policy as well as any limits and exclusions and outline the excess applicable. A copy of the policy must be provided to the consumer and the consumer must be made aware that the policy is optional,” the spokesperson said. “When purchasing any type of financial product, it’s important people read their policy to ensure they understand what they’re purchasing and that it meets their needs.” www.covernote.co.nz
Aon rings changes Aon has announced the decision to bring commercial risk solutions, health solutions, and affinity teams across Asia and Pacific together into one APAC region. This region employs 11,000 staff, comprises 20 countries and more than half of the world’s population. Geoff Blampied, chief executive of Aon New Zealand and chairman Aon Pacific, has been appointed as APAC chairman, in addition to his New Zealand role. Blampied has been with Aon for more than 22 years. He has been pivotal in building and growing Aon’s business in New Zealand, making Aon the market leader. Sandeep Malik will lead this combined region as chief executive of Aon’s solution lines for APAC. Malik joined Aon in 2010 as CEO of Asia. Eric Andersen and Mike O’Connor, co-presidents of Aon, said:
“With this change, commercial risk, health and affinity in APAC are now in alignment with the regional structures of reinsurance solutions, retirement solutions and other Aon support functions. This approach is designed to strengthen collaboration, accelerate growth, leverage economies of scale and more closely reflect the geographic structures of clients, insurers, partners and key trends in the region. “We are excited to work with this team of experienced and passionate leaders to build upon our strong momentum.” Blampied said: “Aon Pacific has been a success and we look forward to extending that success to Asia Pacific. Sandeep and I are very enthusiastic about the prospects for us as a region including China and our longstanding joint venture with the global COFCO Group trading as Aon-COFCO. We believe these changes will create even greater real value for clients and development opportunities for our staff.”
Survey shows New Zealand businesses aren't fully covered when it comes to risk New Zealand businesses are not as prepared as they should be when it comes to dealing with emerging risks, a new survey shows. Marsh’s seventh survey of risk, conducted in September across a range of Kiwi organisations, showed that the top five emerging risks for businesspeople were cyber, increasing corporate governance requirements, talent attraction and retention, earnings volatility and business continuity. When asked if they had plans in place to deal with these risks, 23% of the clients surveyed said that they did not have a procedure in place to deal with cyber risk, 43% did not have plans in place to deal with increasing corporate governance requirements and 44% were similarly placed when it came to talent attraction and retention risks. “It is part of our responsibility as risk and insurance professionals to help guide our clients and ensure that they have these plans in place,” says Steve Walsh, chief client officer at Marsh. “A big part of this process is helping to educate clients on what these emerging risks are and what they mean for their particular business.” Dealing with underinsurance Survey participants were asked if they had suffered a high impact financial loss in the last three years. Of those who did, only 30% had it covered by their insurance policy. When it came to indemnity periods, 40% of those impacted said that 12 months was not long enough for their business to return to the same gross profit they enjoyed prior to the loss. Almost two-thirds said that 24 months was a more realistic timeframe whilst 37% thought 36 months. A recent Lloyd’s report showed that underinsurance was not just a local issue but also a global one, with efforts to close the underinsurance gap making limited progress. About $250 billion of assets globally remain uninsured while Asia-Pacific economies account for $205 billion of the insurance gap. “The worst thing that we can do when it comes to clients' insurance coverage is to be complacent,” Walsh said. “Rolling out the same programme year after year without consideration for new and emerging risks and the changes in market conditions is not going to help solve the problem of underinsurance.” The survey was completed by representatives from 132 organisations from across New Zealand – from SMEs to large corporates across a range of industries and organisational types. (See page 16 for Feature story) 8
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BROKERS TOLD TO ADAPT FOR
rokers need to adapt the way they operate to capture businesspeople who want to research and do business online, a report suggests. Vero released its latest SME Index, which showed that more than three-quarters of the owners of small businesses in New Zealand were comfortable performing their business administration tasks online. They were increasingly doing online research to look for business insurance. The report said there were differences between businesspeople who had bought their last insurance policy through a broker and those who had purchased direct. Almost two-thirds of broker clients said they were extremely comfortable carrying out business admin tasks online, compared to just under half of those who were direct buyers. “This insight is key for brokers to understand how their business caters for the digital age, and to ensure they meet customer expectations in the online environment.” Overall, three-quarters of all businesspeople said they were somewhat to extremely comfortable online. “When presented with a list of potential benefits of using online channels, our respondents made it very clear that ease and convenience are
the overwhelming reasons to use the internet, ” the report said. “For example, 62% like the fact that they can access information and research online at any time, and a further 56% appreciate that they can access it from anywhere. Speed is another important benefit for many. Cost is one of the lowest ranked benefits, with only 23% selecting cheap prices as a reason to use online. Ease of comparison and having less pressure to buy rank only slightly higher.” The report said convenience was an even more important benefit of online for broker clients. “This suggests a significant opportunity for brokerages to think about how they can utilise online channels to make their experience more convenient for clients,” Vero said. “In contrast, direct buyers are significantly more likely to like online for the lack of pressure to buy and the ease of comparison, suggesting that their use of online may be linked to a desire to be independent and do things themselves. This also suggests that they are shopping around and aren’t driven to buy immediately.” The main drawbacks of online for SMEs stemmed from a lack of trust. More than 40% of SMEs worried about the risk of errors in online channels, while 38% felt that online was impersonal and 37% were
concerned about the risk of their business information being leaked. “Significantly for brokers, one-third consider the lack of advice of online to be a drawback. This suggests that there is a strong role and opportunity for brokers to leverage personal understanding, advice and trust that SME customers value.” Just under a quarter of all SME owners said they were very comfortable identifying the appropriate insurance for their business online, compared to 29% who were very comfortable making amendments to the type and level of their cover, 33% asking questions or making inquiries, 38% lodging a claim, 43% renewing a policy or getting a quote and 54% very comfortable updating their details. “There is some evidence that, for a small number of direct buyers, their willingness to use online has been a factor in their shift away from brokers,” the report said. “Specifically, of those who claim to be using a broker less than they used to, around one in three say that this is because they prefer online channels. “This suggests that there is a substantial opportunity for brokerages to provide their clients with the convenience and ease of online because it is increasingly an area that meets clients’ expectations and needs.” Vero said brokers should understand clients’ digital expectations.
“Digitally managing administrative aspects of their business is now the norm for all types of businesses and ages. There is the potential for brokers to add value and build a customer value proposition for tasks SMEs aren’t comfortable doing online.” By increasing their options to interact with clients online, brokerages could meet the needs and preferences of a large group of SMEs,Vero said. “Research still indicates that SMEs are looking for advice from brokers to help them navigate the complexities of insurance. SMEs value brokers who take the time to understand their business and tailor insurance options for their needs.” WHAT SHOULD BROKERS DO? SMEs are happy to do online research for different insurance options. And with many more online insurance competitors, it is hard to compete with ease and convenience. • Define and build your own unique value proposition. • Understand customer drivers, so you can determine where is best to invest online (for example, search engine marketing or digitising administrative tasks). • Understand that SMEs value the power of advice and broker relationship.” www.covernote.co.nz
FIVE CHANGES NEW CODE OF CONDUCT COULD BRING TO YOUR BUSINESS T
he group developing a new code of conduct for financial advisers has released a draft – and it will mean big changes for insurance brokers. The code will guide everyone who gives financial advice under the new regime. It is expected to be signed off by the Commerce Minister early in the new year. The new financial advice rules will take effect about nine months later. Here are five changes the draft code proposes for insurance brokers. 1. QUALIFICATIONS The draft code has backed away from the suggestion that a degree could be a requirement for the financial advice sector for now. But it has settled on the New Zealand Certificate in Financial Services (Level 5) as the base level for the industry. That means some brokers currently working as registered financial advisers without any formal qualifications may have to go back to study. There will be an option to have prior learning recognised, but the code working group has warned that could be a more onerous process than simply getting the qualification. People who continue under the new regime as nominated representatives working under a financial advice provider, rather than financial advisers, will be able to skip this qualification if the advice they give is seen to be at the standard of someone with that qualification. That will only be able to be achieved if the financial advice provider’s systems and processes are stringent enough to backfill any gaps in the representatives’ learning and experience.The provider will also have to give proof of how it is measuring this during the licensing process. 2. CPD Authorised financial advisers currently have a requirement to undertake continuing professional development, but there is no such requirement for RFAs. That’s set to change if the draft code is adopted in its current form. The code includes a requirement that individuals complete learning activities design ensure they maintain the competence, knowledge and skill to provide the financial advice they give, and to the extent relevant to their role, an up-to-date understanding of the regulatory framework for financial advice in New Zealand. The working group isn’t proposing a minimum number of hours at this stage, instead pointing to the need to focus on the outcomes of the CPD work. But advisers have flagged this lack of detail as a concern. 3. MANAGE CONFLICTS OF INTEREST This is already dealt with in the Financial Services Legislation Amendment Bill, but the code makes it clear. A person who gives financial advice must have arrangements in place to manage conflicts of interest. Where practicable, they are to be avoided, otherwise they must be identified and controlled, then adequately disclosed to clients. 4. PROTECT CLIENT INFORMATION It won’t be enough to hope for the best when it comes to holding information about your clients. The draft code includes a standard requiring advisers to take reasonable 12
steps to protect client information against loss and unauthorised access, use, modification, or disclosure. The group said that would include but not be limited to work papers and records, and the financial advice given to clients. “Physical and electronic security measures should be maintained so that only authorised personnel of the financial advice provider have access to client information. Client information should only be held for as long as it is required for the purposes of the engagement, or to comply with a regulatory requirement.The client information then should be returned to the relevant client or disposed of securely.”
5. GIVE FINANCIAL ADVICE THAT’S SUITABLE – AND PROVE IT Any advice that brokers give to clients will have to be able to be backed up with an argument as to why it was appropriate. The draft code says that “reasonable grounds” for giving financial advice will mean grounds that a prudent person engaged in the profession of giving financial advice would consider to be adequate in the same circumstances, including in relation to the strategy underpinning the financial advice and each financial advice product covered by the financial advice. “In some situations, an in-depth analysis of the client’s circumstances may be required. In others, it may be reasonable to conclude that the financial advice is suitable where the client’s circumstances include particular characteristics. “If the nature and scope of the financial advice includes an actual or implied comparison between two or more financial advice products, the financial advice should be based on an assessment and comparison of each product. This includes, for example, where an existing product held by the client is being replaced by a new product which provides similar features or benefits.” Consultation on the draft code finished in early November.
Garry Taylor, Executive General Manager NZI
NEW ZEALAND’S LARGEST INFRASTRUCTURE PROJECT TAKES OUT SUPREME SUSTAINABILITY AWARD T
he City Rail Link (CRL) has broken through construction and infrastructure industry norms to win New Zealand’s highest sustainability accolade at the 2018 NZI Sustainable Business Network Awards. Garry Taylor, executive general manager NZI, the principal partner of the awards, said the City Rail Link project was a deserving winner of the NZI Transforming New Zealand Award as it was evident that it put sustainability at the core of every decision. “As New Zealand’s largest civil infrastructure project, it is leading the change in the way infrastructure projects are designed and delivered. “The project has proven the infrastructure industry can reduce greenhouse gas emissions and environmental impacts while developing Auckland’s much-needed public transport system. This will result in ongoing reduction in both congestion and carbon emissions,” Taylor said. CRL’s approach was to calculate the projected whole-of-life footprint of the project. Initiatives were identified through exploring alternative construction methodologies and designs, running resource reduction workshops and undertaking detailed footprinting of alternatives. So far, activities from the first two contracts have saved more than 2000 tonnes of carbon from construction, and more than 14,000 tonnes of carbon from operations.There has been a 25% reduction in construction water use,
and a 50% reduction in operational water use at Britomart station. Ninetyfive per cent of construction and demolition waste has been diverted from landfill through recycling or re-use. According to Rachel Brown, chief executive of the Sustainable Business Network, New Zealand’s construction industry contributed 40% of the total waste going to landfill in Auckland. She said CRL had proven this no longer had to be the case. “To have the largest civil infrastructure project ever built in New Zealand start with a goal of zero waste means CRL has the potential to show the wider sector the real value of integrating best practice throughout design and construction. The City Rail Link will help demonstrate how New Zealand can move to a low carbon, circular and more accessible city.” On behalf of NZI, Garry Taylor said he wanted to congratulate those involved with the City Rail Link project on their outstanding achievement and thank them for their contribution to a more sustainable New Zealand. “We’ve been a foundation partner of the Sustainable Business Network for over a decade and each year we see award winners who continue to revolutionise the business landscape as we know it. “The City Rail Link exhibits best practice that provides an excellent model for other businesses to follow. We’re thrilled to play a part in recognising their tremendous efforts.”
Sustainability. Itâ€™s good for business.
Celebrating the businesses and individuals creating positive change for our people and planet. Congratulations to all the 2018 NZI Sustainable Business Network Award winners. To learn more visit sustainable.org.nz
SMES LEFT VULNERABLE There are many gaps in New Zealand’s small business insurance coverage. By Angela Cuming
nderinsurance is a significant issue across the insurance industry and for small-to-medium enterprises (SMEs), failure to take out adequate cover could be catastrophic. While bigger businesses and companies can often bounce back relatively quickly after an event such as a flood or an earthquake, the same can’t be said for SMEs, which often run out of cash after a catastrophic event and are forced out of business. And that’s only one of several things that can happen to an SME to affect their fixed costs. KEY PERSON RISK The loss of a key person can be a real blow to a firm's finances, confidence and company image. Financial advisory firms are particularly vulnerable to key person risk as the nature of advice often means advisers have personal relationships with their clients, who will often follow the adviser out the door. Key person risk particularly affects New Zealand, says Niall Martin, head of health and benefits at international risk management and insurance brokerage firm Willis Towers Watson. “Small to medium-sized enterprises make up more than 9% of all New Zealand companies and headcounts in these businesses generally are quite small, so key person risk is very real,” Martin says. “Anecdotally, we know coverage is a problem. We don’t have statistics but from talking to our clients our impression is there is a large level of under-insurance for this particular risk. “This is a heightened problem for New Zealand companies. Given our geographical remoteness and the need to attract and retain top talent, it can be difficult to get key people with the required skillsets on board. Businesses need to be aware of the financial impacts of losing someone in a major role, as well as the time it takes to find and hire a new person.” 16
SMEs also need to look at potential effects on their client base, goodwill, and even market share if they lose a key person, Martin says. “The impact of losing a key person has a larger impact in the SME market because multinational and large corporates have deep enough pockets, and bigger headcounts to mitigate the risk. In smaller businesses there’s a finite talent pool available if a business loses a managing director or CFO,” he says. Michael Naylor, a senior lecturer in finance and insurance at Massey University, agrees that loss of key person is one area where SMEs are underinsured. “When a business loses a key person, the business loses cash and knowledge and often reputation,” he says. “Say your chief salesperson dies and all the customer contacts literally go with them to the grave,” he says. “That’s a really big loss on all levels, and often something a boss won’t plan for, or take out a policy for.” Businesses should also be prepared if a business relationship goes sour, Naylor says, leading to a key person resigning abruptly and walking out the door, taking all their client contacts and files with them or leaving without handing over key computer system passwords and other crucial information. “A business owner may have a dishonest employee and they terminate their employment but what if that person has a lot of knowledge? Will they leave it behind? There’s a reason why some bigger businesses will escort a former-employee off the premises.” Then there are the problems that can come from the loss of a key person outside of, but close to, a business, says Naylor. “It's not just your own business you need to think about I mean, if your key supplier can't supply and you can't sell, that's also a problem. “Or your key customer goes bankrupt and you can't sell, that's a
problem. So for example when the big earthquake hit Japan in 2011 one of the major car manufacturing parts of China was gone and that caused a hell of a problem in a range of firms. It’s a clear example of things occurring in different countries that can bankrupt your business.’’ Under-insurance is also a “real problem” for SMEs in the property sector, says Michael Brown, national manager broking for Willis Towers Watson. “We’ve seen a lot of big-name companies go into liquidation in construction and that’s had a big flow on effect for the businesses supplying them,” Brown says. “Under-insurance is a real problem. There have been some supplier arrangements that have been absolutely fine for decades, in terms of getting invoices paid and all of a sudden, a company falls over and there’s no money. This not only affects sub-contractors and trades but also businesses like hardware stores. They haven’t seen the crash coming and weren’t covered.” CYBER RISKS There is also a ‘’real and growing threat,’’ Brown says – cyber attacks. “NZI released a report early in October saying they’d had over 60 claims against their cyber products and they’ve introduced more benefits, including increased cost of working, which is part of the business interruption cover, an optional extension to social engineering fraud that covers phishing, phreaking and fake invoice losses,” he says. Tim Grafton, chief executive of ICNZ, says while large businesses generally tend to be well-insured for the risks they face, the vast majority of New Zealand businesses are small and these are not as well covered as they should be. “Some lines of business insurance, such as cyber insurance, have particularly low pick-up – only 6% of small-to-medium-sized business had cyber insurance in 2017,” Grafton says. Grafton took the opportunity during Cyber Smart Week to remind small
and medium-sized business owners to take a look at their cyber security. "Managing cyber risks is key for small-medium enterprises hoping to succeed in a modern, digital world," he says. "There has been a very large increase in incidents reported to CERT NZ [the government’s Computer Emergency Response Team] and it drives home just how important it is for businesses to have the right cyber security in place and plan for how they’ll manage their risks if something goes wrong." According to CERT NZ’s second 2018 quarterly report, cyber incident reporting by organisations has increased 143% since Q1 2018. In that period, 507 cyber incidents were reported by organisations. Direct financial losses from all cyber incidents for the period were $2.2 million. "It’s important to remember that this is just what CERT is aware of," says Grafton. "$2.2 million is probably a conservative number; there will be many people who don’t report cyber incidents to CERT or may not realise they suffered a cyber-attack. "In an increasingly digital world, the likelihood is these attacks will continue and small businesses are vulnerable because they’re less wellresourced than their large counterparts." Can the industry expect to see more and more SMEs taking out coverage to protect against cyber-attacks? Eventually, says Naylor. Currently that type of coverage is not that common outside the major firms, but that will change over time,” he says. And if people were more aware of just how big a threat cyber-attacks pose then there would almost certainly be more businesses that insure against them. “People don't quite know how just how many attacks occur in this New Zealand every day that are stopped by the government. If they were aware of the major problems they'd probably insure more against them.” www.covernote.co.nz
The numbers are stark. The latest figures from CERT and financial services firms saw reports of phishing attacks more than double in the June 2018 quarter. The Crown agency responsible for tracking, monitoring and advising on cybersecurity incidents registered 455 phishing attacks in the three months through June, up from 196 in the March quarter. Some 337 of those attacks were in the financial services sector, which the agency put down to a closer working relationship with the industry. The total number of incidents reported was 736, of which 112 were referred to police and nine to Netsafe. None were referred to the National Cyber Security Centre or Department of Internal Affairs in the quarter. Those led to $2.2 million of direct losses for people and organisations, again skewed to older demographics. Four incidents accounted for 77% of those losses, of which two were scams, such as phone calls or ads designed to trick users into installing fake software on their computers. Eleven scams and frauds were reported to Cert NZ in the quarter. “It’s really quite staggering,” says Naylor. “And these cyber-attacks, while they are not all successful, it’s worth keeping in mind that there are people trying all the time. Not every single attempt is going to be able to be stopped. It’s absolutely a case of being a much bigger problem than most people are aware of.” But how does a business, particularly a small or medium-sized one, insure itself against cyber-attack? Not easily, says Naylor. “When it comes to cyber-attacks the ultimate cost to a business of a successful cyber-attack is still mostly an unknown thing,” he says. However, while it is impossible to insure against every single unforeseen event, there are steps all business owners, large or small, can take to understand their risks and select a quality insurance policy. “There are a lot of SMEs out there focused on getting on with their business and don’t have a degree of foresight about what could happen,” says Niall Martin, a senior employee benefits consultant with Willis Towers Watson. “Our job is to ensure we promote awareness of the risk and educate our clients.” Willis Towers Watson’s Brown says a good policy is all about working with clients to help them protect their balance sheet. Cyber is a good example, he says, with 56% of New Zealand businesses having been impacted by some form of cyber event. “The average claim last year in cyber was $26,000 so it’s a not insignificant impact for many businesses but in terms of obtaining cover it’s still relatively new,” he says. Company collapses have also hurt a huge range of businesses, he says, and the upshot is that business owners are becoming more cautious and more interested in looking at a range of insurance solutions.
“We’ve seen far too many instances where businesses have had good clients forever who always paid their bills and suddenly something falls over and it can have a devastating effect on a business very quickly.” LIABILITY Directors and officers liability insurance (or D&O) cover take-up is also low, says the ICNZ’s Grafton. “The Institute of Directors announced this year that only 24% of directors have D&O cover,” he says. “There will be higher take-up of more traditional lines such as material damage to property, but businesses need to take advice to fully assess their risks and to consider which of the wide range of business insurance cover is best for them.” It is also important to distinguish between under-insurance and not insured, says Grafton. “New Zealand has very high levels of house insurance with well in excess of 95% insured,” he says. “Some of these for various reasons will not be insured for the amount required to rebuild the house should the very worst happen – that is underinsurance.” The very worst did happen in 2011 in Christchurch and many lessons were learned after the earthquake, says Naylor. A great number of SMEs suffered financial hardship not just because of property damage, but simply because customers could not gain access to shopfronts and office spaces – something they were not insured for. “There’s even a famous case going about, I am not quite sure of the details, but there was a law firm that had all their computers, containing all their client files, in their sixth-floor office.The quake struck and the stairway collapses and they couldn’t get into their office.They had to get a guy with a crane to go in and get all the computer hard drives. That’s the type of thing you would probably never expect to happen, but it can and it will, especially in a country like New Zealand.” Naylor says he has seen anecdotal evidence that after the Christchurch quake more and more businesses, especially small and medium ones, have been insuring against natural disasters or “acts of God”. However, insurance needs to cover all sources of risk, even personal risk such as a business owner suffering a heart attack, Naylor says. “This is not so much insurance as scenario planning – going through a list of all the things that can go wrong, whether earthquakes, or fires, or the death of a key staff member, and planning for what the business does when that event occurs,” he says. As a result it is essential for any business to get the advice of a good insurance broker, Naylor says. “A good broker will be able work with you to examine your finances and establish a suitable insurance solution that ensures you have the right level of cover in place,” he says. “The skill of your broker is very, very important.”
ICNZ recommends SMEs do these things to help manage cyber risks: 1. Make sure all employees regularly update their passwords and don’t write them down anywhere or use passwords they’ve used for other services. If you can, enable two-factor authentication on website or system logins. 2. Buy and install good quality anti-virus and anti-malware software - don’t just rely on what comes default with your system. Make sure you protect tablets, cellphones and any other devices you can that connect to the internet. 3. Change your office WiFi password regularly and don’t leave printed copies of it lying around. Access to your WiFi could open up access to your files and systems if someone dishonest got in. 4. Don’t connect company devices to open or free WiFi networks or install and use unauthenticated apps. These networks allow anyone connected to them to see other connected devices and could make your device a target for hackers. 5. Make sure employees only download legitimate apps from the Google Play or Apple stores if they’re conducting any work on their devices. Unauthenticated apps could contain security vulnerabilities. 6. Keep your software up-to-date. Vulnerabilities in unpatched software make for easy entry for hackers. 7. Set up logs to detect unusual activity and verify any strange business requests you get by phone if you’re unsure of them. 8. Get cyber insurance - cyber insurance covers you for cyber attacks and helps your business get back on its feet faster.
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RURAL INNOVATION AND ENTREPRENEURSHIP SHOWCASED AT BUSINESS AWARDS F
rom a beekeeper to a children’s author, this year’s NZI Rural Women New Zealand business awards winners were as diverse as they are successful. The awards, held on November 20 in Wellington at Parliament showcased the innovation and entrepreneurial excellence of women who own rural businesses while also supporting their local communities. Jon Watson, rural manager at NZI, the premier partner of the awards, said it was a privilege to be one of the judges this year. “It was inspiring to see how committed and passionate our entrants are about their businesses and the rural sector. All the entrants were deserving of an award and judges found it difficult to make the final choice. “It was especially pleasing to see strong entrants in the two new awards categories this year – creative arts and rural champion,” Watson said. Sophie Siers was the winner of the creative arts category for her children’s book company, Millwood Press. Using farming as the backdrop, Siers captures the essence of rural living, while creating exceptional stories that resonate with both urban and country kids. Her books have had success in New Zealand and internationally. The rural champion award went to Robyn McKenzie for Great Barrier island airline, Fly My Sky. Airlines are a competitive and highly regulated sector and rural communities are often the first to lose their service when
the economics don’t make sense. Fly My Sky is the exception to this, running a regular and reliable service with a strong financial position to back it up and a business plan focused on expansion. Other award winners included Hannah O’Brien for the emerging cusiness category for her beekeeping and honey producing company, Hunt and Gather Bee. Bridget Canning of rural internet provider Wiz Wireless won the innovation award, and the Love of the Land award went to Marie Taylor for Plants Hawke’s Bay. “Our rural women provide lifeblood to the rural sector and these awards recognise the sheer hard work, dedication and entrepreneurship that goes into developing rural enterprises, while often also juggling multiple priorities on the farm and at home,” Watson said. For 159 years, NZI has played a vital role in providing security for farms and rural families and businesses. “We’re constantly reinvigorating our farm and rural offerings by partnering with valued local brokers who understand farming and rural needs, this enables us to develop solutions to meet the changing, complex needs of New Zealand farming and rural communities. “We know rural inside out and that’s why we are proud to play a part in recognising rural businesses that are thriving in this changing world. “On behalf of NZI I’d like to congratulate this year’s winners.”
W L I B
WOMEN LEADERS IN BUSINESS FEATURE
Celebrating business excellence in rural communities
RURAL WOMEN NEW ZEALAND BUSINESS AWARDS
CONGRATULATIONS TO THE WINNERS OF THIS YEARâ€™S AWARDS
A NEW ENTITLEMENT TO REPLACEMENT VEHICLE HIRE COSTS By Nick Frith, senior associate, Minter Ellison Rudd Watts
recent New Zealand court decision confirms that drivers who are not at fault in accidents may recover the cost of a replacement hire vehicle from the at-fault party’s insurers. The decision will have substantial cost implications for motor vehicle insurers. The case was brought by a specialist hire company that provides replacement vehicles at no cost to not-at-fault drivers. The claims were brought in the names of drivers who fell victim to accidents caused by other drivers. They each hired replacement vehicles from Right 2 Drive (R2D), a credit hire company, while their own vehicles were being repaired. R2D assured them that it would not pursue them for hire costs, provided they co-operated in recovering the hire fees from the at-fault drivers’ insurers. The insurers refused to pay so the drivers commenced proceedings against the at-fault drivers for the cost of hire, together with other, associated costs incurred by R2D. The proceedings were consolidated into a “test” or “lead” case that was in reality driven by R2D and defended by the at-fault
drivers’ insurers. The court treated it as a claim for mitigation costs. The drivers initially sought to claim special damages, arguing that the at-fault drivers caused their loss, being their expenditure on replacement vehicle hire. However, their loss was fully mitigated by the replacement vehicle. The court therefore posed the key question as whether “the plaintiffs are entitled to recover their mitigation expenses – that is, whether those expenses have been reasonably incurred.” In defence of the claims, the insurers argued that the drivers had completely mitigated their loss by obtaining replacement vehicles from R2D. They had not suffered any loss as they had no obligation to pay R2D for the vehicle hire. Not only had R2D promised them that they would not have to pay, but the contract was arguably defective, as it did not specify rates or charges. The court rejected the insurers’ arguments. Although the drivers had arguments to resist a claim by R2D if they were pursued for hire charges, there was still a risk of liability.
The court relied upon the drivers’ agreement with R2D that it obtained their authority to recover the costs of a replacement vehicle on their behalf and recorded their obligation to pay. The replacement car had a cost, which is the mitigation expense claimed. R2D was entitled to waive its rights against the drivers. The court held that any "sloppiness" in the operation of R2D’s business did not entitle the at-fault drivers’ insurers to avoid liability. The court relied upon the general principle that, once an at-fault driver is found liable for the normal measure of damage (the cost of repairs and other losses flowing directly from an accident), they are generally also liable for the cost of the reasonable steps taken by the not-at-fault driver to reduce their loss, whether or not those steps are effective. The issue was therefore whether the drivers’ hiring of the R2D cars was reasonable. The insurers refused to pay so the drivers commenced proceedings against the at-fault drivers for the cost of hire. The insurers argued that the drivers’ choice to take the R2D cars was unreasonable, as they would have explored other vehicle hire options if faced with the prospect of having to pay R2D’s charges, which were higher than other hire companies. Alternatives included other hire companies, a courtesy vehicle provided by a repairer or taxis/public transport. In assessing reasonableness, the court held that the most helpful test was whether a prudent driver would take up R2D’s replacement car offer while they waited for damage they caused to their own car to be repaired. The court heard evidence from other car hire companies, demonstrating that R2D’s fees were in the vicinity of their fees. While other companies offered lower prices for longer-term hire rates, this was a counsel of hindsight, as the drivers did not know how long it would take to repair
their vehicles, so it was not clear from the outset that longer term hire rates would be available. The court also considered the additional cost of R2D’s pick-up and drop-off service and considered that to be reasonable. Not only was it comparable to one hire company’s similar service, but it provided continuity of availability of a vehicle, thereby mitigating further potential loss. The key question for insurers when faced with a claim for mitigation costs such as this is whether the costs are reasonable in the circumstances. It is not for the not-at-fault driver to prove that they are reasonable, but for the at-fault driver (really, its insurer) to prove the contrary. As the English Court of Appeal has said in a similar case, it is for an atfault driver to demonstrate, by evidence, that there is a difference between the credit hire charge agreed between the not-at-fault driver and the credit hire company and the [basic hire rate].” Reasonableness is not to be determined with too critical an eye in hindsight, but what would have appeared reasonable to the driver at the time. Factors include: (a) whether the not-at-fault driver can afford to take other mitigation steps or whether they have to resort to “credit hire”; (b) the not-at-fault driver’s insurance position is not to be considered; i.e. whether they could have claimed on their own insurance for a hire car, for that insurer would likely pursue the at-fault driver’s insurer; (c) where a not-at-fault driver has options, their reasonable adoption of one option is not to be held against it simply because another may be more effective or economic. In the end, the question is whether a prudent driver would take up R2D’s replacement car while they await the repair of damage they caused to their own car. At-fault drivers’ insurers will need to prove to the contrary if they wish to avoid paying these costs.
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“I made the move to Rothbury and I’m loving it. Want to know more? Give me a call.” PAUL MUNTON, EXECUTIVE GENERAL MANAGER BROKING BRANCHES
CALL PAUL ON P 021 243 9207 PAUL.MUNTON@ROTHBURY.CO.NZ
NZI CRASH SCENE ASSISTANCE REDUCING THE IMPACT AFTER AN INCIDENT I
t’s no surprise that heavy vehicles feature frequently in road accident statistics considering their large mass. In recent years, deaths from crashes involving trucks have made up around 20% of the total road toll in New Zealand, while only 6% of the total distance travelled is by truck. According to NZI’s national commercial and fleet motor manager, Oliver Jepson, it’s often not a truck driver at fault, but these crashes can be hugely traumatic for them because of the damage they can do with their vehicle. “The focus is always on preventing accidents in the first place but there is still a lot that we need to consider when the worst happens.” This is one of the reasons why NZI has a crash scene assistance service to take away the stress of the aftermath. “It’s crucial truck drivers have access to the right people immediately after a crash to get them out of harm’s way and take care of the clean-up, so drivers can focus solely on getting the emotional support they often need,” Jepso said.
There is an automatic response hotline (0800 11 11 08) that truck drivers can call immediately after an accident, and the crash assistance team will manage the rest. The line is staffed by experienced operators who understand the needs of a heavy transport crash scene. “As well as salvaging your vehicle, we’ll take care of any road clean-up, environmental issues, and driver support that’s needed,” Jepson said. The NZI team set up a demonstration crash scene in Mosgiel recently to show brokers and customers how the service works. They also showed how the use of air-filled catch bags soften the landing of a truck being righted, preventing any further damage. “With our catch bag technology, we’re able to clear a crash scene safely but also more efficiently, minimising traffic disruption,” Jepson said. Jepson said it was important all brokers made sure their clients had this hotline number on their phones so the NZI Crash Scene Assistance team could be there for them when needed.
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Find out how NZI Fleet Fit can help your clients by visiting nzifleetfit.co.nz or emailing FRM@nzi.co.nz
Available for eligible NZI and Lumley customers with commercial motor insurance.
BOOSTING YOUR ONLINE PRESENCE It’s time broker businesses went social
By Nichole Brown
ith the growth of social media and the dominance of online businesses, building your brand online should be a part of any successful business model and strategy. Insurance isn’t a typically social business, but social media can change all of that and create a network of clients that wouldn’t be possible with more traditional print advertising or mailbox drops. Using social media effectively means making sure you are not vesting all of your interests into one place as with newspaper or magazine ads. It creates a greater potential for visibility by putting your business at the fingertips of anyone with a laptop or a smartphone, and makes it possible to run a business at one end of the country with clients at the other. The basics are a website, LinkedIn, Facebook and/or Instagram, and a mailing list. The beauty of running your business online is that you can create your content yourself and keep control of your vision for your brand, targeting the clients you most want to work with and making your business accessible to them in a range of ways. It is important to remember that you should be using social media, and your website, to build a database of clients that aren’t tied to these sites should you ever lose access and potentially lose your client base - getting clients from all your social media and online channels to sign up to your mailing list is so important and can be as simple as a pop-up on your website, or a run of adds on Facebook. Blogging on your website has numerous benefits, including driving potential clients to your site by improving your Google ranking with key SEO and as an easy way to give Google new content, and as a way to share your expertise with your clients. All successful business strategies involve giving back, and often giving your clients key advice without a direct sell can help build your relationship and create trust. From your website you can push these blogs out as a newsletter to your 26
mailing list, or as a post on Facebook or LinkedIn, giving you greater potential reach for your investment. For this reason it may be worthwhile outsourcing blogging or web content creation - if your have reasonable skill in this area it can be a good place to save your marketing spend and invest it elsewhere, but if your skill set lies elsewhere, outsourcing this part of your business can be a valuable investment to get your website really working for you. This will free you up to invest your time playing to your strengths and focusing on insurance. Alysha Mackenzie, founder of Balance Advisors, has been working in insurance for more than 10 years, and with the introduction of social media she has seen a lot of changes in the industry over the past decade. “Our main social media channels are Facebook and Instagram,” Mackenzie says, and confirms that while she has attended a couple of seminars about social media, most of the main online channels she uses are user friendly and make it easy for anyone to take control of their own online presence, handling all of the social media for her brokerage herself. Paid Facebook and Instagram ads are simple to set up, but can be a bit “hit-or-miss” if you don’t target your audience correctly. There are a range of options from stand-alone ads to boosting existing posts, both with their own benefits, but you will likely find stand-alone Facebook ads have a greater potential to target your clients more effectively. Installing a Facebook pixel on your website is a simple way to help funnel your existing traffic between sites too. But while social media is an excellent tool to reach small business owners, individuals, and families looking for cover and protection, Mackenzie says if you are targeting larger businesses and higher profile clients, you may not get what you need from social media. “There is definitely still a place for traditional media like print and magazine advertising - especially when
GET SOME TRAINING AND DON’T THINK EVERYTHING YOU SHARE HAS TO BE INSURANCE BASED - PEOPLE WANT TO GET TO KNOW YOU AND BUILD TRUST WITH YOU.
you’re targeting larger businesses. If you solely rely on social media you’re really selling your business short, and missing out on potential clients that may not reach out to you on social media.” Mackenzie’s target clients are people just like her; young Kiwi families, self employed small business owners, and individuals needing risk protection. She says technology and social media provide the tools to create a winder range of opportunities for creating a large client base, proven by her work with clients right across NZ - which wouldn’t be possible without technology and social media. Building brand awareness online gave Mackenzie the perfect platform to create her own business, leaving a contracting position earlier this year to start Balance Advisors with business partner and fellow broker, Gareth Wallace. Starting her own business is something Mackenzie says wouldn’t have happened without the online presence she has been able to build over the years on social media, and the networks she has created. Having an online business profile doesn’t mean everything has to be “professional” and “selling”. The beauty of social media is it makes it easy to inject your personality into your brand and oftentimes your best selling point is you. Taking time to share about personal wins - something Mackenzie does well and often - makes you more approachable, and helps potential clients build trust in you. Insurance isn’t always fun, but you can create more fun and lighthearted interactions by sharing snippets of your life outside of working hours. In fact, a large number of Mackenzie’s clients have come to her because they have seen her on social media talking about fishing or her own struggles balancing being a business owner and having a family and can relate to her. It can be a minefield so to keep it a simple as possible, these are the key areas you should focus on:
• WEBSITE - make sure it is working for you and not the other way around. Make sure all of your images are Google-friendly, that you have strong SEO, and that you make it easy for clients to sign up to your mailing list. • LINKEDIN - building your professional online profile needs networking, and LinkedIn is • FACEBOOK - you should be using business.facebook.com to build all of your content and advertising, and posting 2-3 times per week. • WORK AHEAD - use tools to plan and schedule your content where you can. Investing a couple of hours once a week, or once a month, will free up your time during the week and remove the pressure of coming up with content on the fly. • RESEARCH - know what your competition are doing, know what your clients are looking for and where they are looking, and where you need to place your business online. • OUTSOURCE - play to your strengths and know what parts of your social media strategy you need to use an expert for. • MAILING LISTS - you need to make sure you are tapping into your client base and making the most of the content you are creating by sending it out to current and would-be clients regularly. As with all channels there can be downsides to social media and things to be aware of like fake reviews or copycats, but the benefits of having an online presence far outweigh the risks, and if you get it right your business will reap the rewards. And her advice to brokers just starting out or trying to build their online presence? “Get some training and don’t think everything you share has to be Insurance based - people want to get to know you and build trust with you.”
Advanced Driver Assistance Systems (ADAS) and Windscreen Calibration -
what you need to know...
ADAS or Advanced Driver Assistance Systems is a collective term for the various technological enhancements present in many modern vehicles. These technologies aim to enhance both driver and vehicle safety. Often Advanced Driver Assistance Systems form part of modern windscreens. As a result, ADAS systems that use the forward-facing cameras connected to the windscreen often need to be recalibrated after a windscreen replacement. These computerised systems work with sensors and cameras to calculate the distance from other cars, objects and people. Using this technology, vehicles can warn drivers if they’re drifting across lanes, automatically slow down if they’re getting too close to another vehicle and even apply the emergency break if something or someone is suddenly in their path. Why is windscreen camera calibration necessary? Cameras are a key sensor for ADAS functionality and are usually mounted on or near to the windscreen, while the camera looks at the road ahead. 1. The forward facing camera feeds data on the position of objects and markings in front of the car to the ADAS system. 2. Using the data from the camera the ADAS software identifies white lines and objects and predicts where the front and centre line or the car is, relative to its environment. 3. If the position of the camera is moved during a windscreen replacement, then the calculation of the vehicle position will result in an incorrect function of the ADAS system. 4. For example, if the camera pitch is wrong then the car will wrongly predict the distance to an object in front. 5. If the yaw of camera is changed then the vehicle will wrongly predict where the centre line of the vehicle is, in relation to the road therefore affecting the onboard Lane Departure Warning system. 28
Following manufacturers recommendations Vehicle manufacturers often recommend that, following a windscreen replacement, the ADAS system is calibrated to ensure that the camera's line of sight is working as it should. At Smith&Smith®, ensuring safety on the road is of paramount importance, meaning that the vehicle manufacturers’ assertion that a calibration is mandatory cannot be ignored. We recognise the growing need within the New Zealand market and the importance of safety when replacing ADAS enabled windscreens. Smith&Smith® has partnered with Bosch, a leader in the automotive industry and a manufacturer of calibration tools, to offer ADAS recalibration services. Interested in learning more? If you are interested in learning more about our ADAS recalibration services or attending a demo to see a recalibration in action, contact us on email@example.com
Assessing & Logistics
5-Star service happens when all services are under one roof. Handling every aspect of our policies in-house is good for you and your clients. We are experts at creating and managing niche vehicle insurance policies. We specialise in RVs Motorcycles, Prestige, Vintage, Classic, Project and European cars. We prefer building solid relationships to create custom policies for your clients. But we also offer a self-serve option through our advanced, secure Broker portal system. Weâ€™ve set the industry benchmark for 360 degree policy support because
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IT’S TIME TO REMOVE THE INSURANCE DISCLOSURE REQUIREMENT by Dr Michael Naylor, insurance industry researcher at the Massey Business School.
good case can be made for a radical change to insurance disclosure law, from an emphasis on non-disclosure to one on misrepresentation. This was the path which the UK reform took, and this option needs an in-depth analysis. What this means is that rather than consumers being expected to know everything an insurance company requires, they are merely obliged to answer the questions put to them honestly. Massey University’s research indicates that consumers have little awareness of their disclosure duties and intuitively rely on the advertising promise to “look after you”. Consumers think their duty is only to answer questions honestly. When informed of the law, consumers respond with shock and this contributes to under-insurance. Consumers thus assume current law is based on mis-representation. In general, non-disclosure law allows insurers to ask very few questions at policy creation. There is often very minimal underwriting and nondisclosure issues are not brought to the customer’s attention. It is only at claim time that non-disclosure issues are raised – and then it is too late for
the customer to make other insurance arrangements or accept a loading. The review of disclosure law needs to carefully consider looming technological issues. When the Law Commission wrote their 1998 report or when the 2007 Cabinet Paper was written, technology meant that insurers had very limited capacity to ascertain what risk factors clients were affected by and could only obtain that information by asking clients at application or claim time. One of the reasons for this was costly to ask questions, it was costly to underwrite, it was costly to offer customised terms, it was costly to gather information, and it was costly to communicate. It was not possible to ask a long list of questions, and it was not possible to modify questions asked based on responses. It was therefore more efficient to ask detailed questions of the far smaller number of customers who made a claim. A range of things are about to change in insurance, which the law needs to adjust for; (i) End-to-end software will allow the automation of most administrative processes and reduce the cost of transactions so that it
interact with their insurer via linked telematics. These devices allow insurers to set premiums based on ongoing data automatically provided by the customer. This technology allows premiums to be dynamic â€“ for example, car premiums may differ depending on whether the car is being driven or parked. Increasingly, "disclosure" will go from telematic device to insurer algorithm without the knowledge of the insured. The consumer only needs to give permission for this interaction to occur. The UK law makes a basic distinction between retail and commercial customers. The law only requires retail consumers to answer the questions asked as accurately and honestly as would be expected of a reasonable respondent, based on what they could be reasonably expected to know. Questions should be specific and not "catch-all". There should be a clause requiring consumers to disclose facts that are exceptional and unlikely to be asked by an insurer, and which a reasonable person would know should be disclosed. The insurer is then given a set amount of time to ask more questions, after which the policy cannot be cancelled unless false answers were
THE REVIEW OF DISCLOSURE LAW NEEDS TO CAREFULLY CONSIDER LOOMING TECHNOLOGICAL ISSUES.
will be feasible for all customers to be underwritten at policy inception. (ii) Most customers will initially interact with insurers via online systems, either PC, or tablet, or mobile phone, or webpage or video, or chatbots. Customers will interact via a range of options even within the same enquiry.This means that policy search, policy comparison, policy condition confirmation and disclosure will have to integrate omnichannel interactions.This allows the consumer questionnaire to be dynamic rather than static, with responses to initial questions creating additional questions or eliminating questions.This reduces reasons for insurers not to be able to ask additional questions. (iii) It is difficult to read detailed conditions and to answer detailed questionnaires on a mobile phone. Consideration needs to be made as to an insurer duty to ensure the questionnaire style is suitable to the channel used, so that the awkwardness of the sales channel does not hinder customer compliance. (iv) In the longer term, an increasing number of customers will
provided. Despite warnings by UK industry, there have been few difficulties with the new approach, with no change in premiums. The reform was backed by a very comprehensive report. The concept of inducement needs to be used rather than materiality. There are three parts to this, (i) the policy creation was induced by the misrepresentation, (ii) that a reasonable person would know they have committed a misrepresentation, (iii) the fact would have been known by a reasonable person in the insuredâ€™s shoes at the time of the fact occurring. The later point is important as it is common in health issues for symptoms to not seem relevant until a diagnosis is made. Assessment of misrepresentation needs to be per reasonable knowledge at policy creation/renewal not at claim time. This non-misrepresentation duty needs to be extended to renewals and claims times. Basis of contract clauses and contracting out should be banned, and restrictions placed on the inclusion of specific warranties. Misstatement needs to take account of insured-specific issues such as lack of English or age if these are known to the insurer, or ought to have been known, and they did not adjust their procedures adequately. The insured needs to have the opportunity to show that they had less knowledge than expected and did not know the fact was relevant. The standard of care required by a consumer can vary depending the manner and the situation in which the information is provided by the insurer to the insured, e.g.; the care expected will differ from an online transaction vs an adviser facilitated transaction. or if during an online application, the consumer is not asked to check figures then the insurer should not later be allowed to claim that due care was not taken. Other required changes are that there should be a range of remedies, rather than simply cancelling policies, including partial payments. Finally, an Insurance Conduct Act, should include a requirement for insurers to respond to claims in a reasonable and timely manner, given the circumstances. www.covernote.co.nz
WHY BUSINESSES NEED TO GIVE OLD-SCHOOL WORKFORCE MODELS THE BOOT By Garry Taylor,
executive general manager, NZI
orkplace flexibility and diversity are hot topics. The antiquated 9-5 business model is no longer suitable for modern workplaces and companies that don’t embrace a new way of doing business will be left behind. As business insurers, we feel it’s important to encourage and educate New Zealand companies on ways they can future-proof their business. Social initiatives that encourage diversity, inclusion and belonging play a huge part in this. At NZI, we have a workforce strategy that builds a diverse and inclusive culture by providing a flexible, dynamic work environment that replaces out-dated corporate workforce models. Initiatives under way include closing the gender pay gap and achieving 50% of women in senior roles by 2020, as well as raising the profile and support for specific employee groups including our Maori and Pride groups. In addition, we encourage our people to embrace opportunities to work more flexibly, with flexible hours and the opportunity to work from home. Research shows that flexible working conditions are a key driver for a highly engaged and productive workforce. By being flexible, companies open the doors to smart, time-savvy employees who will loyally get the job done, while maintaining a work-life balance. There still seems to be some reluctance on the part of business leaders to ditch the 9-5 operation, and I don't get it. Our flex initiatives continue to generate strong engagement and have been a key driver of the improvement we have observed in our people engagement. It is important business leaders get their heads around a new way of working to appeal to a new generation of workers. According to a study by Massachusetts’ Bentley University, 77% of millennials say flexible 32
work hours would make the workplace more productive for people their age. And not being in the office doesn't mean skiving off work. The same study also showed 89% of millennials check work emails after work hours. Research also bolsters the case that employers who build diverse and inclusive teams see the best outcomes. A recent study done by software company Cloverpop showed that inclusive and diverse teams make decisions twice as fast, and decisions made and executed by diverse teams deliver 60% better results. As well as diversity and inclusion, at NZI we focus on belonging. This highlights it’s not just about embracing our uniqueness, it is also ensuring we know we matter, that we are welcomed and feel “safe” expressing our individuality. Of course, there are multiple priorities when it comes to running your business, but I’m a strong advocate for looking after your people, first and foremost. Future-focused companies invest in their people - which includes providing a modern workplace - knowing that the rest will follow. This is epitomised in motivational speaker, Zig Ziglar’s quote, “you don’t build a business.You build people, and people build the business.” Insurance is about so much more than just being there for our customers when the worst happens. We are trusted advisers that have a part to play in encouraging business sustainability. NZI’s purpose is to make the world a safer place; protecting our customer’s livelihoods, and in turn, this ensures we can continue to be here for New Zealanders well into the future.
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INSURANCE CONDUCT AND CULTURE A NEW REGULATORY FOCUS
By Jeremy Muir, partner, and Kara Daly, special counsel, Minter Ellison Rudd Watts.
nsurers and insurance intermediaries in New Zealand are under intense scrutiny by regulators, the media and customers as the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry unfolds. The Financial Markets Authority and the Reserve Bank of New Zealand are undertaking their own review of the banking, insurance, superannuation and financial adviser sectors to determine whether the systemic failures that have been identified in Australia exist in New Zealand. The focus is upon business processes, conduct and culture. At time of print, the life insurance investigation was ongoing. The bank report had been released, with no widespread systemic issues raised, but significant points to be addressed by that sector. CONTEXT – THE FMA’S EARLIER QFE INVESTIGATION The FMA was already focussing upon conduct and culture in the insurance sector before the present review, primarily in the sale of life insurance – particularly replacement life insurance. In its July 2018 report on QFE insurance providers’ business practices in relation to replacement insurance, the FMA reported that it had reviewed the processes of 11 QFE life insurers and explored whether their processes were designed with good customer outcomes 34
in mind. The FMA found that fewer than half advised customers of the risks of replacing existing life policies with new policies, and three of them may have breached their legal obligations. The FMA focussed upon replacement insurance policies as a particularly high-risk transaction for customers, because of the risk of claims being declined in the future and original policy benefits being lost. Even where the impacts on policyholders are neutral, the FMA was concerned that replacement of policies benefits the QFE rather than the customer. The FMA was particularly concerned that the vertically integrated product sales model that many QFE insurance providers employ creates an inherent conflict of interest. The FMA considered that this sets QFE advisers up to fail in complying with their obligations, even if they do not receive commission based remuneration. The FMA said that it would continue to use its regulatory tools to monitor conduct, sales and advice practices and commissions structures in QFE insurance providers. The key findings in the report were the following: • Most firms had processes to identify when a customer was being advised to replace life insurance. However, these seemed oriented towards reducing the provider’s
legal risk, rather than risks for customers. • Fewer than half of the firms reviewed advised customers that replacing their life insurance could lead to worse cover or the potential loss of benefits. • Although firms use specific “replacement business forms”, these were used mainly as a risk management tool for insurers at the end of the advice process, not to help customers’ decision-making. • Only one of the insurance providers reviewed had an independent process to distinguish between new and replacement business. AUSTRALIAN ROYAL COMMISSION’S INTERIM REPORT At the time of writing, the Australian Royal Commission has just released an interim report following the first four rounds of public hearings held between March and July this year, focussing on misconduct in the banking and financial adviser sectors. Although the Australian Royal Commission’s interim report does not cover the insurance round of hearings that have been held more recently, it will nonetheless be used by all financial institutions, including insurers, to continue to further guide the improvements in their own practices and procedures that have already begun. The interim report is lengthy, comprising
three volumes. Its findings make sobering reading. In answer to the question – “Why did this misconduct happen?” the Commission suggests that the answer is: “Too often, the answer seems to be greed – the pursuit of short term profit at the expense of basic standards of honesty.” In answer to the question “How did it happen?” the report says that: “Banks and all financial services entities recognised that they sold services and products. Selling became their focus of attention. Too often it became the sole focus of attention. ..From the executive suite to the front line, staff were measured and rewarded by reference to profit and sales. Where misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done. The conduct regulator, ASIC, rarely went to court to seek public denunciation of and punishment for misconduct. The prudential regulator, APRA, never went to court…” We anticipate that the Australian regulators will become much more proactive in taking enforcement action for misconduct in future. FMA REVIEW In New Zealand, Rob Everett, the CEO of the FMA, recently stated (in his speech to the September 2018 Conference of the
Financial Services Council and Workplace Savings NZ) that: “We are still learning on the job and we appreciate that the industry is too. We have however signalled that while we are proud of the efforts we have made to engage with and set out our expectations for the industry, we are also frustrated in places with the slow pace of change. That frustration will manifest itself over time as we become less understanding and less tolerant of firms that talk a good game but don’t put the hard yards in to make sure it happens.” It can be safely assumed that financial services providers that do not take heed of the regulators’ warnings and make changes to meet expected standards of conduct will run the risk of attracting the FMA’s critical scrutiny and potentially regulatory action. WHAT INSURERS SHOULD BE DOING Insurers are taking heed of these warnings. They are using the FMA’s findings, as well as the misconduct identified during the Australian Royal Commission hearings, to guide improvements in their own practices and procedures. The need to change historical sales driven business models to more customer-centric models is becoming widely accepted. The financial adviser regime reforms soon to be introduced with the passing of the Financial Services Legislation Amendment
Bill will also assist to drive cultural changes within the financial services industry, including in the insurance sector. It is imperative that insurers and intermediaries ensure that their business processes and culture are fully aligned to the FMA’s view of good conduct, as set out in its updated Guide to the FMA’s View of Conduct in February 2017. The five “building blocks” of these good conduct principles are: • Communication: Listen to customers and help them understand your products and services. • Capability: Have the skills and experiences to provide the right products and services. Meet professional standards of care. Seek continuous improvement through training. • Conflict: Serve business and customer interests. Disclose and discuss conflicts. Explain related party arrangements. • Control: Maintain systems to support good conduct. Seek out continuous improvement. Effectively manage complaints. • Culture: Act in the interests of customers. Treat customers honestly and fairly. Conduct expectations communicated clearly by leaders and understood by staff. Address poor conduct and recognise and reward good conduct.
SUSTAINABLE BUSINESS NETWORK AWARDS
MEET THE WINNERS AND COMMENDATIONS FOR THE 2018 NZI SUSTAINABLE BUSINESS NETWORK AWARDS!
Countdown Supermarkets received a Commendation for the Communicating For Change Award.
TAKE MY HANDS, winner of the Partnering for Good Award.
NZAgbiz received the Commendation for the Going Circular Award.
Te Whangai Trust received a Commendations for the Restoring Nature Award.
Sudima Hotels received the Commendation for the Hardwired for Social Good Award.
Tahi New Zealand received a Commendations for the Restoring Nature Award.
Wa Collective, winner of the Communicating For Change Award.
Solarcity received Commendations for the Revolutionising Energy Award.
The Rubbish Trip received a Commendation for the Communicating For Change Award.
Kai Ika received the Commendation for the Transforming Food Award.
City Rail Link, winner of the Efficiency Champion Award.
Red Stag Timber received Commendations for the Revolutionising Energy Award.
SUSTAINABLE BUSINESS NETWORK AWARDS
Olie Body from Wa Collective, winner of the inaugural Millennial on a Mission Award.
Tracy Brown from DairyNZ, winner of the Sustainability Superstar Award.
Kilmarnock Enterprises, winner the Hardwired for Social Good Award.
Ethique, winner of the Going Circular Award.
Yoogo Share, winner of the Smarter Transport Award.
Waste Management NZ received the Commendation for the Smarter Transport Award.
Dave Maslen from New Zealand Merino Company for receiving the Commendation for the Sustainability Superstar Award.
Olivia Philpott from Watercare received a Commendation for the inaugural Millennial on a Mission Award.
Fonterra Pahiatua received a Commendations for the Efficiency Champion Award.
Auckland Whale & Dolphin Safari, winner of the Restoring Nature Award.
emhTrade, winner of the Revolutionising Energy Award.
Auckland DHB received a Commendations for the Efficiency Champion Award.
r The winner of ou ard 2018 Supreme Aw g NZI Transformin ard Aw New Zealand ! was City Rail Link Our Land of Milk and Honey, winner of the Transforming Food Award.
RESIDENTIAL PROPERTY INSPECTIONS YOU CAN RELY ON I
t is normal practice for a residential property inspection, commonly called a builder’s report, to be requested before a prospective purchaser decides to settle the offer of purchase. The important question is, how can one be certain that the report can be relied upon? One of the main concerns a purchaser has is that the residence they wish to purchase does not have hidden faults that might subsequently prove expensive to remedy. This has become extremely important, and is on every purchaser’s mind, ever since the weathertight crisis hit the New Zealand housing market as the costs associated with weathertightness are not recoverable through insurance. To alleviate this fear it has become normal for a builder’s report to be called for, prior to settling a property. The term “builder’s report” arose because it was normally a builder, or ex-builder, that was called upon to make an inspection and report on the condition of the building. However this approach was fraught with difficulties. Not all builders were familiar with the tell-tale signs of weathertight problems, nor did they have the skills of observation and recording required to provide a clear and precise report. Many gave only a cursory inspection, perhaps failing to observe serious defects present and were unaware of the professional approach required. Reports published have varied widely in quality and we frequently see examples of reports, often offered by the seller or land agent, which at best could be called misleading. This unsatisfactory situation resulted in the preparation of a New Zealand Standard, NZS 4306:2005 Residential Property Inspection to give guidance to those preparing these reports, and guidance for their clients as to how a report should be prepared and what it should contain. • This standard describes: • The scope of a residential property inspection • The purpose of the property inspection • The scope and limitations of the written property report • The competency required to carry out a property report to meet the Standard. Primarily the standard requires that the surveyor identifies any serious defects in the building. Defects can vary from minor cosmetic blemishes or items of deferred maintenance that do not immediately or in the medium term endanger the structure or other building elements. Such deferred maintenance may have 38
occurred through deterioration of paint finishes, sealants, flashings and the like. However, of greatest concern will be those serious defects that are causing damage to building elements now. These may be caused by the failure of materials, incorrect or high risk weathertight detailing or incorrect construction methods. It is these more serious defects that the standard requires to be identified and competently reported on. The standard calls for a visual report only. It is not an invasive forensic investigation and therefore does not require the surveyor to identify the work required to repair a defect, the extent of damage that may have occurred to hidden elements, or speculate on the likely cost of repairs. The surveyor should however provide advice on the expertise required (plumber, electrician, licensed building practitioner (LBP) weathertight expert etc.) who the prospective owner should approach to carry out any further investigation to identify the extent of any damage, advise on the work required and the likely cost of repairs. In addition to a thorough knowledge of construction, the ability to visually observe and assess a building is the most important of a building surveyor’s skills. The surveyor initially evaluates the whole building and identifies areas of high risk. Having observed areas at most risk the surveyor must then look for signs that indicate that there is an issue. Having identified a defect the surveyor must then describe the defect clearly and accurately and provide advice to the client that clearly indicates the seriousness or otherwise of the defect. The first step for a prospective purchaser can take to ensure a prepurchase report can be relied on is to check that the report has been prepared in accordance with the New Zealand Standard NZS 4306:2005 Residential Property Inspection. A report prepared to this standard should contain a Certificate of Inspection signed by the author of the report and a Summary list of items inspected. The second and equally important step is to verify that the person carrying out the inspection has the necessary skills and is carrying out the inspection as an independent professional. A building surveyor should be able to provide evidence that they have the skills necessary by being able to demonstrate third party verification of their competency. This thirdparty verification of competency must include; training, a code of ethics, continuing professional development (CPD) requirements and proof of Professional Indemnity Insurance. The Building Officials Institute of New Zealand, (BOINZ) Accredited Building Surveyors preparing pre-purchase reports meet these requirements.
MY ROTHBURY APP HITS THE MARK WITH CLIENTS T
here’s never been more focus on efficient and personalised service than there is today. Breaking news, live updates and instant messaging means we’ve all come to expect instant access to information. Today’s customers expect data to be at a company’s fingertips. Rothbury is the first insurance broker to meet such growing expectations with the release of My Rothbury App. The app provides clients with instant access to their personal insurance information and gives them the ability to manage their insurances in a user-friendly format that can sit in the palm of their hand. My Rothbury App allows clients to access their insurance information anytime, anywhere. Originally launched in 2015, today My Rothbury is used by one in every five clients. Clients can check their excess quickly; start their claim; send in photos of their claim; contact their broker or claims adviser; request insurance changes; review past claims and check their account balances. With the latest release of My Rothbury last month, clients can even receive real time notifications on the progress of their claim. “My Rothbury is just one thing we’re doing to future proof our business and deliver an outstanding client experience. It’s also helping to support and improve our brokers’ workload and efficiency”, says Roger Abel, Managing Director Rothbury. “Empowering our clients to access their own records for simple yet valuable information along with routine enquiries has contributed to client retention and promoted business growth. Existing clients love it, and prospective clients see a huge benefit in this technology innovation and are impressed with how it can help them on a day to day basis.” “There’s still plenty more we can do in this area. We’ve released five updates since My Rothbury App was launched and by listening to our clients and brokers we have identified some new key features that we plan to roll out over the next year.”
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DELTA LAUNCHES IP PROTECTION PRODUCT T
raditionally, tangible assets such as plant and machinery have been value drivers for businesses and they determined competitiveness of a company in the market. However, in the last few decades intangible assets have become the primary source of competitive advantage. Intangible assets such as patents, brands and confidential information contributed to 87% of corporate value of S&P 500 companies in 2015, compared to 17% in 1975. Intellectual property (IP) is a crucial subset of intangible assets. IP rights give exclusivity to the inventor over use of the property. Unfortunately, in spite of their growing significance in business, risk managers adopt a myopic view when it comes to managing risks related to IP. The primary reason behind this neglect is unavailability of an affordable insurance solution. Delta Insurance is now offering a product designed to fill this gap. It has been designed to make it easy for Kiwi companies to cover their legal costs in a battle over intangible assets such as trademarks or patents. Delta Insurance senior underwriter Avani Vyas said dedicated IP coverage had long been out of reach for most Kiwi businesses. “Elements of IP coverage exist across some current policies, but no single insurance policy in New Zealand has adequately covered intellectual property to date,” she said. “Until now, this lack of simple, affordable IP cover has made it difficult for Kiwi companies to deal with infringement and enforcement-related issues.”
With research and development expenditure by New Zealand companies rising by 29% since 2014 to reach $1.602 billion in 2016, Kiwi companies have realised that innovation will keep them ahead of the competition. However, innovators in New Zealand’s knowledge-based economy routinely run into costly IP infringement issues, with most failing to recognise the risks until it’s too late. Delta Insurance general manager Craig Kirk said in export markets, Kiwi luxury consumables such as manuka honey, chocolate, and wine are commonly devalued by knock-off products and trademark theft — part of a global tide of illegal competition which saw the estimated value of counterfeited goods rise to $US1.7 trillion in 2015. Similarly, many Kiwi companies have also found themselves extorted or litigated at crippling expense by patent trolls. Zeacom, a software company which was formerly based in New Zealand, was stung by patent trolls twice. In the first instance, it opted to pay a $350,000 settlement instead of forking out millions to fight the baseless allegations.The second time, the company settled for an undisclosed amount. “Having an insurance policy that covers legal expenses allows businesses to swiftly respond to these difficult situations,” he said. “An IP policy helps you unlock the potential of your IP while you commercialise your ideas with confidence and will reassure investors and other stakeholders that your business is well equipped to face infringement disputes.”
Fire Service Levy: Overhaul needed already By Insurance Council of NZ
ast year, the Insurance Council of New Zealand (ICNZ) advised MPs that taxing insurance policies to pay for Fire and Emergency New Zealand (FENZ) was unfair, costly, complex and eventually unsustainable. The previous Government ploughed on regardless. Barely a year after the law was passed, it now needs amending. No real surprise. What we have is a convoluted legal contraption devised to fund FENZ that’s worthy of Heath Robinson, a cartoonist who became famous for drawing complex machines to achieve simple objectives. For the past 12 months, IBANZ, ICNZ, insurers, FENZ and officials advising the minister have worked together constructively to try to make the current act work in the simplest, least costly way. It’s that work that has uncovered the need to change the act so soon. A number of fixes are needed. One is to define commercial property properly, as the current wording omitted to apply the levy to any commercial property that was not a building. Oops. There’s also the task of disentangling ride-on lawn mowers and golfcarts, which have traditionally been caught under contents policies, from being classified as motor vehicles and levied at a different rate from what is classed as property. Staying with property definitions, the act defines residential property with reference to the Building Act. House insurance, of course, picks up structures such as utility supplies, appurtenant structures, swimming-pools and much else, but none of these are included in the Building Act’s definition of residential property. So, more work is needed there. Version 2.0 of this odd-looking tax machine won’t be passed into law until well into the first half of 2019. That creates a major problem. It will be impossible for insurers to make the system changes they need to make
in time for when the act stipulates the new levy system must come into force July 1, 2019. So, the act will need to put the implementation date out to at least July 1, 2020 or possibly July 1, 2021. This allows three months for specification and solutions planning for IT systems, seven months for multiple system builds, and two months for testing so the product can be with brokers to market in April 2020 in advance of the July 1 renewals. If this sounds circular and complex, that’s because it is. It’s also expensive. System change costs will run to tens of millions of dollars. And to what end? To fund FENZ the same amount they currently receive but by a different route. And that route is coming under pressure to be more convoluted as a range of interest groups lobby to be exempted from the tax. If that happens, it will be interesting to see the fair basis for it. But there is a simple way forward: Do nothing, because more than enough revenue is being collected to fund FENZ and it would save everyone a lot of time and cost. There is an opportunity for the Minister of Internal Affairs, Tracey Martin of New Zealand First – the only party to oppose the funding of FENZ through insurance – to call a halt on everything and use the time to order her own review of how to best fund FENZ. The previous Government ruled the fairest and most efficient funding options, general taxation and the rateable base, out of scope from its public consultation on how to fund FENZ . This Government could transition over a decade to a fairer system given the constraints it faces in making a sudden shift. After all, politics is the art of compromise. It’s far better to go back and start again from first principles than stubbornly try to drive a square peg into a round hole. www.covernote.co.nz
IFSO CASE STUDY
THE $84 BILLION PROBLEM: UNDERINSURANCE AND SUM INSURED
Underinsurance is a big issue in New Zealand. A 2016 Treasury report stated up to 85% of homes could be underinsured by an average of 28%. Across New Zealand, underinsurance of homes is worth an estimated $84 billion. While it is difficult to help resolve underinsurance retrospectively, we can look to the future. The following IFSO Scheme complaints help shed light on the issues, the lessons, and the messages you can provide to clients. In doing so, you can help to prevent nasty surprises for clients.
Sum insured - common questions consumers ask the IFSO Scheme: a) What does sum insured mean? b) What is the m² of a house? c) Why is the sum insured higher than the valuation? d) Whose responsibility it is to work out sum insured? e) What features and costs are included in sum insured? What you should say to clients: • It is your responsibility to ensure the sum insured is correct. • The sum insured may apply to repairs as well as total losses. • Sum-insured calculators are a rough tool to help give you an estimate. • To be sure about the sum insured to cover a rebuild or substantial repair, you should get a sum insured valuation from an appropriate specialist.
IFSO SCHEME CASE STUDY (2015) When the insured’s house insurance changed from replacement cover to sum insured, he asked his insurer to increase the sum insured figure from the default figure of $219,000 to $260,000. The insurer didn’t make the change, and when the customer rang later to check, he was informed the insurer wasn’t increasing any sum insured figures, because of a recent large earthquake in Wellington. A few months later, the house was damaged by fire. The repair estimate was $300,000. Initially, the insurer only agreed to pay $219,000, but later it acknowledged the insured’s earlier request and agreed to retrospectively increase the sum insured to $260,000. The client wanted the insurer to pay the full repair cost. He said if the insurer had been more helpful and followed up his initial requests, he would have had the chance to discuss the sum insured or get a professional valuation. He said the insurer’s sum insured calculator estimate was inaccurate. IFSO SCHEME The insurer’s poor customer service did not cause the insured to be underinsured. He told the insurer he wanted to increase the sum insured 42
to $260,000; not that he had further inquiries or wanted to consult a professional. When he insured his house and requested the change to the sum insured, the insurer didn’t know how much it would cost to rebuild the house. Legally, the insurer is not required to provide any assistance to estimate the sum insured. It is up to the customer to determine how much cover he needs. The sum insured calculator stated that the figure provided was an estimate and that the insurer was not liable for its accuracy. It recommended consulting a qualified professional for an accurate estimate. The calculator asked very broad questions and the figure depended on the answers provided by the customer. The figure provided was a rough estimate. The nature of sum insured insurance is that the customer bears the consequence of over or under-insuring. The insurer was not liable to pay the full repair cost. THE ROLE OF THE ADVISER Advisers have a statutory duty to carry out their role with “reasonable care and skill”. That means, you must: • keep clear records of all dealings with clients and copies of all documentation you provide • if your client has an existing policy, ensure you understand the cover they currently have so you can advise them of any differences in cover • make sure you ask clients about any information required on the application • not give advice about what the sum insured should be for your clients.
*Names have been changed to preserve anonymity
IFSO CASE STUDY
IFSO SCHEME CASE STUDY (2014) In August 2009, the insured arranged house insurance with an adviser who worked for a bank.The insurance was underwritten by an insurer. After the February 2011 earthquake, he made a claim to the insurer for substantial damage to his house and decks.The insurer advised that the rebuild was only based on the floor area, and this didn’t include the decks as they weren’t specified on the schedule. The claim for decks ($28,024) was declined. The insured said he wasn’t asked about the area of his house, garage or decking when he arranged the policy. He said his adviser determined the area of the house, but the adviser said his client provided the information. The insured complained about his adviser. In August 2009, he provided the adviser with a copy of the renewal document (including the floor area of the house). Decks were covered by the old policy, but the adviser didn’t ask the insured about decks or outbuildings. The quote system used by the adviser contained fields for “Living area” and “Other area” (including a prompt for decks). The training material for
advisers, containing reminders to check the m², included decks. However, the policy only covered decks if specified. The schedule issued to the client referred to “160m2 living area” and “0 sqm other area”.The actual floor area of house was 146.5m² with 55m² of decking. The adviser said this should have alerted the client to the fact that he should have specified the deck area. The adviser had very limited records from the sales process and could not confirm he had asked the client about the area of the decks. He said he had provided a schedule which included a reference to “Living area” and “Other area” m², with the prompt, but the adviser did not retain a copy of this schedule. IFSO SCHEME The adviser helped arrange the policy before the Financial Advisers Act 2008 came into force, so the case manager considered section 28 of the Consumer Guarantees Act, which requires that “services ...[be] carried out with reasonable care and skill”. The adviser provided the “service” of arranging insurance on the house. The case manager believed the adviser had an obligation to tell the client he needed to specify the decks, or include them in the overall size of the house. The adviser failed to show he had met his statutory obligation in arranging the insurance on the house with reasonable care and skill, particularly as decks were covered under his old policy and the client was not aware that the new policy had less cover. On this basis, the IFSO Scheme found in the client’s favour that the bank, as the adviser’s employer, was liable to pay the amount of underinsurance in respect of the decks. Given that the adviser had solicited the client’s insurance business when he changed banks, he should not have been in a worse position with less cover, than he would have been under his old policy. www.covernote.co.nz
BROKERS’ GUIDE TO NEW REGULATORY ENVIRONMENT IF YOUR INSURANCE BROKING BUSINESS PROVIDES A FAS TO RETAIL CLIENTS, IT WILL BE A FAP AND IT WILL NEED TO BE LICENSED. By Crossley Gates
elcome to the alphabet soup of the Financial Services Legislation Amendment Bill. This bill if enacted will: • Repeal the unloved Financial Advisers Act 2008, • Amend the existing Financial Markets Conduct Act 2013 to include the new financial adviser regulatory regime, and • Amend the Financial Service Providers (Registration and Dispute Resolution) Act 2008 to accommodate these changes and to eliminate overseas abuse of the Financial Service Providers Register. 44
Parliament is likely to pass the bill into law later this year, but it will not go live until the code of conduct is finalised. Once this happens, the FMA will issue transitional licences over a two-year period. After this period expires, the new regime will come into full force. OVERVIEW OF PROPOSED CHANGES Unfortunately trying to follow the new bill is still a Byzantine undertaking. Assuming some familiarity with the current Financial Advisers Act 2008, the key changes are as follows:
Licensing will move from people (AFAs and RFAs) to legal entities employing them. Companies will become primarily responsible for compliance with the new legislation; they are referred to in the bill as financial advice providers (FAPs). 2. The old acronyms of RFA, AFA and QFE will go. Dividing financial products into two categories will also go. 3. As well as the existing duties in the Financial Advisers Act 2008, the following new duties will be added: 1. A duty to meet standards of competence, knowledge and skill (this duty will not apply over the transitional period), 2. A duty to ensure clients understand the nature and scope of advice, 3. A duty to give priority to clients’ interests, 4. For FAPs, a duty to ensure that their employees who are financial advisers or nominated representatives (see below) comply with all the duties. 4. The threshold for being a wholesale client is raised to clients with a minimum of $5m in net assets or a minimum of $5m in consolidated turnover, both over the preceding two years (presently $1m). 5. The code of conduct is in the process of being completely rewritten. REGULATED FINANCIAL ADVICE The key to whether the bill will apply to your business is determining whether your business provides regulated financial advice to its clients, either directly (e.g. via the internet) or engages people to do so on its behalf. If it does, it is providing what the bill calls a financial advice service (FAS) and the entity providing it is a financial advice provider (FAP). What is regulated financial advice? Before we come to that, we must first understand what financial advice is. In the context of a traditional insurance broker, a broker gives financial advice when he or she makes a recommendation or gives an opinion about purchasing or cancelling an insurance product. In order to clarify this, The bill says doing any of the following does not amount to giving financial advice: 1. Providing factual information about an insurance product. For example, information about the premium charged, the terms of cover or about how to go about purchasing or cancelling an insurance product. 2. Merely carrying out an instruction given by a client to purchase or cancel an insurance product. 3. Making a recommendation or giving an opinion about a kind of insurance product in general, e.g. recommending business interruption insurance, rather than recommending a particular insurer’s business interruption policy. 4. Recommending that a person obtains financial advice. 5. Merely passing on financial advice given by someone else. 6. Giving or making available your disclosure documents or any other information the law requires you to make available. If any of these exemptions applies, this is the end of the road, because your advice is not financial advice caught by the bill. Assuming your advice is financial advice, the next question is whether it is regulated financial advice. If a broker gives the advice in the course of his or her business as an insurance broker and none of a list of 11 exemptions apply, it is regulated financial advice. For a broker giving financial advice in the ordinary course of his or her insurance broking business, none of those exemptions is likely to apply. For other businesses, exemptions apply when: The financial advice is given as an "ancillary" part of a business whose principal activity does not involve providing financial advice (note the subtle shift here from the current law, which uses the word ‘incidental’),
A lender of money under a credit contract gives the financial advice and the advice is an ‘incidental’ part of a business whose principal activity does not involve providing financial advice. Once we have established the financial advice is regulated financial advice, the bill will apply to your business. This means: • Your business entity is providing a financial advice service (but not your employees giving the advice, unless they are doing so on theirown account and not as employees), • Your business entity is a financial advice provider (FAP), • If your business entity provides a financial advice service to any retail clients (any clients who are not wholesale clients), the business entity must be licensed under the Financial Markets Conduct Act 2013 and continue to belong to a dispute resolution scheme. Unless an insurance broking business is confident it does not presently give, and it will never in the future give, regulated financial advice to any retail client, it should become licensed. • Employees of your business giving regulated financial advice fall into two categories: • Financial advisers – these employees are registered in their own name as a financial adviser under the Financial Service Providers (Registration and Dispute Resolution) Act 2008, and • Nominated representatives – these employees are not so registered. The Financial Markets Authority must approve them and the FAP must keep an up to date record of them. Here is a practical example of how this will work: XYZ Insurance Brokers Limited (XYZ) trades as a small-to-medium sized general insurance broker with five employees giving advice. During the course of its business, it gives advice to its clients about purchasing and/or cancelling specific insurance policies. It does this both directly (through its website) and indirectly (through its employees).Therefore, it is giving regulated financial advice (RFA) and when it gives that advice, it is providing a financial advice service (FAS).This means XYZ is a financial advice provider (FAP). As some of its clients are retail clients, it must be licensed under the new Bill and be a member of a disputes resolution scheme. All of five employees provide regulated financial advice to clients. Although they do so personally, they are not providing it on their own account; they are providing it on behalf of the company. Therefore, none of them is providing a financial advice service (FAS) personally and none needs to be licensed. Under the terms of XYZ’s licence granted by the FMA, only financial advisers may give certain types of advice. Therefore, two of the five who qualify have registered themselves personally as financial advisers under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 in order to qualify. The other three are restricted to less complex advice under XYZ’s licence. XYZ must nominate them as nominated representatives and control their activities.They don’t have to register under the Financial Service Providers (Registration and Dispute Resolution) Act 2008, but XYZ must keep an up to date register of them. Once you have read this example, all insurance brokers will, hopefully, have a better idea of what the new legal framework looks like and what compliance tasks lie ahead. Crossley Gates is a partner at Keegan Alexander. Email: email@example.com Direct Dial: (09) 308 1809
ASK AN EXPERT
My client has an employee erroneously fuel his diesel motor vehicle with one litre of Go Clear and subsequently cause the engine to cease working. Fuel systems are affected only. The policy can respond to incorrect fuel type as per below: Section 1 Exclusions - Vehicle Parts - e) Fuel Systems are excluded. However 2 (g) states it will be covered if incorrect fuel type accidentally gets added (e.g diesel in a petrol engine or petrol in a diesel engine) However Go Clear is defined as: GoClear Diesel Exhaust Fluid (DEF) is an exhaust system additive and scrubbing agent that reduces nitric oxide (NOX) emissions in modern diesel engines. GoClear is used by lean burn engines which are equipped with SCR (Selective Catalytic Reduction The insurer has declined the claim on the grounds that Go Clear is not a fuel type (policy does not define fuel type in the wording) and is an additive. Could it be argued that as it is used in combination with fuel and the engine burns both the fuel and Go Clear it is essentially a (type of) fuel too? With no definition of fuel type it leaves it slightly open to ambiguity. Lastly is generally advised that: Vehicles requiring this product are manufactured with a second tank specifically for this product only. It can have serious consequences for a vehicle if it is incorrectly dispensed into a petrol or diesel tank. Customers need to be aware of these options and be very careful in their selection.
I would appreciate some input and opinions on a point that has been causing me concern for a while. It relates to insurers applying new rates and terms to policies mid-term just because the client has altered something. The latest case I have relates to a client who took out a private vehicle policy with Vero in October 2017. The policy has two vehicles covered under it. Last week he substituted one of the vehicles with a newer model. Vero tell me that the new rates that came into effect on June 1, 2018, must apply to this vehicle. They are also saying that this vehicle is subject to the higher standard excess level and windscreen excess that also came into effect at that time. So we now have a policy with two vehicles that are subject to different terms? It does not seem logical to me. I should point out that we have had similar problems with other insurers. Surely if a policy is taken out for a year then the terms that were agreed at the outset apply for the period of the contract unless of course there is a material change to the risk. I cannot see how the substitution of a similar vehicle allows an insurer to introduce new terms and rates mid-term.
REPLY… CROSSLEY GATES The write back to the exclusion refers to "fuel". The write back applies if the fuel is of a type that is incorrect. The word "fuel” is not specially defined, so it gets its ordinary dictionary meaning. The dictionary defines "fuel" as: "An energy source for engines, power plants, or reactors: Kerosene is used as jet engine fuel. " Is the additive a fuel? It doesn't sound like it. Does any engine run on it alone as its fuel? Assuming not, then I don't believe it comes within the write back as it is simply not fuel. It is, of course, something that is added to fuel (in a certain way). While it is a hard call as it comes close, there has to be a demarcation line somewhere.
REPLY… CROSSLEY GATES You are correct that one of two parties to a fixed 12 month contract cannot unilaterally make changes to its terms part way through it, without the others consent. However, one exception to this is if an existing term of the contract allows this. The terms of the policy allowing substitution of vehicles midterm may allow the insurer to adjust the premium and other terms in relation to the substituted vehicle. if so, the insurer is free to do this.
'D' plate insurance QUESTION… We have a situation where we insured a car repair workshop. He only took MD cover with one insurer and added cover for 2 D plates and additional premium paid. Liability cover is with another insurer. Our client had dealer’s vehicle at his workshop for WOF. His employee was driving it with D Plate when some hit the vehicle. Liability is disputed as the third-party says it is our client's fault and our client says it is the third-party’s fault. We lodged a claim with our insurer, who charged premium for D Plate. They say there is no cover for MV under the policy. Can someone clearly explain what D Plate insurance cover offers as per standard insurance practice.
REPLY… JAY SINGH, NZI, Businesses involved in the sale, manufacturing, repair and maintenance of vehicles often need to move vehicles when they are unregistered.These businesses can apply to use trade plates. Commonly referred to as "D" (dealer) plates or "X' plates (due to current series of trade plates contain an X in rego number). If a "D" plate is noted & insured under a CMV policy then cover would apply same as any other vehicle insured under that policy subject to any T&C's. 46
ASK AN EXPERT
Recovering mark-up QUESTION… In a situation where damage is done to third-party property and our at-fault insured client undertakes the repairs to remediate, to what extent can our client legitimately recover their normal mark-up (beyond their costs), under the liability policy. Given that the mark-up is not their actual "profit" margin as they have expenses and overheads that would be deducted before any profit was made I would have expected that a court might find that they are entitled to a least cover their actual costs plus a reasonable contribution to overheads. My approach would be to calculate their net profit from their financial records and apply that rate as a discount to the invoice presented. Right or wrong?
What’s an employee? QUESTION…
REPLY… CROSSLEY GATES This is a liability policy. The insured can claim under the policy the amount that the claimant can legally recover from it, in all the circumstances. True to the principle of indemnity, the insured can't claim more than this. If the claimant contracts another party to fix the damage caused by the negligence, the insured is legally liable for that amount, assuming the cost is necessary and reasonable. The insured remains legally liable even if the insured carries out the repairs itself. But what is the cost to the claimant (for which the insured is legally liable?). It is tempting to say nothing, but I think that is superficial. Technically, the insured could charge the claimant for its own costs in carrying out the repairs, but it couldn't charge the claimant a profit twice for the same job. In turn, the claimant holds the insured liable for this amount. In practice this is netted off so that the claimant is not charged anything further on the basis that the insured is legally liable for this amount anyway. The insured then claims this amount from its liability insurer. Ironically, the underwriter obtains a partial windfall from this scenario - it is saved paying the profit element. It would have had to pay this if the claimant had used another contractor and the insured would have been liable for this increased amount.
We have a claim where a client's vehicle was stolen. Also taken from the premises was an uninsured vehicle owned by a contractor that he used in connection with his work for my client The contractor in question is a retired person, he performs his duties for my client only, and invoices them each month (I believe he works most days). I recall another unrelated situation involving contractors where I was informed that if a contractor is performing work solely for one organisation he can be considered an "employee". My client's policy includes a cover for "Employees Vehicles" not otherwise insured, if used in connection with that occupation. There is no definition of an "Employee" in the policy, so we must rely on the legal definition. I am obviously looking to try an obtain cover via this extension.
REPLY… CROSSLEY GATES, Whether the contractor is an employee or not is a factual test. The main test which distinguishes an independent contractor from an employee is the degree of control which the employer is entitled to exercise An independent contractor is one who is not bound generally to obey orders the employer may from time to time give, so is free to act as he or she thinks fit within the terms of the contract. One indication of whether the person is an employee or not is whether the "employer" deducts PAYE tax. The answer is not determinative though. Usually an employee will be subject to an employment agreement. It is hard to make a call on your situation based on the limited information available.
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.
FSCL CASE STUDY
THE STOCK LOSS SHOCK
businessman bought a jewellery store located within a shopping mall. The previous store owner’s insurance broker emailed him a new schedule of insurance in the name of his business. The schedule showed a sum insured of $150,000 for stock. Eight months later, several armed offenders drove a vehicle through the mall’s gates, smashed through the jewellery store’s roller door, and stole most of the display jewellery, worth $98,100. No stock stored in the store’s locked safe was stolen. The next day, the insured contacted the broker to enquire about lodging a claim. The broker said the sum insured for stolen stock was $150,000. Two days later, more armed offenders drove through the mall’s gates, broke through the store’s temporary door, and stole further items totalling $3100. The business owner lodged a second claim. The insurer advised the total amount it would pay towards both claims was $52,500. This was because the policy had an endorsed sub-limit of $52,500 for stock stolen outside business hours from: • outside a securely locked and approved safe • a window display where the windows are unprotected. This left a cover shortfall of $48,700. The client said this was the first he knew of the endorsement. It transpired the broker had mistakenly omitted including the endorsement on the schedule it sent him. He complained to the broker and, although it did not admit any liability, in the interests of resolving his complaint, it offered him $14,000. He did not accept the offer and complained to FSCL. DISPUTE He said the broker should take responsibility for the $48,700 shortfall. According to the schedule, the sum insured was $150,000 and there was no limitation noted in relation to goods left outside a safe/in window displays. Had he known about the endorsement, he would have stored more stock in the safe. Further, he said it was standard industry practice to leave items in display cabinets and in display windows after hours, when a jewellery store was located in a mall. He also said that the items left in the window were lower-value items, with individual values of less than $500. The broker did not consider it was responsible for the shortfall. It said the client would never have stored his stock any differently had he known about the endorsement before the burglaries. In support of its view, the broker said that: • after the first burglary, he only put up a temporary wooden barrier at the store and continued to leave stock in the window display, and • after both burglaries, he continued to store stock outside the store’s locked safe after hours, and this led to the insurer decreasing the cover under the endorsement from $52,500 to $25,000. Moreover, the broker said it would never have been able to find insurance in the market which would have insured him for his business practice of leaving stock of the value of $50,000, outside a locked safe. The broker also disagreed that it was standard industry practice to leave items in display cabinets and windows after hours, when a jewellery store is located in a mall. The broker said the client failed in his obligations as the insured party, to take steps to mitigate his loss and take reasonable care of his stock. REVIEW We said the broker was negligent by not including the endorsement on the schedule, and this caused the loss. This was because: • the policy cover anticipated that some stock would not be locked
away in a safe after business hours, otherwise there would have been a blanket exclusion for all stock not locked away (rather than a policy sub-limit) • without being told about the endorsement, he could not have known he needed to ensure that the value of the stock not stored in the safe and in the windows did not exceed $52,500 • we did not accept his business practices after the burglaries necessarily led to the conclusion that he would not have changed his business practices before the burglaries, had he known about the endorsement. There was no evidence he was leaving stock outside the safe after hours which had an aggregate value in excess of $52,500 after the burglaries. • even if he did leave stock outside the safe with an aggregate value in excess of $52,500 after the burglaries, he did this at his own risk. However, he was not given the opportunity to consider whether he would take that risk before the burglaries, because he was not advised of the endorsement. We considered that in relation to the first burglary, the clinet took all reasonable steps to avoid a claim. He was not grossly irresponsible or reckless in leaving out the stock he did when, as far as he knew, he had cover of $150,000. This was supported by the fact the store was located within a mall with its own security measures in place. However, we noted that after the first burglary there were only temporary doors in place at the store and the mall.We considered he could have locked away all his stock in the safe to minimise the risk of further loss, until the doors were repaired. We said he should bear the loss from the second burglary. RESOLUTION We suggested that the broker compensate the client for the shortfall on the first burglary claim ($45,600). He and the broker accepted our view, and the complaint was resolved.
FSCL CASE STUDY
WHEN TWO BROKERS GET IT WRONG
n insurance broker arranged insurance cover for a coupleâ€™s home, including a swimming pool. Insurance premiums were increasing and the client asked the broker if he could find a cheaper policy. He offered the couple an alternative policy with the same insurer, explaining the only difference was an increased excess. They accepted the advice and changed to the new policy. About a year later the insurer terminated its broker arrangement with the broker, and he arranged for his client to transfer to a new broker. The new broker rolled over the policy previously arranged by the previous broker. Almost a year later the Kaikoura earthquake damaged the coupleâ€™s swimming pool. They submitted a claim to their insurer, but the insurer declined the claim because the new policy would only cover swimming pools if the pool was listed on the schedule and an additional premium paid. The pool was not listed on the schedule, so was not covered by the policy. DISPUTE They complained to both brokers, saying they had trusted them to place appropriate insurance.The first broker knew they had a swimming pool, yet failed to list the pool on the schedule of the new policy. When the second broker took over, he simply rolled over the cover without checking it met their needs. The first broker acknowledged his error, but said that he was not the broker at the time of the loss and therefore not liable. The second said that he had not provided any advice and had simply
rolled over the existing cover on the same terms, as it was not his error, he considered he was not liable. The couple complained to FSCL, and asked us to decide who should be liable for their loss. REVIEW We considered that both brokers shared some liability for the error. The first made the original mistake, but the second had failed in his obligations, when renewing cover, because he did not check the clientsâ€™ cover was appropriate for their needs. It seemed to us that the best way to resolve the complaint would be for both brokers to attend a conciliation conference with the clients. They were all keen to resolve the complaint by conciliation. Although the new broker was a FSCL member at the time the policy was rolled over, his company was in the process of being wound up. By the time the complaint arose, his company was no longer a FSCL member and had been deregistered on the Financial Service Providers Register. While he initially contributed to the conciliation, he withdrew before a decision was made. RESOLUTION We reached a conciliated resolution for the couple and their first broker. They received compensation for about half the cost of the damage to the pool. Unfortunately, because the second broker had withdrawn from the process, and we had no ability to require his co-operation, we were unable to help resolve that complaint. www.covernote.co.nz
– THE HIDDEN DANGER WHEN DOING LAUNDRY
By Stephen Henkin
Vero recently received a claim for a fire that caused extensive damage to a small business. Upon investigation, it was discovered that the cause of the fire was the spontaneous ignition of towels, rags and napkins in the tumble dryer. After being washed, the linen was dried in the tumble dryer and left overnight. In the early hours of the following morning the towels, rags and napkins spontaneously ignited. It might surprise your business customers to know that fires caused by spontaneous ignition involving laundry are relatively common. It’s possible for fires to start by spontaneous ignition in any business that does laundry, which can range from day cares, creches, beauty salons and massage parlours to cafes, restaurants, hospitals and aged care facilities – and of course, commercial and self-service laundries. For your business customers, there are a few simple steps they can take to reduce their risk of spontaneous ignition causing a fire that could damage their premises and put a halt to their trading for an extended period of time. WHAT CAUSES SPONTANEOUS IGNITION? Spontaneous ignition is caused by a chemical process called oxidation which occurs when a substance combines with oxygen. Oxidation creates heat, and if the heat can’t be removed (for example, by air flow) the temperature of the substance continues to increase until it reaches its ignition temperature and catches fire. Oxidation can occur naturally among warm or damp fabrics during the laundering process. There are a few common factors that can increase the chance of spontaneous ignition. Cotton fabrics that are coated or contaminated with vegetable oils, including cleaning rags, dish cloths, towels and aprons Warm or damp linen being stored in a warm area Exposure to heat sources like hot pipes or tumble dryers Lack of ventilation for compressed or folded laundry Exposure to direct sunlight Detergents that contain oxidising chemicals TIPS FOR BUSINESSES TO PREVENT SPONTANEOUS IGNITION The fire risk associated with laundry operations can be reduced if businesses follow a few simple precautions to reduce the chance of spontaneous ignition. 50
Wash soiled items on the right setting Cold water washes don’t always remove all the oils, fats or detergent from aprons, tea towels and dishrags. Adjust your wash temperatures and detergent for the optimum removal of any oil and fat contamination, and rinse your laundry before drying. Maintain equipment correctly Laundry equipment on your premises should be installed, maintained and operated as recommended by the manufacturer. It’s a good idea to regularly check any thermostat controls and clean and check lint filters daily. Ensure air exhaust pipes are free of obstruction Lack of ventilation increases the risk of spontaneous ignition, so ensure that tumble dryer air exhaust vents are free of any obstruction or blockage. Keep soiled laundry away from heat sources Don’t store soiled laundry near heat sources like tumble dryers or in direct sunlight. It’s also a good idea to wash things as soon as possible. Line dry high-risk items Foam rubber, waterproof textiles, plastic shower caps, rubber backed items or clothes, mop heads and anything that has been contaminated with vegetable oils should ideally be line dried – because the temperature of a dryer may cause these items to ignite. Only tumble dry while someone is on the premises If possible, it’s best to only tumble dry laundry while someone is present, and will have time to empty the dryer as soon as it’s finished, and cool and store the laundry. Leaving dryers or hot laundry unattended means that if a fire does start, it might be some time before you catch it. Let items cool down Ensure that when you are using a dryer, you don’t skip the cool-down part of its cycle. Once the dryer is finished, it’s best to empty it immediately and spread out the laundry into small piles to allow it to air out and cool. Dry laundry left in a plastic container or cart will retain heat, so metal open mesh baskets are a good alternative. WHAT IF A FIRE DOES START? Where there is a risk of spontaneous ignition, customers should make sure they have a fire extinguisher on hand. It’s useful to get specialist advice on the size, number and location of fire extinguishers a business needs, but dry powder fire extinguishers with the appropriate rating should be the minimum.
Professional Development: Professional IQ College
Have you ever thought about becoming a Professional IQ College Assessor?
here is a lot happening in the financial services sector in 2019 and the college is increasing its team of assessors to meet demand for the revised New Zealand Certificate in Financial Services Level 5 driven in part by the changes to the Code of Professional Conduct for Financial Advice Services. The college has a number of contract opportunities available part-time for assessors. This is your opportunity to develop your professional understanding and gain valuable professional development to enhance the skill, Knowledge and competency of learners participating in the Level 5 certificate. We are potentially looking for two types of assessors. These are registered workplace assessors and contracted assessors. A registered workplace assessor is a person, such as an experienced supervisor or manager, or graduate of the New Zealand Certificate in Financial Services Level 5, who works in an organisation that has enrolled learners with the college.They are registered with the college as a workplace assessor to assess learners in their workplace. WORKPLACE ASSESSORS MUST: Hold as a minimum the unit standard 4098: Use standards to assess employees’ performance, or demonstrate equivalent knowledge and skills. • Be able to communicate well, both written and verbally, since assessment involves keeping good documentation, and having probing discussions with employees. • Must be able to demonstrate that they have the technical expertise to assess against the applicable unit standards.
Ideally, will have the unit standards listed on your New Zealand Qualifications Authority (NZQA) Record of Achievement, and have proven experience in the subject they wish to assess. It is essential that the workplace assessor is currently employed with the relevant workplace and undertakes assessor training to act as a college workplace assessor. Assessment guidance will be provided by the college. The college believes that it is important that all assessment activities, including the design and development of assessment instruments, conducting assessment, managing the assessment process and administration that goes with assessment is done professionally in order to give learners a fair chance to achieve success.This in turn enables employers to receive the benefits of employees being able to work more effectively and efficiently after graduation. Contracted assessors will undertake assessments for the college not connected to your workplace.
For further information contact Sylvia Heywood, Academic Manager, Email: Sylvia@professionaliq.co.nz or DDI: 09 306 1737
CONTACTS: IBANZ CORPORATE COMPANY LIST IBANZ BOARD Roger Abel Rothbury Group Limited PO Box 1596 Shortland St, Auckland 1140 Mob: 021 952 230 firstname.lastname@example.org Tony Bridgman (Vice President) Executive Director Marsh Ltd PO Box 2221 Auckland 1140 Tel: 09 928 3015 Mob: 021 873 399 email@example.com Craig Buckle National Manager, Corporate Risk Solutions Willis New Zealand Ltd PO Box 369 Auckland 1140 Tel: 09 356 9347 Fax: 03 358 3343 craig.buckle@ willistowerswatson.com David Crawford Director, New Zealand Insurance Advisernet NZ Ltd PO Box is 37670 Market Road Auckland 1151 Tel: 09 926 2062 Mob: 021 905 537 firstname.lastname@example.org
PIQ BOARD Allan Daly Managing Director Avon Insurance Brokers PO Box 3923 Christchurch Mail Centre Christchurch 8140 Tel: 03 3710 301 Mob: 0275 358 128 email@example.com
Jason Smith Managing Director Property & Commercial Insurance Brokers PO Box 4 Feilding 4740 Tel: 06 323 8820 Mob: 027 293 8724 firstname.lastname@example.org
Duane Duggan (President) Head of Insurance Legal Crombie Lockwood (NZ) Ltd PO Box 91747 Victoria Street West Auckland Tel: 09 357 4805 Mob: 021 833 286 duane.duggan@crombielock wood.co.nz
Ruth Steele (Vice President) Trevor Strong Ins (2013) Ltd PO Box 302635 North Harbour Auckland 0751 Tel: 09 414 2563 email@example.com
Stuart Speirs Director Abbott Group PO Box 3086 Christchurch 8011 Tel: 03 366 7536 Mob: 021 358 341 firstname.lastname@example.org
Gary Young Chief Executive, IBANZ Auckland DDI: 09 306 1734 email@example.com
Jason Smith Managing Director, Property & Commercial Insurance Brokers PO Box 4, Feilding 4740 Tel: 06 323 8820 Mob: 027 293 8724 firstname.lastname@example.org
Fred Dodds Waikanae Mob: 021 998 906 email@example.com Angi Mann Contract Compliance and Learning and Development Specialist Auckland Mob: 021 293 1724 firstname.lastname@example.org
WANT YOUR VERY OWN COPY OF
Gary Young Chief Executive DDI: 09 306 1734 Mob: 027 543 0650 email@example.com Robyn Gosden Finance & Office Manager DDI: 09 306 1733 Mob: 027 275 2477 firstname.lastname@example.org Karen Scard Administration Manager DDI: 09 306 1738 email@example.com Sylvia Heywood Academic Manager Professional IQ College DDI: 09 306 1737 firstname.lastname@example.org 52
Jo Mason Chief Executive Officer NZ Brokers Management Ltd PO Box 334 012 Sunnynook North Shore City Auckland 0743 Tel: 09 869 2785 Mob: 021 893 668 email@example.com
David Crawford Director, New Zealand PO Box is 37670 Market Road Auckland 1151 Tel: 09 926 2062 Mob: 021 905 537 firstname.lastname@example.org
Zeeshan Ahmad Student Support Professional IQ College DDI: 09 306 1739 email@example.com
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 firstname.lastname@example.org IT’S TIME TO
TO ADVERTISE... Contact Robert Johnson on: e-Mail: email@example.com Phone: 09-477 4702 Mobile: 0274-970-712 CoverNote is published quarterly by IBANZ, the Insurance Brokers Association of New Zealand. All correspondence should be addressed to: CoverNote, PO Box 33-1630 Takapuna, North Shore City, Auckland.
Next issue is due out: MARCH 2019
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CONTACTS: IBANZ CORPORATE COMPANY LIST IBANZ CORPORATE COMPANY LIST
Insurance Advisernet NZ Ltd
Adams Trimmer Insurance 1992 Ltd
Insurance Brokers Alliance Ltd
North Shore City
Insurance People (Fire & General) Limited
Advance Insurance Services Ltd
JLT Holdings (NZ) Limited
Advice First Limited
Affiliated Insurance Brokers Ltd
Luxor Insurance Brokers Ltd
AIB Group Insurance Ltd
Malcolm Flowers Insurances Ltd
AIM Associates Ltd
Albany Insurance Services Ltd
Matt Jensen Insurance Brokers Ltd
Amicus Brokers Ltd
McDonald Everest Insurance Brokers Ltd
Andrew Scragg & Associates
MIG Fire and General Ltd
Apex General Ltd
Mike Henry Insurance Brokers
Montage General Insurance Ltd
Ascot Insurance Brokers Ltd
Atlas Insurance Brokers Ltd
Nelson Marlborough Insurance Brokers Ltd (NIB)
North Shore City
Neville Newcomb Insurance Brokers Ltd
Avon Insurance Brokers
Baileys Insurance Brokers Ltd
Bay Insurance Brokers Ltd
North Harbour Ins Services (1985) Ltd incl Northsure Group Limited Northco Insurance Brokers Ltd
Benson Insurance Brokers Ltd
Northcrest Insurance Brokers Ltd
Boston Marks Group Ltd
O'Connor Warren Insurance Brokers
Brave Day General Ltd
OFS Insurance Brokers Ltd
Bridges Insurance Services Limited
Omni Fire & General Ltd
Broker Direct Services Ltd
Paramount Insurance Agencies Ltd
BrokerWeb Risk Services Limited
Paterson & Co NZ Ltd
Builtin New Zealand Ltd
Penberthy Insurance Ltd
Cambridge Insurance Brokers Ltd
Peter C Cranshaw Insurance Broker Ltd
Capital Risk Solutions Limited
PIC Insurance Brokers Ltd
Card Marketing International Ltd
Primesure Brokers Ltd
Cartwright General Insurance Limited
Property and Commercial Insurance Brokers
CBA Insurances Limited
Protekt Insurance Brokers 2008 Ltd
Certus Insurance Brokers NZ Ltd
Provincial Insurance Brokers Limited
PSC Connect NZ Limited
Coastal Insurance Brokers Ltd
River City Insurance Brokers 2000 Ltd
Commercial & Rural Insurance Brokers Ltd
RMA General Ltd
Crombie Lockwood (NZ) Ltd
Rothbury Group Ltd
Dawson Ins. Brokers (Whakatane) Ltd
Runacres & Asssociates Limited
Dawson Insurance Brokers (Rotorua) Ltd
Seneca Insurance Brokers Ltd
Edward Ruys & Co Ltd
Sit & Blake Limited
Emerre & Hathaway Insurances Limited
South Pacific Insurance Brokers Ltd
Frank Risk Management
Sweeney Townsend & Associates Ltd
FundAGroup Insurance Brokers Limited
Thames Valley Insurance Ltd
Future Insurance Mortgage
The Advisers 1 Limited
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Thorner General Insurances Ltd
Grayson & Associates Ltd
Towes Insurance Brokers Ltd
Gregan & Company Ltd
Trevor Strong Ins Ltd
GYB Insurance Brokers Ltd
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Vision Insurance (S.I.) Ltd
Hazlett Insurance Brokers Ltd
Waikato Insurance Brokers Limited
Honan Insurance Group (NZ) Ltd
Wallace McLean Ltd
Hood Insurance Brokers NZ Ltd
Wanganui Insurance Brokers Ltd
Hurford Parker Insurance Brokers Ltd
Willis Towers Watson
Hutchison Rodway Ltd
Yesberg Insurance Services Ltd
ILG Insurance Brokers
North Shore City
Ingerson Insurances Ltd
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