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CoverNote is the official publication of IBANZ and is distributed FREE on a quarterly basis (March, June, September, December) to members throughout New Zealand and associated companies. Additional copies are available at a cost of $7.50 per copy, or 12 month (4 issue) subscriptions at $30.00, inclusive of postage and packaging. The articles or opinions featured within this magazine are not necessarily the opinions of the publishers or IBANZ, and they do not accept responsibility for the content of articles featured within the publication. No part of this publication may be reproduced without the written permission of the publisher. The publishers do not accept responsibility for loss or damage to unsolicited photographs or manuscripts. IBANZ enquiries should be made to: Gary Young, Chief Executive, IBANZ. Email: email@example.com IBANZ National Office located at: Level 5, 280 Queen Street, Auckland (P.O. Box 7053, Wellesley Street) Telephone 09-306-1732. Website: www.ibanz.co.nz
Gary Young CEO, IBANZ
Remember, we’re different
ominating the financial services news in recent months has been the Australian Royal Commission and the resultant fallout in New Zealand. Some of the activities of banks and insurers across the Tasman have been less than ethical and certainly not in the client’s best interest. The regulators here were already undertaking a review of the life insurance sector, focusing on churn and conflicted remuneration. It was hardly surprising that the events in Australia prompted the local regulators to widen their review of our financial services. It is pleasing to note that no instances of misconduct by general insurance brokers were reported to the hearings. Nor did insurers or others raise instances of concern in relation to brokers. We are, of course, wary of those who - without an understanding of our sector - fail to differentiate us from the life insurance sector. IBANZ has consistently pointed out that our remuneration model is quite different. As a result, the issues regulators have identified are not seen in general insurance broking. There is a tendency by some consumer organisations to call for a total ban on commissions. They fail to appreciate what the role of this type of remuneration is and how it works for the general insurance market. Put quite simply, brokerage is part of a service agreement between an insurer and a broker to operate the insurer’s distribution channel. The alternative is seen with direct insurers that must use alternative means of distributing their product e.g. call centres. There is still a cost to be paid, just in a different format. A common argument raised is that commission will create a conflict of interest. However given the low commission rates compared to the life side, and the lack of significant variation between insurers, there is no real conflict. What needs to be considered is what happens if commissions are banned, in particular for retail/consumer products. The reluctance of consumers to pay fees for advice will result in a real lack of advice. We don’t need to look far to see what that means when disasters, such as the Christchurch earthquake, strike. Those buying without proper advice struggle to survive financially. The current remuneration model for general insurance brokers provides the means for consumers and small business to access quality advice and receive the protection they need. Before any changes are contemplated, it must be clearly shown that there is, in fact, an issue requiring reform to achieve better client outcomes. Gary Young, CEO, IBANZ
Features 14. NZI discourages use of flammable insulated panelling 24. NZI helps steer the way in development of a new road safety strategy
26. What’s on the regulatory horizon? 27. The duty of disclosure - will it be modernised at last? 32. Aluminium composite panels in building cladding
10. COVER STORY: Who are New Zealand’s insurance brokers in 2019?
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Insurance start-up gets tick Auckland-based insurance start-up Cove has been awarded the Rainbow Tick, certifying the organisation is a welcoming and inclusive place for people of diverse sexual orientations and gender identities. Chief executive Andy Coon said it was important for the company to receive the Rainbow Tick while it was young, to ensure Cove was inclusive to the LGBTQI+ community in a proactive manner. “Every single person is deserving of respect and a feeling of safety and wellbeing in the workplace, regardless of sexual orientation or gender. “This endorsement is more than just a tick box. We want to support all members of our society and working with Rainbow Tick is a sign of our ongoing commitment to openly discuss how we can better serve the LGBTQI+ community.” Cove is currently looking into how gender and identity is incorporated
into the buying process, and whether such questions can be removed or altered to be more inclusive. Rainbow Tick is a programme which evaluates a company’s LGBTQI+ inclusion in five core areas and provides evidence-based recommendations for change, along with resources and support for their implementation. The programme looks at company policy, staff training, external engagement and monitoring, with the Rainbow Tick endorsement awarded once all the benchmarks have been met. Others with the tick include Southern Cross Health Society, IAG and AMP.
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Licensing costs revealed It is becoming clearer what it will cost to take out a license to provide financial advice under the new legislative regime. Anyone giving advice under the new rules must work for a licensed financial advice provider. That could be a big firm with many advisers working for it, or a one-person financial advice business. The Ministry of Business, Innovation and Employment released a discussion paper at the end of 2018 on what advisers would have to pay. It is predicted that about 2240 financial advice providers would apply to be licensed, covering 8000 financial advisers and 21,500 nominated representatives – likely to be those who are QFE advisers in the existing structure. The first step for licensing will be transitional licenses, which will last for two years. MBIE expects these will be $363 for all financial advice providers, no matter their size. Then, in 2021, full licensing will begin and the cost will depend on the scale of the business. A financial advice provider that was a single adviser business or only
That compares to, at present, a single adviser business paying anything from $0 (if it was an RFA) to $996 in authorisation fees for AFAs. Under the new regime, that will be standardised at $575. AFAs currently pay $498 for each renewal. An advice firm with five advisers would pay $4980 in authorisation fees under the existing rules but that would come down to $730. One with 10 nominated representatives would currently pay $4249 in licence fees but that would drop to $885. MBIE also flagged changes to the FMA levy. "At this time, we are not reviewing the FMA’s overall funding, the design of the levy model as a whole, or trying to account for the full costs of the new regulatory regime. However, some existing levy classes need adjustments and some new levies need to be set to collect funding from financial advisers and financial advice providers. In setting these new levies we are aiming to collect the same amount as is currently collected from the financial advice industry." It is proposing FAPs or financial advisers pay $460 at initial registration, then $230 for FAPs each year, $179 per nominated representative and
giving advice on its own account would pay $575 plus $155 per hour if the processing time was more than two hours, under the MBIE plans. A FAP that engaged multiple financial advisers but no nominated representatives would pay $730 plus $155 per hour if the processing time was more than three hours. A FAP with nominated representatives would pay $885 plus $155 per hour if the processing time was more than four hours. There would be additional fees for extra authorised bodies named in the application and any application to vary conditions. MBIE said there would be no renewal fee - providers would pay that same full licence fee each time they had to renew their licence. It has not yet given details of how long a licence could last. "We think it is appropriate that these fees are charged to the financial advice provider who receives the benefit of holding a licence by being able to operate in the regulatory environment established under the bill. Without recovering these costs from licence applicants, the FMA would be required to subsidise the cost of licensing from other revenue streams,” MBIE said.
$1106 if the FAP gave advice on its own account. "To avoid over recovery of the levy, it is proposed that financial advisers will be required to pay the levy (rather than through a financial advice provider) as they may be engaged by multiple financial advice providers (e.g. if they have multiple part-time jobs). However, we are conscious that this may impose administrative costs on financial advisers and financial advice providers and would like feedback on whether these levies should be paid by financial advice providers rather than financial advisers." Submissions closed February 22. Commerce Minister Kris Faafoi said it was inevitable that regulation would impose some financial cost on advice businesses. "However, it is crucial that compliance costs are fair and reasonable so that financial advice providers can operate efficiently and consumers can continue to access financial advice. “I have heard concerns about how the costs of the regime will affect smaller advice practices. Those practices are a hugely important part of the ecosystem and I want to ensure that compliance costs are appropriate for those practices,” he said.
Which cars are thieves' top picks? The desire for a stolen Toyota Hilux, Subaru Legacy and Subaru Impreza shows no signs of diminishing, with at least two reported stolen every day around New Zealand. Analysis of police data by financial comparison website MoneyHub.co.nz confirms Canterbury is the stolen car hotspot of the country, with more than 800 vehicles reported stolen in the last six months of 2018. “Thieves had different preferences around the region. Auckland thieves lusted after the Mazda Familia more than any other car,” senior researcher Christopher Walsh said. “But in Waikato, the Ford Falcon was the most stolen car, and in Southland and Otago, thieves preferred the Honda Civic. In Wellington, Mitsubishi Lancer was most favoured, while the Toyota Hilux was popular with thieves all over the country, especially those in Canterbury, Bay of Plenty and Northland. “We’ve seen some interesting data points. Despite over half of all the reported thefts of Subaru Legacy models being from within Canterbury, thieves there still preferred the Toyota Hilux, with 68 stolen there in a mere six months. “If you own a Toyota Hilux, Subaru Impreza or Subaru Legacy, you could pay a lot more for car insurance than for less 'in demand' models by thieves. But many models continue to be in demand by thieves, and until now, there wasn’t a definite list of which models were most susceptible to being stolen.” He said Otago and Southland had the fewest stolen cars per capita and Canterbury, Northland and Counties/Manakau were the riskiest for car owners.
Battery problems leave drivers stranded State Insurance responded to 1300 Roadside Assistance callouts across the country just over the Christmas and New Year period. Almost half of those were related to the vehicle battery. The most common problem was batteries being too old to retain charge. “Batteries are definitely the reason most people call up for assistance,” State’s Sean Craigen said. “When so many people are travelling around the country for day trips to the beach or campsites, the state of the car may be last on the priority list. “Batteries can have issues for a number of different reasons. It might be your battery is old or drained due to GPS or applications using the charge. There’s also the chance that the good old lights were left on or doors left open,” he said. “Lastly it could be that the vehicle has been sitting for a period of time and the battery no longer has enough power in it to start the engine.” Tyres were also a problem for many drivers with. There were 57 callouts for help with tyre punctures, blow outs or damage.
Regulators’ warning for general insurers Report slamming life insurance sector may have wider repercussions.
Regulators that issued a damning report on life insurers in New Zealand are warning that general insurance providers shouldn’t think they are in the clear. The report, by the Financial Markets Authority and Reserve Bank, was issued in late January. It found serious problems with many life insurers in this country. Across the sector, governance and management of conduct risks was weak, it said, and there was a lack of focus on good customer outcomes. “There is a serious risk of further conduct issues arising.” The Financial Markets Authority and Reserve Bank said, while this report prioritised life insurers for review, everyone in the insurance sector had to consider the conduct risk in their businesses. “Given the similarities between life and non-life insurance, it is possible that the vulnerabilities identified in this report may exist across the broader insurance industry. We expect all insurers to assess their conduct and culture governance frameworks, and consider and act on all relevant recommendations in this report.” One insurer was selling insurance to foreign customers despite only allowing New Zealand residents to claim on the policies. Old policies were not being cancelled, and premiums were still taken, even when the customer had been transferred to a new policy. Premiums were being charged after the policies’ end dates and some insurers were only fixing problems for customers who complained. There was limited evidence of products being designed and sold with good customer outcomes in mind, and very little in the way of policies for identifying and dealing with potentially vulnerable customers Some insurers lacked good internal complaints processes. There were also concerns about the way insurance advisers were being used. Some insurers did not have enough oversight of how advisers operated, and they needed to have more ongoing training in the products they were dealing with, the regulators said. “We saw evidence of sales incentive structures (internal and external) creating risks of sales being prioritised over customer outcomes, and of policies being ‘churned’, ie, customers being sold new policies that are not in their best interests so the salesperson can earn a commission.” There was a lack of insurer oversight of advisers and remediation of conduct issues was "very poor", the report said. Some insurers seemed to think they were not responsible for customer outcomes that were influenced by adviser conduct. 6
Some even regarded the adviser as the customer, the report said. That could lead to a situation that prioritised the needs and outcomes of advisers over the clients themselves. "It can also raise the question of whether products are designed for customers or to suit advisers' sales strategies. An advice-centric philosophy can also make it difficult to hold advisers to account for poor behaviour." GOVERNMENT ACTION After the report was issued, Finance Minister Grant Robertson and Commerce Minister Kris Faafoi said Government would fast-track consumer protection measures in the financial sector, across the wider insurance and banking industry. That would primarily mean tackling high upfront commissions and overseas trips offered as incentives to advisers. “Incentives such as overseas trips and loaded upfront commissions can cause a conflict for the salesperson. We have also heard about insurance policies being sold to people who are ineligible for cover, premiums continuing to be charged for a policy that’s no longer in effect, and policyholders not being effectively notified of increases in premiums,” Faafoi said. “We plan to release a consultation paper on the changes by May and introduce legislation later this year." At the moment it appears that this could mean moving all advisers to a model that is more like the general industry, where there is more focus on ongoing earnings than upfront payments. Robertson noted the changes could be wide-reaching. “While this report focuses on life insurers, it’s possible the vulnerabilities it identifies may exist across the broader insurance industry. “We will consult with the public and industry on these changes, but we are going to move as quickly as possible on this because New Zealanders need to have confidence their rights and interests are being protected." In many ways, New Zealand regulators seem to have an eye on Australia, where drastic changes are afoot. There, the report from the Royal Commission of Inquiry into Misconduct in the Banking, Superannuation and Financial Services sector called for a ban on life insurance commissions but only said the regulator, ASIC, should "review the exemptions for general insurance products and consumer credit insurance products" in 2022. But ASIC has already indicated it would support a total ban on general insurance commissions.
Tower: Risk-based pricing fair Tower Insurance says its surveys show 70% of people across New Zealand believe that risk-based pricing is a fair way to pay for insurance. Five hundred people were surveyed, with 73% of those from Auckland saying that risk-based pricing is fair. But a majority of people in higher-risk areas also believed risk based pricing is a fair way forward, 63% in Wellington and 65% in Christchurch. It comes after Tower announced it would be the first insurer in New Zealand to price earthquake risk in a way it said was fairer. The insurer said no two properties were the same and Tower’s riskbased pricing approach meant that those living in low-risk areas such as Auckland, Hamilton and Taranaki would no longer subsidise those who lived in high-risk locations. Those customers in low-risk areas were now receiving more competitive premiums. Tower chief executive Richard Harding said Tower’s move started a national conversation and it was pleasing to see that the majority of people surveyed support this change. "Eighteen months ago the Commerce Commission declined Vero’s proposal to buy Tower because they saw us as a true New Zealand based competitor to the two big Australian insurers," said Harding.
"Our move to risk-based pricing for earthquake was market leading and we can now offer house insurance cheaper than our competitors in certain parts of the country. "In fact, our analysis shows that in Auckland, nine out of 10 State customers would actually receive lower premiums with Tower. "As well as benefitting customers, fairer pricing encourages the government to place more emphasis on understanding and planning for the risks New Zealanders face when natural disasters hit," he said.
EQC changes enacted Homeowners can now access more information about a property’s previous Earthquake Commission claims. The Government’s Earthquake Commission Amendment Act empowers EQC to share more information about previous claims on a home. “Previously homeowners and prospective buyers could only get information about claims on a property where there was a deed of assignment from the former owner. This meant people couldn’t find out what EQC claims there had been on a property they owned or were looking to buy,” said Minister for Greater Christchurch Regeneration Megan Woods. “The changes we have made also allow EQC to share information to prevent or lessen a threat to public health or safety.” It means insurers will also be able to access more information about a property. She said it was one of four changes made to the Earthquake Commission Act. The Government had also increased the time limits for claim notification to up to two years. Claimants will still need to show that the damage was the result of an event covered by EQC.
Further changes increasing the EQC cap on new claims and removing cover for contents – leaving it entirely to insurers - will come into effect from July 1 as house and contents policies are renewed. “Increasing the cap EQC can pay on new claims to $150,000, from $100,000, recognises the increase in building costs and means less over-cap claims will need to be passed onto private insurers,” Woods said, “We have also removed EQC cover for contents and personal property, which will be picked up by private insurers. Removing cover for contents will focus all EQC’s claim management resources on resolving residential building and land damage claims. “These four common-sense changes will improve the efficiency of New Zealand’s natural disaster insurance scheme and focus EQC’s claim managers on helping people fix their homes. “We’re making these changes ahead of the inquiry into EQC and a further review of the EQC Act, as they are straightforward improvements that fix identified issues with the scheme. These changes means that if the worst happened and there is another natural disaster, claims can be managed more efficiently,” she said.
IAG joins claims service IAG will participate in the Greater Christchurch Claims Resolution Service (GCCRS), an initiative designed to fast-track the resolution of outstanding residential Canterbury earthquake insurance claims. The GCCRS has been established by the Government to provide homeowners a free-to-access and impartial pathway to settle their claims. “I am pleased to announce our agreement with the Government that the services offered by the GCCRS are now also able to be utilised by our customers,” IAG New Zealand’s chief executive Craig Olsen said. “IAG has been working proactively with the Government and wider
insurance industry to settle the last remaining residential Canterbury earthquake claims as quickly as possible. We welcomed the initial announcement of the GCCRS and are confident it is a service that will be of value.” “We will continue to work closely with Minister Megan Woods, the Minister for Greater Christchurch Regeneration, on this initiative and any other proposals which may assist with the resolution of outstanding residential Canterbury earthquake claims.” The GCCRS is hosted and operated by the Ministry of Business, Innovation and Employment. www.covernote.co.nz
Suncorp expands AA partnership The AA and Suncorp have reached a new agreement to explore how both organisations can expand their financial service offerings. AA chief executive Brian Gibbons said it had always been the AA’s aspiration to look at how it might offer a broader range of financial services beyond car loans to New Zealanders, and this new partnership afforded that opportunity. Suncorp already has insurance joint ventures with AA. Suncorp New Zealand is part of Suncorp, a general insurance, banking, life insurance and superannuation business with brands in Australia and New Zealand. Called AA Finance, the joint venture will launch later this year, offering loans for cars, motorbikes and boats. The objective of the joint venture will be to provide affordable finance for all Kiwis, with AA Members the primary beneficiary.
"The partnership is based off the back of an existing relationship the AA has with Suncorp New Zealand, jointly providing general and life insurance through AA Insurance and AA Life. The success of the partnership has encouraged both organisations to look beyond those insurance products to the financial services sector," Gibbons said. Suncorp New Zealand chief executive Paul Smeaton said he was excited about the new partnership. "I couldn’t think of a better partner than the AA to launch this offering to New Zealanders, given Suncorp's longstanding relationship with the AA.” Gibbons and Smeaton said they saw it as a step up in terms of their commitment to New Zealand, and a further strengthening of the two organisations’ partnership.
Rothbury opens Pukekohe office Rothbury Insurance Brokers has opened a new office in the heart of Pukekohe after acquiring Counties Manukau Insurance Services, better known as CMIS. This new venture represents a strong desire from Rothbury to cater to the greater Franklin area where significant growth is expected over the next 30 years. Rothbury welcomes on board Kevin Sleyer and Joanne Hunt previously from CMIS and Insite Insurance respectively. Locals will continue to receive personal service and quality advice at a local level from Kevin and Joanne who have both lived in the area for years. Also joining them in the new office will be Garth Nielsen, senior commercial broker for Rothbury, who relocated to
live in Pokeno three years ago. Executive general manager – broking branches, Paul Munton says, “Growing the Rothbury business is one of our main strategic goals and we’re really excited to be opening a new office to cater to this growing community.” “Pukekohe is one of the fastest growing towns in Auckland and the area serves a wide catchment with its own unique issues. “Having local brokers on the ground who live and work in the community means they really understand what’s important at a local level and can provide an even higher level of service to our clients.”
Sea level rises pose risk The Insurance Council of New Zealand has welcomed Local Government New Zealand’s (LGNZ’s) report into sea-level rises around the country, saying that the billions of dollars of local government assets identified in the report as at risk from sea-level rise doesn’t even tell half the story. The report found more than $4 billion of three waters infrastructure, roughly $1b of roading infrastructure and $1.2b of buildings and facilities would be exposed if sea levels were to rise 1.5 metres. The total value of all infrastructure types exposed is estimated at approximately $8b across the country. In Auckland alone, $620 million of infrastructure is at risk if sea levels rise just half a metre.
participating in responding to climate change and to ensure equitable outcomes. It also wanted a Local Government Risk Agency to be established to help assist and guide consistent and expedited planning, decision-making and procurement, build local government capability and capacity to identify, quantify and understand risk. Its final proposal was that local government co-ordinate with owners and users of exposed infrastructure to create a National Master Plan, prioritising options and opportunities for responding to sea level rises. "This report should have everyone sitting up and listening," said Tim Grafton, ICNZ chief executive. "It has identified that over $5b of local government assets are at risk
LGNZ said the data it had gathered confirmed the real challenge for communities was to accept that multi-generational investment for sustainable future outcomes was needed now. It said local governments needed to lead a national conversation about the levels of service currently provided and what could be anticipated in future. “Local government must actively engage with a wide range of stakeholders to inform decisions about how best to prepare for and address rising sea levels.” It wanted central and local government to co-ordinate to establish a National Climate Change Adaptation Fund to improve stakeholder
from a one metre sea-level rise, but we believe the full cost of exposure to central government and private sector property will be in the tens of billions of dollars. "LGNZ has done everyone a service by putting the issue of adaptation to climate change fairly and squarely on the agenda for discussion by all," he said. "This is not just an issue for local government; central government has a key role to play too and ultimately carries the economic, social and political risk if adapting to sea-level rise is not well managed. Every dollar invested to reduce and adapt to risk now will save many more dollars in future post-disaster losses and help avoid social dislocation."
Suncorp reports profit boost Suncorp’s general insurance business has reported a 100% profit jump. Suncorp Group reported net profit after tax of A$250 million ($260m) for the six months to December 31. Its New Zealand business pulled in $120m, up 79.1% on the prior corresponding period. Chief executive Paul Smeaton said it reflected strong top-line growth, the absence of any major natural hazard events and strong ongoing business performance. "We continue to make good progress on our strategy to connect New Zealanders to products, services and experiences that enhance and protect their financial wellbeing.” The general insurance business, including Vero and AA Insurance, returned a profit of $103m, up 106% on the prior corresponding period.
Smeaton said that while the benign weather experience contributed to a strong first-half result, 2018 was the second-most expensive year for severe weather since 1969, with insurers spending $226m in settling claims, according to data from the Insurance Council of New Zealand. "While this is a pleasing result, the reality is that natural hazard events could hit us at any time. We are well prepared to be there for our customers." Smeaton said Suncorp remained focused on building a more resilient business to meet a greater number of customer and business partner needs - across its direct, intermediated and corporate partner channels. "We are well placed to build on a strong first half result and remain committed to being there for our customers in the moments that matter.” www.covernote.co.nz
WHO ARE NEW ZEALAND’S INSURANCE BROKERS IN 2019? By Angela Cuming
uying insurance may be easy enough but buying the right type of insurance is often not so straightforward. There’s a lot a stake when it comes to insurance – choose wisely and a person’s financial security and peace of mind is guaranteed, and a business can survive the lean times but choose poorly and loss of livelihood can loom on the horizon. That’s why a general insurance broker is often the unsung hero of the insurance world. They are the person who is the vital link between a customer and an insurance company, an advocate for their client, the one person who will go into bat to make sure valid claims are paid on time, and fairly. With more than 2500 general insurance brokers working in New Zealand and with issues such as climate change and rising sea levels looming on the horizon, there has never been a busier – or more important – time for the industry. So, what does a typical insurance broker in 2019 look like? Covernote spoke to the industry experts to find out more about the challenges – 10
and rewards – facing general insurance brokers in the year ahead. Gary Young, the Chief executive of IBANZ, says there is no such thing as a "typical" insurance broker, because they come from all sorts of backgrounds. However, there is one thing a lot of insurance brokers have in common – they fell into the profession by accident. “A common response from insurance brokers to the question ‘How did you get into insurance broking?’ is that it was by accident,” Young says. “A lot of brokers seem to find their way into the industry rather than it necessarily being a career choice. For example, when I was on my OE in London, I took temp jobs over the winter I was there, and a couple of those jobs happened to be in insurance. “So, when I returned to New Zealand and needed work ASAP, I took a role in insurance, despite it never being on my radar at school or university. “This ‘accidental’ introduction to insurance and broking is common in our industry.
“But ask any broker and they will tell you that once in, it is seen as an interesting, varied career with many opportunities.” Vicki Squair could be counted as one of the "accidental brokers" who has carved herself out a flourishing career for the past 18 years. Squair owns Risk Advice, a full-service insurance brokerage based in Hamilton, shebegan her working life in a career in sales “I was drawn to something that was less about selling widgets, and more about working with people,” Squair says. “My sense is we are seeing people who are attracted to matching a need with meaningful solution, not merely ‘sales’.” Squair says she has noticed the typical "face" of a broker is getting younger. “This is very exciting for our profession,” she says. “I am also seeing people coming into general insurance broking from different industries, and a few are finally seeing this as a career earlier in their working life, including recent university graduates.” But while the backgrounds of brokers may
Average insurance broker salary in New Zealand; $57,951 (source – PayScale) Demand is best for: • new brokers who don’t mind working in contact centres • experienced brokers who can replace those moving on to senior roles or retiring • commercial brokers with skills in business development Demand may decline due to: • Insurance firms merging and needing fewer staff • Insurance brokers being replaced by technology (source: Careers.govt.nz)
vary, a good broker must have certain traits, says Young. “Professionalism is essential,” he says. “And a good broker must have good listening skills, have an in-depth knowledge necessary to provide competent advice, and excellent relationship skills.” Squair lists empathy, maturity (“in thinking, not necessarily age”), financial literacy and good strategic problem-solving skills as the must-haves for a good broker. “Insurance brokers do come from all walks of life and most of us stumble upon insurance,” she says. “Those of us who stay in the profession do so because we feel like we are making a difference.” With almost two decades of being an insurance broker under her belt, Squair says that the one constant in the industry is change. “It seems like our industry is always changing – mergers and acquisitions, then new start-ups fill the gaps left (thankfully) – this is business,” she says. “Increasing regulation and compliance for the most part has vindicated the brokers who have
been following best practice anyway, but certainly increases a broker’s cost of doing business. “There has been a real shift towards independent brokers, with a greater level of transparency and accountability, which I believe is a positive direction for the profession.” Both Squair and Young list compliance as one of the biggest challenges facing the industry in 2019 and beyond. “As with many professions and industries, compliance is forcing us to spend more time justifying what we do, when most of us just want to get out and help our clients understand their insurance needs and solutions,” Squair says. The increase in compliance is something the industry has not had to deal with in the past, Young says. “The new requirements around competency will be a challenge for experienced brokers whose proof of competency has always been based on their experience rather than formal qualifications,” he says. “Compliance is becoming more and more onerous, running a simple broking company from the kitchen table is no longer an option.
“It will only get worse as regulations become more complex, so back office support to meet these demands is essential.” Remuneration by commission/brokerage is also coming under increasing scrutiny, Young says, and that will be another challenge the industry will face. “There is an assumption that this model produces conflicted remuneration for advisers,” he says. “In general, this is a flawed argument as commissions are essentially paying brokers to handle an insurer’s distribution channel. “However, it is possible that in future new remuneration models may have to be developed to satisfy the pressure from consumer protection groups and government and regulators more focused on ensuring advisers meet client expectations. “Just meeting legal requirements is longer seen as sufficient.” The coming year will also see Big Data and increased technology have an even greater impact on the industry, says Young. “Technology is both a help and a challenge to www.covernote.co.nz
INSURANCE BROKERS IN NEW ZEALAND by region, 2013, number of people employed Provider: Stats NZ West Coast Marlborough Gisborne Tasman Nelson Taranaki Southland Northland Hawke’s Bay Manawatu-Wanganui Bay of Plenty Otago Waikato Wellington Canterbury Auckland
brokers,” he says. “It helps in simplifying, automating many of the day-to-day tasks but the challenge comes in that clients have more options enabling them to go on line and purchase insurance. “Ultimately this will focus the broker on the key role of providing advice. “We have seen legislation in recent years define a broker as a financial adviser, there is a clear push to meet the clients’ expectations.” Amid all those changes, however, a broker will always be able to add value by developing a relationship with a client, understanding their individual needs and meeting those needs,Young says. “In future IT systems will handle sales, brokers will provide advice,” he says. Christine Harrison, a commercial broker with Rothbury Insurance Brokers, says keeping abreast of the dynamic insurance market, business environment, regulation and legislation are some of the biggest challenges facing brokers going into 2019. “That and of course evolving insurance products,” Harrison says. “Keeping all these things in mind and then tailoring solutions that really serve my clients and provide a safety net if things go wrong. “Being a broker in Wellington also presents additional challenges because of the local environment and what that means in terms of pricing and cover. “I think there will be continued challenges in terms of pricing for risk and what that means for our clients. “Cyber is a big one too – we’re seeing an escalation of cyber breaches and yet so many clients remain exposed and don’t have adequate (or any) cover. “At Rothbury we’re always looking ahead so we can give the best advice to our clients and 12
ensure they’re fully protected.” Guy Worsley, Rothbury leader business Development and Sales, Senior Commercial Broker - Southern Lakes, says the hardening market means it’s even more important than ever to educate clients on the need for certain insurances. “The cost of not doing can be far greater than the premium being paid,” he says. “Over the last few years, we’ve seen the result of underinsurance in natural disasters and bad weather events, and for some small businesses who are left exposed after a cyber breach.” But along with challenges come great career opportunities for insurance brokers, says Harrison. “It’s the kind of occupation that has lots of scope for career development,” she says. “I started out as a domestic broker and have now worked in lots of roles in the Rothbury business, giving me a broader understanding and knowledge base. “You could come in as an 18-year-old and really have a fulfilling evolving career.” Worsley says the opportunities are “huge” for insurance brokers. “Don’t listen to the hype,” he says. “As a broker I embrace change and technology; I know that increased automation will only help those brokers and clients willing to adopt,” he says. “In 1973 the spreadsheet was going to be the demise of accountants, and in 1979, video was going to kill the radio star. “Accountants are still alive and kicking; radio is still around, and brokers who forge trusted relationships with clients, underwriters and risk providers will be rewarded with opportunity.” Being small, New Zealand offers less opportunities than overseas markets for specialising in particular lines of insurance, says Young. “However, some brokers concentrate on particular areas such as liability insurance or
perhaps cyber, but more common is having a focus on a commercial or professional sector such as rural or legal,” he says. There is “definitely” a progression from junior to more senior roles, Squair says. “Business ownership and corporate management roles are options,” she says. While the career opportunities for insurance brokers are plentiful and clear, what is less easy to ascertain is exactly what a broker gets paid. It can be hard to say what the average yearly earnings for a broker are, says Young. “But there is plenty of potential for well-paid roles,” he adds. In the meantime, all eyes will be on the reaction here to the recent Australian Royal Commission final report, which detailed several recommendations for the insurance sector across the Tasman. General insurance products are set to be reviewed in three years’ time, though a ban on commissions hasn’t yet been ruled out by the Australian Securities and Investments Commission (ASIC), one of the country’s main regulators. New Zealand regulators will be paying close attention – though what direct action they will take as a result, if any, remains to be seen. An impact on general insurance brokers, is, however, expected. Insurance brokers have been known to suffer unsympathetic Hollywood portrayals of ambulance-chasing hustlers who care only about making commissions. Untrue, of course, but if there is one misconception about brokers Young and Squair would like to clarify, what would it be? “For those outside the broking profession, I think there is the misconception that insurance is a boring office job and inevitably there are some desk-bound tasks,”Young says. “However, broking is so much more. It is about developing relationships with clients from all types of backgrounds, industries, professions with needs for a wide variety of risk solutions. “That is what makes it such a fascinating career.” Harrison agrees. “I think it sounds like a dry occupation and I’d want people to know that it’s actually anything but,” she says. “Insurance broking covers so many things and is really interesting. “I get to work alongside businesses and partner with them to work out the best protection not only for that business but also for the owners and directors. “It also means I get to learn a lot about different industries and get to meet some incredible people.” Squair says she would like people to know that insurance brokers care about their clients and “not the bottom line”. “We love people, not insurance,” she says.
NZI DISCOURAGES USE OF FLAMMABLE INSULATED PANELLING R
ecent apartment and factory fires around the world, resulting in millions of dollars’ worth of property loss and in some cases, the loss of life, have resulted in a worldwide debate over the safety of insulated panelling. Insulated panelling is used extensively throughout New Zealand, especially to support key industries like dairy, meat and seafood processors, wineries, cool stores and other food-related businesses. One of the most common materials used in the core of the panelling is expanded polystyrene (EPS), which is highly combustible. One of Australia’s largest meat processors, Thomas Foods’ abattoir caught fire last year, resulting in tens of millions of dollars’ worth of damage. Fire investigators determined the blaze was started accidentally by a worker who was welding an offal bin. It unfortunately went through a wall with EPS insulated panelling and spread through the premises extremely quickly, putting factory workers lives at risk. Luckily no one was hurt, but the company was left with a hefty damage bill. Bryan Tedford, NZI’s national business continuity and asset protection portfolio manager, says once a fire begins, EPS panels melt quickly and release vapours, which can increase the spread of a fire throughout an exposed building. “The fire will spread throughout the building in just seconds, which not only results in major property loss, but also puts people’s lives at risk.” Tedford says it’s important all businesses using insulated panelling are informed on how to manage exposure. “Wherever possible, our advice to those planning to construct with EPS, is to substitute for a non-combustible panel like PIR. “For insulated panelling sites, risk management is a priority, so businesses should also be safeguarding themselves with an approved sprinkler system, regular preventative electrical inspections and implement formal hot works procedures.” Tedford says NZI has reviewed the way it insures properties with insulated panelling and this is intended to encourage clients to use safer alternatives to EPS. “NZI clients who use preferable panels like PIR and/or safeguard their premises with approved risk management requirements, will have higher limits available to them for material damage and business interruption (combined limited) insurance than those premises that don’t.” He says it’s a common-sense approach and one that fits with parent-company IAG’s purpose to make the world a safer place. “We’re realigning our risk appetite to ensure we can continue to offer cover for our clients and keep New Zealand safe.”
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NEW INSURANCE PRODUCTS
VIRTUAL AND INTANGIBLE By Michael Botur
New products available to insurance brokers in 2019 are a sign of the times, with many products responding to increased use of sophisticated technology in business. Some of that technology is virtual only. CYBER COVER IS HERE; CRYPTO STILL TO COME Great technology comes with great responsibility, and the insurance industry calls this “emerging risks”. While self-driving cars aren’t quite in New Zealand yet, RMA General Whangarei branch director Alvin Johnson said there was risk from online tech. This was making intangible threats feel very tangible. Products offered by AIG and NZI respond to the far-reaching consequences of a digital attack on a business. Their cyber products cover • First and third-party liability • Business interruption protection • Public relations professionals to minimise reputational damage • Loss of personal or corporate information • Defence costs • Cover for IT experts to fix computer systems • Fines and penalties incurred from a privacy breach • System damage, destroyed IT systems, records and data • Liability arising from hacker attacks or viruses. 16
Social media misuse is part of this. NZI’s Cyber Ultra, for example, covers “Loss caused by rogue employee or [rogue] third party.” One of the most recent and costly cyber attacks was at Christchurch’s Cryptopia on January 14 2019, where $3.7 million of cryptocurrency appears to have been stolen. Delta Insurance chief executive Craig Kirk said while cryptocurrency was a “very tough” asset to cover, and an underwriter might have to be found overseas, malware was a real Kiwi problem with real New Zealand coverage. Sometimes that malware comes with extortion and is known as ransomware. That’s when cyber cover is needed. Malware led Australian HR software company PageUp People to warn tens of thousands of job applicants about a possible breach of their private data after a May 23 2018 breach. “The insurer will often pay the ransom then try recover it,” Johnson said. This isn’t simply feeding the ransomers, however – coverage can only be approved if customers have backups and security up to date.” It ties in to a greater trend whereby “people can have financial loss
now due to something that’s happened online, it wasn’t tangible, no one physically had to do anything,” Johnson said. “A lot more products coming out these days have less to do with property damage or loss.” Whereas builders liability insurance used to be about protecting buildings, these days the risk is “you are more likely to be sued then a physical loss.” INTELLECTUAL PROPERTY Delta Insurance chief executive Craig Kirk told CoverNote another very abstract asset - intellectual property - had recently become an essential part of New Zealand business insurance for many due to the massive legal expenses IP disputes can incur. Kirk said Delta Insurance was the first to offer an IP product in New Zealand. When launching its IP Legal Expenses product at the end of 2018, Delta said it was “filling a serious gap in New Zealand’s insurance market […] 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 cited Marmite, Whittaker’s, Wattie’s and Gallagher’s electric fence systems as examples of trademarked IP and said “Kiwi luxury consumables like manuka honey, chocolate, and wine are commonly devalued by knockoff products and trademark theft.” Delta also said intangible assets such as patents and trademarks “made up almost 87% of the corporate value of Standard and Poor's 500 companies in 2015”. With research and development on the rise in New Zealand, “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”. “Forty years ago the vast majority of business assets were in property, they were tangible, but now it’s data and tech,” Kirk told CoverNote. IP coverage provides “a war chest to enforce your rights” when someone infringes on, borrows or steals registered identifiable forms of IP such as trademarks and registered designs. “The flipside is if you are sued, it gives you expenses to defend that.” www.covernote.co.nz
FOOD MANUFACTURING LIABILITY Food manufacturing liability covers product recalls, pollution, and crisis management. There were 10 to 20 food and consumer product recalls each month in 2018 in NZ alone.This cover could be needed in an era in which: • Fonterra was ordered to pay 105 million euros in damages as a result of a whey protein contamination and botulism scare in 2013 • Needles were found in strawberries in Queensland in September, leading to a government-ordered recall which hit not only growers but retailers Crombie Lockwood offers Foodsure while Delta’s product is Food Manufacturing Liability Insurance with two subsets– food and beverage and non-food and beverage. Kirk said Delta’s product “is unique in that is bundles up a range of products. It’s covering product recall when they’ve been tampered with; product defects when products don’t work; and pollution from the manufacturing process. Also crisis management – expenses incurred front-footing media and dealing with negative publicity.” PERSONAL HOUSEHOLD CYBER INSURANCE An October 2018 NetSafe report found cyberbullying costs $444m per year. Now personal cyber insurance for individuals in a household - offered
ransomware – Percy covers restoration and replacement of damaged items. It also covers identity theft and financial loss. It’s quite broad.” DRONE INSURANCE For every industry using drones in business, insurance needs to follow. With drones a staple of sporting events, film and TV production, real estate photography, land and building surveying, oil and gas, agriculture and emergency services. An insurance product covering drones has been badly needed as more and more industries utilise drones. The difference between coverage for remotely piloted aircraft systems (RPAS) and unmanned aerial vehicles (UAVs) is worked out according to the weight of the drone. The insurer may require the customer to undertake a course such as the CAA’s 101 course (aka Drone 101) to obtain certification to fly a larger vehicle. Coverage is for: • Aircraft hull liability • Aviation risks presented need to be detailed in each policy • Complete operating system, including airframe, payload, launch station, UAV spare parts and ground control station are specified and covered • Drone insurance is packaged-up with related coverages including employer’s liability, cyber liability, professional indemnity
widely around the world - has arrived in New Zealand. Delta Insurance is again leading the underwriting of what it calls PerCy, launching March 2019. “It includes a risk management solution – we can help you frontfoot improving your risk position so your network is secure, configured correctly,” Kirk said. “We looked at it because we’ve been in commercial cyberspace – but these same issues affect people at home. Viruses,
• Drone insurance can provide extensions covering statutory liability and liability stemming from privacy issues regarding the use of UAVs – liability under laws regarding civil aviation, privacy, resource management and health and safety E-BIKES AND E-SCOOTERS – UNIQUE POLICY PRODUCT FROM MID-2019? NZ Brokers told CoverNote that, in September 2018, their analysis of
home and contents policies found complexity and variation in policy wording, meaning many e-bike and drone owners can find themselves unexpectedly without cover for loss, damage or third-party liability if they make a claim around an e-bike incident. This is despite contents coverage for an e-bike up to $5000 and liability up to $2m. Most insurers, including AA Insurance, currently treat electric bikes and electric scooters as regular bikes and scooters. Technical manager for NZ Brokers John Davison has an update on this, saying drones, e-bikes and e-scooters will be re-examined with new wording mid-year. “NZI and Vero have come out and said they would cover them but that’s not yet covered in the wording,” Davison said. “We’re looking at getting wording to keep up to date.” Davison said he expected revised policy wording to come out at the same time as the Earthquake Commission Act which will be phased in beginning July 1, 2019. This act removes EQC contents cover while increasing building/dwelling cover. With any policy, Davison said “it’s quite a process to change wording. It’s not only a change of policy but also a change of systems.” Insurers have to pass some costs back to EQC and some to consumers, Davison said. Land Transport User Rules currently define an e-scooter as having an engine under 300 watts and users are not required to wear a helmet when riding them. Due to their wheel diameter, they can be used on the road, footpath, cycleways and shared paths. WEDDING, OUTDOOR EVENTS AND HOLE-IN-ONE INSURANCE Dream Wedding Insurance co-founder Stuart Catt estimated the average cost of a Kiwi wedding at around $30,000. So, after many an upset client asked brokers to find policies to cover rained-off events over the past few years, insurance products for weddings emerged in 2018, building upon pluvious insurance. Dream Wedding Insurance co-founder Graeme Dean added that since most couples planned a wedding for at least 12 months, wedding insurance was designed to compensate for irrecoverable deposit costs, damage to rings, gowns and catering, supplier failure, stolen items and transport costs. Related to this, prize indemnity can be written into an outdoor event policy where an event has a prize paid for. Prize indemnity means promoters pay a premium to an insurance company who then reimburse them should a prize be won. Hole-in-one insurance is a popular spinoff whereby a prize gets paid for by an insurer should a golfing hole-in-one prize be won. AIRBNB COVERAGE COMING SOON? Changes to the mid-year EQC residential building cap will majorly affect the price of insurance products covering claims around AirBnB rentals, so we can anticipate an AirBnB-focused product. NZ Brokers’ John Davison said insurers of AirBnBs “want to know how long the rental is going to be rented out for. Short time: not a problem. Long time and not managed by the owner? Then there are repercussions.” “Until now the EQC Act hasn’t covered them.That’ll be clearer when the new Act comes out.” The four EQC Act changes are: • An immediate extension of the timeframe for lodging a claim from three months to two years. • Provide EQC scope to share information as necessary to settle insurance claims; • Removal of the $20,000 EQCover for contents from uly 2019 • An increase in the cap on EQC residential building cover to $150,000 from July 2019. PANTONE 2727C
NAVIGATING INTERNAL CONNECTEDNESS Nicholas Moss, director, financial services audit, KPMG
he 2018 KPMG Global Chief Executive Outlook, which surveyed 1300 chief executives, including 50 New Zealand chief executives, found that eight-in-ten insurance chief executives believe they are now meeting (or even exceeding0 their customers’ expectations for a personalised experience. For an industry where connection to customer hasn’t always come easily, this dedication is clearly paying off. In a recent KPMG International survey of nearly 55,000 customers across 14 countries, insurance brands were ranked first for customer
experience across all sectors in four of the 14 countries. Clearly with the right support and direction from their C-suite, it is possible for insurers to differentiate themselves based on customer experience. FIRSTLY, WHAT DO CUSTOMERS WANT? What chief executives are telling us is that it takes more than just good customer service and fast claim processes to deliver a truly differentiating customer experience in the insurance industry. Rather, it requires insurers to radically sharpen their value proposition in a way that responds to
their target customers’ expectations. That won’t always be easy; it will require insurers to meet customer expectations from beginning to end. So what does this mean? In part, it means becoming better connected to their policy-holders and insured risks. The emergence of smart home technologies, autonomous cars and the shift towards the sharing economy are already changing the dynamics in the non-life sectors. The introduction of wearable technologies and the adoption of health and fitness apps may lead to similar changes in the life sector. It also means becoming a more connected enterprise –
from a data, IT and systems perspective, as well as from a vision, culture and objectives perspective. The reality is that customer expectations are not easily met when organisations operate in silos; those that are able to connect and align their organisation behind their customer agenda stand to gain the greatest traction with their target customers. DIGITAL TRANSFORMATION – DIGITAL WINS The survey shows that something has changed for New Zealand chief executives around digital transformation, and it’s a step backwards. Compared to their global cohort, and their
own responses from a year ago, New Zealand chief executives have lost confidence in their organisations to deliver digital transformation. If digital transformation is focused on enhancing customer experience, developing new products and services, or re-inventing internal processes, the survey data tells a concerning story for New Zealand organisations. In the 2017 survey, 88% of chief executives surveyed were confident they were disrupting their sector rather than waiting to be disrupted. In 2018, that has dropped to 28% - a major change in sentiment. A little more than half of New Zealand chief executives (58%) are “personally prepared to lead their organisation through a radical transformation of its operating model to maintain competitiveness” compared to a global metric of 71%. Perhaps more concerning is that only 26% of New Zealand chief executives are “confident that existing leadership is fully equipped to oversee the transformation” compared to a global response of 44%. Yet, the data suggests that New Zealand chief executives understand the challenge, with nearly all (98%) viewing digital transformation as an opportunity rather than a threat. However, the majority (64%) acknowledge that their organisation is struggling to keep pace with technology innovation (versus the global response of 36%). There will be a number of factors behind these survey results but I wonder how much impact legacy systems have on our confidence to execute digital transformation? TRANSFORMING THE LEGACY PLATFORMS Legacy insurance platforms are built on sustainable and scalable mainframe technologies suited to processing a large volume of transactions. However, as a result of historical mergers and acquisitions, pressure to launch new products under time constraint and the need to fulfil specific distribution channel requirements, most legacy systems have added peripheral features, become siloed across lines of business and bound by inflexible integrations. As insurers embrace the new digital future, change to the organisation’s technology infrastructure becomes increasingly critical not only for current performance but also long-term viability and competitive differentiation. So where to from here? Organisations looking to evolve their tech stack to keep pace with current innovation are recommended to: TAKE A HOLISTIC, TOP-DOWN VIEW Legacy platforms such as policy administration systems touch upon many areas of insurance value chain and affect multiple operating layers: not only technology but also customer segment, channels, process, people and organisation. To capture all possible options of
transformation, organisations should look at the issue from the perspective of optimising the overall operating model rather than treating this as a system upgrade or replacement endeavour. CLARIFY THE OBJECTIVE AND OPPORTUNITIES Each insurer has unique motives for legacy transformation. Some may plan to divest noncore lines of business or the legacy book of business in a future timeframe, while others are looking to launch new products targeting new customer segments via new channels. These parameters will determine the archetype of legacy transformation, such as the two-speed model where legacy portfolio is ringfenced from the strategic growth platform, as well as the sequence of migration. LEVERAGE EMERGING API TECHNOLOGIES As an alternative to full system replacement, organisations should look to use open APIs to repurpose and modernise existing legacy systems. Open APIs can help downsize legacy functionalities, integrate InsurTechs’ advanced innovations, and minimise disruption during the transformation process. PROMOTE BUSINESS ACCOUNTABILITY To better respond to evolving customer and market needs, the business needs to be involved in key aspects of solution delivery. It has been some time since we heard ‘agile’ among insurers, and organisations have been trying to find the right agile model for their businesses. While it works well with front-end applications, a pure agile approach often poses a challenge for the back-end core insurance platform. Organisations should consider alternative ways to promote business accountability in core insurance applications, delivering a clear direction for the legacy transformation blueprint based on true market needs. CREATE A STRUCTURE THAT SUPPORTS INNOVATION ACROSS THE ORGANISATION While leadership is critical for any innovation or transformation process, sometimes the topdown approach can create disconnects at the local level. Information and feedback from local businesses needs to be fed into the larger innovation process to ensure that the strategy is relevant to the on-the-ground needs of the local office. When approaching the transformation process, organisations should consider a satellite model for innovation where a centralised R&D team works in coordination with the business to develop the innovation strategy. Responding to evolving customer expectations and shifting market pressures requires insurers solve legacy platform challenges www.covernote.co.nz
and create a nimble, sustainable and connected platform. Whether investing in customer-facing digital apps, intelligent automation to streamline processes, smart contracts for claims, or more, it is critical that insurers take the optimal approach to transform legacy and accelerate the delivery of exemplary service in pursuit of the corporate vision CULTURE AND WORKFORCE TRANSFORMATION – SHIFTING SANDS Clearly, it is possible for insurers to differentiate themselves based on customer experience. What is also clear is that differentiation will not be achieved through a single “silver-bullet” solution. It will require far broader transformation – transformation of all aspects of the business. Whilst 58% of New Zealand chief executives are personally prepared to lead a radical transformation of their business to maintain its competitiveness, more than 70% of global chief executives are making transformation a personal priority. But it’s hard. Our chief executives highlight the importance of acting with agility, linking growth strategies to societal purpose, and improving how market disruption is monitored. Almost all New Zealand chief executives are finding the lead times to achieve progress with transformation projects “overwhelming”, and technology is not the only source of disruption. And although only 8% of New Zealand chief executives view talent as one of their top three risks, a third don’t believe they have the right leadership team to oversee transformation, and over three quarters think their board’s expectations of return on investment from transformation is “unreasonable”. Chief executives need to ask if their culture, strategies and business models are facilitating growth or inhibiting it. And they need to ensure efforts to improve supply chains, embed smart technology and go digital are not just internal projects but are responsive to the needs of their customers – and executed fast enough to ensure their customers don’t become their competitors’ customers! Transforming an insurance company takes more than new technologies and new business processes. It also takes an entirely new approach to workforce planning and development. It’s one thing to acknowledge that processes and capability requirements are changing – are you ready to start making major changes to your workforce today? THE BOTS ARE COMING, AI IS A SLOWER BURN For years, experts have forecast that robots would invade the workplace, and now, the fact that automation will soon be embedded in processes across the insurance organisation is 22
undeniable. While the basic automation referred to as bots is more prevalent, it is clear that artificial intelligence (AI) is starting a slow steady move into the world of insurance. Our Global Chief Executive Outlook Survey indicates that 12% of insurers have already started to implement AI in some of their processes and another 51% have started limited implementations around the organisation. More than half also say they expect to start seeing significant returns on their investments into AI within the next three years. One would expect this massive rate of automation to have some very significant impacts on the workforce. For one, new skills and capabilities will be required.The chief executives in our survey were quick to note they would need more data scientists, more cyber security specialists and more digital transformation managers in particular. Yet, at the same time, exactly half of our respondents admitted they probably wouldn’t start thinking about hiring these new skills until they start to achieve certain growth targets. My concern here is two-fold: first is that they will not have the skills required to help them achieve their transformation goals; the second is that they may join the war for talent too late to score any significant wins. LOOKING AT THE LEADERS In the end, the answer for most insurers will likely be a combination of multiple strategies. Automation will be applied everywhere; employees will be retrained where possible; contingent workers and partnerships will be used to fill gaps; new roles and ways of working will be developed. Based on our work in the industry, here are five things that many of the leading insurers are getting right as they start to think about creating the optimal insurance workforce of the future: • They are breaking down the silos. The leading insurers recognise that their workforce needs to be aligned around the customer, not the business function. And that means finding ways to remove the traditional functional barriers and silos. • They are integrating their workforce plan into their transformation journey. Leading insurers develop their workforce plan alongside their transformation strategy, ensuring they have access to the right skills and capabilities at the right time in their transformation journey. • They are finding the right balance between growth and cost/disruption. They are carefully and deliberately adjusting their workforce and their capabilities to grow in line with the demands of the business (reflecting the growth/cost balance). • They are thinking about the workplace dynamics. Recognising that the workplace
of the future will also change, the leading insurers are now thinking about how they engage and motivate employees that may not work in an office or may not even be human. • They are encouraging a culture of innovation. The leading insurers are proactively addressing employees’resistance to change and fears about automation by encouraging innovation and transformation across the enterprise TOO LITTLE, BUT NOT TOO LATE Many insurers are making transformational changes. But in our experience, few are doing it at the scale required to achieve true enterprisewide impact. When we talk to insurance chief executives, they are often quick to share their innovative pilot projects and capabilities. But there is often a struggle with how to leverage these new technologies and capabilities across the enterprise. Insurance leaders recognise the challenge; 47% of the chief executives in our global survey told us that most of their technology investment is tactical - focused on solving today’s business challenges - rather than strategic and focused on a long-term plan. And in a separate survey of insurance CIOs conducted by KPMG International and Harvey Nash, just 28% said they had a clear enterprisewide digital business vision and strategy. IT ALL STARTS WITH BALANCE Fundamentally, this comes down to the ageold challenge of balancing cost against growth and risk against opportunity. Insurers know they need to transform in order to grow in the future, but they hesitate to disrupt their current books of business or business models. They seem to want to implement new technologies across the enterprise, but aren’t yet willing to tear out their legacy systems and rethink their IT estate. They also seem keen to capture new capabilities and skills, but are slow to hire until they see positive growth. Every insurer struggles to find the right balance. Yet, in our view, finding that balance will be the defining challenge facing insurance chief executives over the coming decade. And it will permeate almost every decision they make as they work to execute (and, where necessary, pivot) their transformation journeys. DATA TRANSFORMATION – DATA VERSUS INTUITION The explosion of “big data” and the increase of computing power has allowed us to make advances in machine learning,AI and automation. These analytical techniques can be applied to everything from predicting which valuable customer might leave, to anticipating the next best product.
With this increasingly data-driven and rational approach, it’s easy to wonder if there will still be a place for intuition in the future of business. There clearly is. Nearly three quarters (74%) of New Zealand chief executives have overlooked insights provided by data analysis or computerdriven modelling because they were contrary to their own experience or intuition. One way to approach this is to think of intuition as a starting point and input to decision making. For example, a hypothesis is an intuition about what is going on in your business, where the risks, issues, and opportunities may be, which products to develop, or which future direction to take.You can test these hypotheses by performing experiments, gathering and analysing the data. The combination of intuition and information remains powerful. As analytical tools and approaches become more intuitive, through the rise of “augmented analytics”, increasingly we will see that the combination of humans and machines working in unison gives rise to the greatest success. Integrating risk, finance and actuarial for data transformation Leading insurers are talking about integrating risk, finance and actuarial operations with the aim of securing a single, consistent, and multidimensional view of their business. Until relatively recently, insurers have regarded data management activities as primarily operational rather than a potentially valuegenerative asset. In this context, individual functions have been allowed to remain entrenched in their own siloes, building data structures that work for them but not for the enterprise as a whole. There are many benefits of risk, finance and actuarial joining forces to add value to the business and help make better and faster decisions: • Risk, finance and actuarial integration can deliver a much more consistent and standardised view of the risk-adjusted returns insurers are achieving throughout their business; • Data transformation provides crucial insight into customer behaviours, enabling the development of better products; • Exploiting these gains will make it possible to allocate capital much more efficiently; • Integrated ways of working and a common infrastructure will not only improve control but will undoubtedly lead to elimination of duplication and efficiencies. The case for integration is further strengthened by the increasing regulatory demands for transparency. Insurers must not only meet more demanding reporting requirements
but also build understanding of the implications of their reporting throughout the business. This will ensure business leaders have a much clearer understanding of the impact on capital of their decisions. As the reporting regimes of risk, finance and actuarial continue to converge, maintaining separate reporting structures is not sustainable. Envisioning a new model for integrated risk, finance and actuarial Few insurers have set out a vision of an integrated risk, finance and actuarial function, let alone begun to move decisively towards it. However, it is possible to draw on the learnings of those organisations that have already embarked on the transformation journey to think about what an integrated function might look like. This will be a significant exercise, carving out resources from each function – and augmenting those resources with new talent – in order to create an independent new function. This function will have operational responsibilities to risk, finance and actuarial but will not reporting directly to either. The aim should be to create a shared service that is capable of providing data quality and data management services as well as integrated reporting and advanced analytics functionally to every other part of the organisation; not only risk and finance. The newly integrated function will be the insurer’s data management “Centre of Excellence” with a single underlying structure. Staffing the new function will require the relocation of key personnel from risk, finance and actuarial. But these individuals will need to have both the right skillset for their roles and the adaptability to ensure a good cultural fit. Insurers will also seek to recruit new talent, securing new skills in areas such as data science and advanced analytics. Therefore, it will be crucial to ensure such a function is widely regarded as an attractive place to work, both to persuade existing staff to consider transferring and to attract new talent. This imperative underlines the need to shift the narrative around data in insurance. The insurers support for – and incentivisation of – staff employed in this data Centre of Excellence will represent proof for its claims that data really is now seen as an asset where value is created. Meanwhile, separate risk, finance and actuarial functions will remain in place. These functions will be smaller and leaner than in their previous incarnations but also more specialised. Empowered by the improved quality and granularity of data insights available from the new function, risk, finance and actuarial will have opportunities to create additional value of their own. For the organisation as a whole, this will be a profound transformation.
The opportunity is to create an enterprisewide asset that delivers greater actionable insight than existing functions could hope to create individually. Its activities will go to the core of the insurers operations and strategy, including management of capital – far beyond work that could comfortably be procured from third party providers or advisers. MAKING THE TRANSITION There will inevitably be challenges to face in the move towards integration – both organisational and technical – but these can be overcome if clarity of vision and purpose is in place from the beginning. Above all, this is a transformation project that will require leadership buy-in and support right from day one. Not only is this an enterprise-wide decision that must come right from the top of the business – the C-suite, including both CFO and CRO – but it will require strong leadership to keep the transformation process on track. The entrenched interests in existing structures and silos may be powerful; to prevail leaders will need to invest considerable energies in convincing the organisation that transformation is required Significantly more than half (64%) of New Zealand chief executives perceive that growth over the next three years will be harder earned than ever before, more than double the global average.The challenge of moving toward an agile business model and linking the growth strategy to wider societal purpose were two themes which underpinned the responses to this question. New Zealand’s chief executives are conscious of the need to respond to change by fostering innovation and building agility but are equally conscious that the ability to achieve growth at scale in the domestic market is limited. Accordingly the combination of the domestic and global outlook means New Zealand’s chief executives are now looking for “realistic growth”. Given that New Zealand has come through a period of robust growth, a little tempering of confidence is both realistic and expected. It’s also an opportunity for us to refocus our collective attention on what’s needed – and relentless focus on the customer and using technology to deliver an outstanding customer experience are certainly fundamental principles for us to focus on.
Nicholas Moss is a director at KPMG New Zealand, and a senior leader in their insurance practice. This article has been republished from the latest KPMG General Insurance Update.
NZI HELPS STEER THE WAY IN DEVELOPMENT OF A NEW ROAD SAFETY STRATEGY
018 was a shocking year for road fatalities, with almost 400 deaths. It’s the highest road toll in eight years. As a result, the Government is looking into taking up the "Vision Zero" approach to road safety. This would set a long-term objective of eliminating all road deaths. Ian Taylor, NZI’s national portfolio manager - commercial motor and Richard Jones, NZI’s national manager - motor assessing, recently took part in industry groups to help the MOT and NZTA develop the newroad safety strategy. Five reference groups were established to discuss key road safety issues and identify priorities and potential interventions. In his role, Taylor sees the consequences of serious road crashes almost every day and believes we can’t be complacent when road deaths are on the rise. “There’s a real sense of urgency around improving safety on our road network.We need to make changes to ensure New Zealanders can get from A-to-B safely.” Taylor was involved in the Vehicles as a Workplace group, and Jones contributed to the Vehicles Standards and Certification group. “We know the main issues are around how long-distance drivers are driving, distractions (especially cell phones) use of driver monitoring 24
telematic systems, fatigue, and a general lack of awareness of vehicle and driving risks by employers,” says Taylor. “We spoke about options for accelerating the uptake of safer vehicles and safety technologies including advanced driver assistance systems. We also discussed how in-service vehicle testing (WOF/COF) might be improved,” Jones added. Taylor says being involved with the workshops fit well with NZI and IAG’s purpose of making the world a safer place. “Insurance is about being there for New Zealanders when they need us most, and at NZI this also means continually looking at how we can improve driver safety and prevent accidents. “Our Fleet Fit programmes are aimed at improving driver performance and creating a safer and happier workplace and are available for all NZI customers, but we know that change also needs to be made at government level to create safer driving conditions. “I’m pleased we’ve been able to contribute to these workshops to help shape government policy.” Thanks to the industry group’s insight, MOT and NZTA will now make recommendations to Government Ministers. The formal strategy will be released later this year.
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WHAT’S ON THE REGULATORY HORIZON?
By Jemimah Giblett, solicitor, Maria Collett-Bevan, senior associate, and Kara Daly, special counsel at Minter Ellison Rudd Watts. FINANCIAL SERVICES LEGISLATION AMENDMENT BILL (FSLAB) The FSLAB remains before the Committee of the Whole House for consideration and is expected to be progressed during the first quarter of 2019. However, it is possible that the passing of the legislation may be delayed if the Government wishes to use the FSLAB as one of the vehicles to address any of the regulatory gaps identified by the FMA and RBNZ in their reviews of bank and life insurance conduct and culture, or any of the recommendations of the Australian Royal Commission (the Hayne Commission) that the Government considers to merit adoption in New Zealand. On December 13, 2018, a discussion paper was released on the proposed financial advice provider transitional and full licensing fees and changes to the FMA levy that will apply in the new financial advice regime. To the extent an insurer provides regulated financial advice to retail clients, it will be required to be licensed as a financial advice provider. The discussion paper proposes a flat transitional licence application fee, with additional fees charged for each authorised body included in a licence application and any later applications to vary licence conditions or add (or remove) an authorised body. The application fee for a full licence will depend on the size of the adviser business, the amount of authorised bodies named in the application and whether the business engages nominated representatives and/or financial advisers to provide financial advice services. A full licence applicant may also incur an additional hourly fee where the licence application is complex. The FMA levy proposed is a base levy for each financial advice provider with additional amounts applicable where the financial advice provider gives advice on its own account or where it has nominated representatives. Financial advisers will also be required to pay the FMA levy separate from the financial advice provider. AMENDMENTS TO THE FIRE AND EMERGENCY NEW ZEALAND ACT 2017 (FENZ ACT) On November 7, the Fire and Emergency New Zealand (Levy) Amendment Bill passed its first reading. The commencement date of the proposed changes to the levy system is likely to be brought back by one year, to July 1, 2020, with a backstop date of July 1, 2021. The bill is now before the Governance and Administration Committee with the report due back on April 1. 26
AUDIT REQUIREMENTS FOR INSURER DATA RETURNS On October 24, 2018, RBNZ released their decisions after considering submissions on the consultation paper (October 2017) on audit requirements for insurer data returns. RBNZ has decided to defer the introduction of the audit requirement for the insurer return. UPDATED SOLVENCY STANDARDS FOR LIFE AND NON-LIFE INSURANCE BUSINESS The Solvency Standards for Life and Non-life Insurance Business were amended on November 23 to: (a) include changes as a result of the new lease accounting standard NZ IFRS 16, including an additional change to the treatment of leases of intangible assets, with effect to reporting periods that begin on or after 1 January 2019; (b) consolidate the non-life catastrophe risk charge loss return period within the Solvency Standard for Non-life Business 2014; and (c) include the requirement that a licensed insurer engage an auditor to undertake a “reasonable assurance level audit” of the annual solvency return. REVIEW OF INSURANCE CONTRACT LAW AND THE INSURANCE (PRUDENTIAL SUPERVISION) ACT 2010 At the date of this article, there are no developments that we can report on with regard to the RBNZ’s review of the Insurance (Prudential Supervision) Act 2010, or the review of insurance contract law being undertaken by the Ministry of Business Innovation and Employment. However, the progress of the insurance contract law review may well now be slowed down by the need to take into account the findings of the FMA and RBNZ as part of their recent reviews of bank and life insurance conduct and culture, as the Government’s announcement following the life insurance review that it would fast track legislation to address the regulatory gaps identified by the regulators during these reviews, and the most recent announcement by Government that it would look closely at the recommendations of the Hayne Commission in its final report, and whether any of those recommendations should also be adopted in New Zealand. This piece will also be published in MinterEllisonRuddWatts’ next Cover to Cover issue.
THE DUTY OF DISCLOSURE WILL IT BE MODERNISED AT LAST? By Nick Frith, senior associate, and Andrew Horne, partner, Minter Ellison Rudd Watts
THE LAW COMMISSION PAPER A little over 20 years ago, the Law Commission published a paper with a title that hinted only vaguely at its contents: “Some Insurance Law Problems”. It examined five unrelated aspects of insurance law that were generally accepted as problematic, with the potential to produce unfair outcomes. The first issue discussed was the most problematic and contentious: an insured’s duty to disclose material circumstances to an insurer. Then, as now, under New Zealand law an insured owed an insurer a duty to disclose circumstances that a reasonable insurer would regard as material to its decision to accept the risk insured. The Law Commission identified four problems with this approach: • what the insured is obliged to disclose is uncertain • an insured’s honest ignorance of what it must disclose will not assist if it fails to make the necessary disclosure • where an insurer asks specific questions of an insured, the insured till has a general duty of disclosure in addition to answering the insurer’s questions • a breach of the duty may have disproportionately harsh consequences for an insured, as the insurer is entitled to treat the policy as void from the outset even if it would have accepted the policy had it known the relevant facts (albeit on different terms, such as a higher premium). The Law Commission observed that non-disclosure issues were one of the main reasons for complaints to the Insurance Ombudsman (now the Insurance and Financial Services Ombudsman). Reference was made to judgments in which the Courts had remarked upon the unfairness that resulted where insureds innocently failed to appreciate that circumstances outside the questions asked by the insurer, such as prior criminal convictions, were considered material by insurers. The Law Commission discussed a number of possible reforms, including the following: • limiting the duty of disclosure or changing what was considered material • warning insureds of their duty more clearly • requiring insurers to set out expressly what they required to know in questions (in effect, abolishing the duty and replacing it with an obligation to answer specific questions truthfully) • limiting the consequences for insureds of getting it wrong The proposals made were, in short, the following: • insurers would have 10 working days in which to pose specific= questions to the insured and have them answered - within this time period the insurer could cancel the policy from the outset if it did not find the answers acceptable • only an inaccurate answer or “blameworthy” conduct would entitle an insurer to cancel a policy from the outset. Blameworthy was intended to mean circumstances where the insured knew, or a reasonable person in their position would have known, that the undisclosed circumstances would be material to an insurer
HOW THE ISSUE HAS BEEN DEALT WITH IN THE UK AND AUSTRALIA In the intervening years, both the UK and Australia have passed legislation to amend the duty of disclosure. Their approaches, in short, are as follows. In Australia, the insured’s duty is limited to disclosing circumstances that the insured knew or a reasonable person in their position would have known were relevant to the insurer’s assessment of the risk. The insurer must inform the insured of this obligation. Furthermore, the insurer may cancel the policy for innocent nondisclosure only if it can prove (for instance by using examples of its refusals in other cases) that it would have refused cover had the circumstances been disclosed. In other cases, it may reduce the payment instead, for instance, by deducting the amount of a higher premium that it would have charged if disclosure had been made. Where a claim is fraudulent, a court may order that the insurer pay what is “just and reasonable”, which may be ordered where, for instance, the fraud related to an insignificant part of the claim. In the UK, the duty of disclosure has been abolished for consumers, who instead owe a duty to take reasonable care not to make a misrepresentation when answering an insurer’s questions. Insurers are obliged to ask questions upon all circumstances that they wish to consider when deciding whether to offer cover. Insurers may cancel consumer policies only for a deliberate or reckless misrepresentation by an insured (in which case they may keep the premiums unless it would be unfair to the consumer to retain them) or a careless misrepresentation where the insurer would not have accepted the policy if it had known the relevant circumstances. Where, however, the insured made a careless misrepresentation but the insurer would only have offered cover on different terms (such as limited cover or a higher premium) then the policy will be treated as if it was entered into on those terms. With business policies, the duty of disclosure is amended to a duty of “fair presentation”, in which the insured must provide enough information to enable the insurer to make a fair assessment of the risk or identify a need to investigate further. MBIE ISSUES PAPER In May 2018, exactly 20 years after the Law Commission’s paper was published, the Ministry of Business, Innovation and Employment issued a paper inviting comment on (among other insurance issues) essentially the same issues with respect to insureds’ non-disclosure that the Law Commission had discussed. While observing that reform of insurance law generally was well overdue, no explanation for the lengthy delay was given. The MBIE’s paper indicated that policy options to address the issues raised were expected to be circulated towards the end of 2018 in a second consultation document. While this has yet to appear, it seems very likely that it will propose changes to the duty of disclosure along the lines of those that have been enacted in the UK and Australia. THE OPTIONS It is likely that the insured’s duty of disclosure in New Zealand will www.covernote.co.nz
FEATURE either be reduced so that it applies only to circumstances that a reasonable person in the insured’s position would have regarded as relevant to an insurer (the Australian approach), or removed altogether and replaced with a duty to answer an insurer’s questions accurately (the UK approach). We view the Australian approach as being problematic, as it only partially answers the main problem with the present duty, which is that many insureds do not know that they must disclose circumstances that an insurer would consider material and they do not know what those circumstances are. There is also considerable uncertainty as to what a reasonable person should know about insurers’ views. If the obligation is amended to a “reasonable person” test, this will leave unsophisticated insureds at risk. The UK regime may be preferable, at least insofar as it relates to consumers, as a requirement that insurers ask questions that identify what circumstances they consider relevant should be easier for insureds to follow and should help them make full and honest disclosures. There is, however, a significant disadvantage from an insurer’s perspective, which is the risk that an insured may be aware of a circumstance that is clearly relevant to the risk but is so unusual that it is not within any of the insurer’s specific questions. There is also a risk that insurers may feel obliged to ask a large number of questions about matters that will be irrelevant for the great majority of insureds, which will produce inefficiencies. The Law Commission did not regard either of these factors as insurmountable, giving examples of general questions that insurers could ask such as “Do you know of any reason particular to you why you may not attain your normal life expectancy?”, while not going so far as becoming a general question about any risks, which would reintroduce the common law duty by the back door. However, it is too early to say how requiring insurers to ask questions about every matter about which they expect disclosure will play out in the long term. It is less clear why there should be a different approach to consumer
and business insurance, as in the UK. Many businesses are no more sophisticated than consumers when it comes to placing insurance and if a regime is considered fair and effective for consumers it is not easy to see why it should not be applied consistently to all insureds. The UK approach to remedies in consumer insurance, where policies may be avoided only where the insured has been deliberate or reckless or where the insurer would not have accepted cover, but the policy in other cases is amended to reflect the arrangement that the insurer would have accepted, also seems fair and practical in principle. There may be difficulties, however, in drawing the line between conduct that is reckless and that which is merely careless, which will lead to uncertainty and resulting disputes and cost. WHAT SHOULD INSURERS BE DOING? We recommend that insurers prepare for the next round of consultation and the likely effects of changes to the law by: - considering whether they would object to the UK or Australian models because of the issues of uncertainty and cost identified above, and whether they will wish to make submissions when MBIE’s next paper is issued - considering what detailed and specific questions they might need to ask insureds if the UK model is adopted - considering how onerous and costly the exercise of asking additional questions and reviewing the answers may be (and how additional costs may be reflected in premiums) - considering whether a divergence between consumer and business insurance, as in the UK, is appropriate or whether it would lead to greater uncertainty and cost
This piece will also be published in MinterEllisonRuddWatts’ next Cover to Cover issue.
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MAKING THE MOST OF SOCIAL MEDIA FOR SMALL BUSINESS By Lou Draper
eople said social media marketing for business would be an enormous fad. A waste of time and energy, and if it did take off, it would be something to entertain the kids, but not much else. Twenty years on however, social media for business has completely revolutionised how companies big and small tell their stories to existing and new audiences. Advertising spend that was traditionally reserved for television commercials, radio tie-ins and visual graphics has shifted rapidly, dominating the market with social campaigns delivering entertaining video content, value offered lead magnets, and thought-provoking articles. All of it specifically designed to hook someone even mildly interested in a topic, and convert them to a fan, and then a customer. With big business however, comes even bigger budgets. Companies are spending up large when it comes to creating the right message and offer. Dedicated FTE resource is set aside for social media management of customer service as well as brand monitoring. In some cases, specialised agencies are contracted to deliver out-of-hours support in the way an international call centre might have been.There is no question in the effect social media has had on operations and marketing promotions of business in this era. But what about small business? If the corporate sector is throwing hundreds of thousands of dollars at social media to meet a whole host of business challenges, what can small business owners do? Keeping up with the corporate Joneses is completely out of the question, so what’s the answer? 30
HAVE A SOCIAL MEDIA PRESENCE Getting started or reinvigorating social media efforts can feel tirelessly overwhelming for small businesses. Fortunately, the social media playground is for everyone. It is a valuable tool for business of any size and industry, irrespective of budget size. A small broker firm doesn’t need to have a presence of every media platform available, but it is wise to have the main ones nailed that match where its customers typically hang out. And that is the salient point. Meet your ideal client where they are. For example, a general insurer broker’s client base is likely to be using Facebook, Twitter, Instagram at a push. LinkedIn is great for sharing your expertise and getting known for what you do to build up your profile. But it makes little sense to invest time and money into platforms that won’t benefit a broker’s bottom line or help to blossom a client-broker relationship. Choose those platforms wisely. Take into account available time for maintaining a platform, and use-cases for each one, will help identify where to focus time and investment. WHAT TO POST Having social media platforms sorted leads to a bigger test.What to post? How often, and for what purpose? This is often the part where small business owners come unstuck. It can be tempting to use social channels to sell. Posting the latest deal or offer to draw in a cast of thousands on the hunt for a new insurance provider seems like a great idea. The hard-earned lesson many business owners have suffered through is that social media as a direct sales channel almost never works. People who are using social media as a place to connect with friends
and family or share personal interest in causes and events are not in the market to be sold to and will actively refuse any attempts to do so. Regardless of business size, posting about interesting company events, especially ones that link to a community or a cause are popular and tolerable to potential clients. But be careful; the old “business gets business and is happy about it” will attract precisely no one to engage with your business. So, unless your brokerage is signing work with a tremendous cause or business with a feel good story attached, leave it out of your content posting strategy. What works every time in social media land for small business is posting content that delivers value to every-day people. What might be an entry level topic for an experienced broker is a value goldmine for the general public. And in the insurance industry this is an easy one. As an oftenconfusing topic, most people just want to make sure they are well covered in the event of loss. They want to know how to avoid a long fight to claim in what is usually a highly stressful time, or they need help navigating an insurance process. Cutting through the thick and confusing fog of insurance is where a broker can shine a well-received guiding light. ENGAGEMENT One thing that has stayed constant in social media is its stance that it is a place for conversation. Focusing on engaging with people who visit your page, message you directly or comment on your posts is a top priority. Responding to messages to increase engagement and show that you have an active social media presence, will encourage people to get in touch with
you. A page with unanswered questions, infrequent posts not only gives your firm a reputation you might not want, but is also a huge detractor from new people visiting that could convert to new clients. WHAT ABOUT ADVERTISING? There used to be a time when advertising on social media platforms was an incredibly tricky experience. Not so anymore. Facebook is especially easy and offers amazing targeting tools for you to share your valuable content even further right down to someone who is actively looking for help with insurance. And now that Facebook owns Instagram, it’s easy to use Facebook’s power editor tool to advertise in both places for very little investment. There are many tutorials online to learn how to use these powerful tools that make the most out of your advertising dollars. OUT OF OFFICE, OR OFFICE HOURS INFORMATION It’s no secret how busy brokers are, especially ones without support teams. If you don’t have a lot of time it’s completely okay to let followers and people looking for your business know what to expect with an out of office or redirection message in your bio. “Thanks for following us, we are not big Twitter/Facebook/Instagram users, but you’ll find us more regularly on Twitter/Facebook/Instagram between the hours of x and x or if you need us urgently, call us on xxx” Lou Draper is a managing partner at Draper Cormack Group.
ALUMINIUM COMPOSITE PANELS IN BUILDING CLADDING By Tim Grafton,
chief executive of the Insurance Council of New Zealand
n the last few years, there have been several fires involving multi-level building overseas where combustible aluminium composite panel cladding (APC cladding) has been a significant contributing factor to the damage caused by the fire. In New Zealand, the use of ACP cladding has grown in the last 20 years.We have therefore investigated these issues to determine how much of a fire risk is posed to New Zealand buildings. There are four main types of aluminium cladding used on buildings in New Zealand. They are: 1. ACP and steel composite panels with expanded polystyrene (EPS cores. EPS panelling is highly combustible and should not be used on any building that is more than 25m in height. EPS panelling has historically been used on cool stores and needs to be well protected from ignition sources. 2. ACP with a solid polyethylene (PE) core. PE panelling is combustible and should not be used on any building that is more than 25m in height. 3. ACP with a mixture of PE and mineral fibre in the core. Fire performance usually improves the higher proportion of mineral fibre. Panels marketed FR may have a core with 70% mineral fibre and 30% PE. Higher performing panels marked A2 may have a core with 80% mineral fibre and 20% PE. 4. Solid aluminium sheet with no core. This can generally be regarded as non-combustible. In the last 7 to 8 years, fire-rated ACP panelling has been the most common product used on buildings over 10m in height. Prior to that, PE panelling may have been used. Due to a change to the Building Code in early-2017, PE panelling and other combustible cladding can only be used on low rise buildings (buildings that are 7m or less in height). Buildings that are taller than this will need to have proven fire-rated cladding, such as less combustible mineral fibrecore ACP. The Building Code’s focus regarding fire safety is about occupant safety and means of escape. It sets out requirements that ensure occupants can safely evacuate a burning building within a reasonable period of time. The Building Code is the minimum legal standard. An insurer’s requirements may exceed those specified under the Building Code. Commercial property insurance is about assessing the risk of damage to assets. While insurers value life safety as much as the government does, their primary focus is on assessing the potential risk of fire damage to the building. Insurers are concerned about risk of fire spread being caused or exacerbated by combustible cladding on taller buildings. It is likely that insurers will view buildings with
combustible ACP cladding as higher risk. They may charge a higher insurance premium or offer less insurance capacity compared to that they’d offer a similar building with noncombustible cladding. Insurers will want to know what type of cladding you have when you apply for insurance. Another issue that concerns insurers is how the ACP panelling has been attached to the building. With overseas fires on tall buildings that contain ACP cladding, combustible substrates, including insulation, fixings and framing (such as timber) may have contributed to the spread of the fire. Combustible substrates can create a fire propagation path within the cavity behind the cladding, which can allow a fire to spread much faster than it would through non-combustible substrates. It is important that non-combustible substrates are used behind any cladding and that non-combustible cavity barriers are used up the wall of the building to act as fire breaks. This prevents the chimney effect behind the cladding, spreading the fire up the building. Current construction practice in New Zealand is to use intumescent cavity barriers to create necessary fire breaks up the walls of buildings. If construction records don’t state what type of cladding was specified and used on your building, then you may need to have a sample tested to determine whether the building’s cladding is combustible. If you have a sample handy, it’s possible to determine whether your ACP contains a mineral core. If it does not, you may need to send a sample for testing in an approved laboratory. One method of testing for a mineral core in ACP cladding is to visually inspect the core material. PE core will normally be black (if it’s recycled PE) or clear (if it’s virgin PE). If mineral fibre is present, the core will usually be grey or white. A second method is to measure the density of the panelling. Mineral fibre is denser than PE. ACP supplier ALUCOBOND have produced an app that allows you to check the density of a panel sample. By entering in the dimensions of the sample and its weight, the app can determine what type of panel your sample is likely to be. Neither of the above methods are a guarantee of the composition of a building’s cladding. If you’d like more information about your building’s cladding, you could look at getting an independent cladding report, which will identify the type of cladding used and how the cavity and fixing material behind the cladding have been fire protected. A favourable report should help building owners access competitiave insurance rates.
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THE PERFECT STORM TO JUSTIFY MORE FOCUS By Minter Ellison Rudd Watts
n 2018, there were more than 2000 data breaches reported to CERT NZ – just the tip of a now mammoth iceberg affecting the personal and confidential information of millions of people and businesses globally. The ever-increasing volume and scope of cyber events reflects the new normal that is set to continue expanding its reach throughout 2019. Even in New Zealand, media reports on data breaches occur on a weekly basis, and cyberattacks continue to morph and evolve as criminals develop ever more sophisticated methods to circumvent cybersecurity defences in a never-ending game of cat and mouse. One of the most significant data protection enactments of the digital era took effect when Europe’s gold standard General Data Protection
Regulation (GDPR) came into force in May 2018. With extraterritorial reach and antitrust style sanctions, ripples are being felt globally as European data protection regulators flex their muscles. Facebook is facing sanctions of a maximum of USD$1.6b for breaches of the GDPR, and AggregateIQ (a Canadian based company) is being investigated by the UK’s Information Commissioner under the regulator’s extraterritorial powers. In New Zealand, our lawmakers and regulators have been slower to react and respond to the need for stronger individual and organisational data protection laws in a world where geographical borders mean less, and goods and services are traded by New Zealanders and New Zealand businesses in every corner of the globe.
Reforms to the Privacy Act are finally making progress, and should be passed into law in the first half of 2019, despite a four month delay to the Select Committee’s deadline to report back. While these proposed reforms aim to make businesses and the Government more accountable to consumers and give the Privacy Commissioner greater enforcement powers, they remain (during the Select Committee stage) comparatively weak. Nor do we see them seeking the extraterritorial reach asserted by Europe through the GDPR or other jurisdictions. Best practice and good business compels increased and proactive cybersecurity risk management by organisations, irrespective of the status of New Zealand’s reforms. In 2019, we will monitor the convergence of GDPR, local law reform, a new National Cyber Security Strategy, CERT NZ’s growing visibility, and our commercial regulators increasing attentiveness to cybersecurity. Added to this mix are the increasingly rigorous national and crossborder data protection compliance regimes, as well as the steady uptick in class action litigation, both of which will mean greater litigation risk for organisations. In this environment, “Best practice and good business compels increased and proactive cybersecurity risk management by organisations, irrespective of the status of New Zealand’s reforms.” organisations should commit to a ‘privacy/data protection by design’ framework that aligns New Zealand requirements with gold plated offshore standards, tackles cross-border compliance issues, and ensures sufficient resourcing to respond to a data breach or a cyberattack. The current refresh of the Government’s Cyber Security Strategy and Action Plan (under development by the Government
in conjunction with the National Cyber Policy Office in the Department of Prime Minister and Cabinet, and related organisations) will provide some impetus for building cyber resilience by businesses. The refresh project will analyse gaps and opportunities to improve New Zealand’s cybersecurity, including through revised institutional arrangements, collaboration with the private sector, efforts to address cybercrime, system-wide leadership of government information security, and international cyber cooperation and responses. We expect recommendations from the refresh project in 2019. The renewed focus from government agencies in 2019 should assist organisations to step-up their cyber resiliency efforts. While there remains a degree of consumer apathy over how much personal information is divulged in this digital age – particularly among younger consumers and those who enjoy the benefits of targeted marketing and service provision more than they dislike the sharing of their information – that apathy is not shared by the majority of New Zealanders. As the data gatekeepers, organisations cannot afford to be complacent about cyber risk. In an increasingly digital society, individuals have a growing awareness of their data protection rights and of the duties owed to them by Government and businesses. We anticipate an increase in information privacy access requests and complaints to the Privacy Commissioner for infractions on individuals’ privacy rights. Organisations will need to be equipped and ready to react to consumer demands for access to, and protection of, personal information, as well as ready to respond to developing national and international compliance standards. The legal risks of inaction should not be overlooked
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WHAT DOES IT TAKE TO PROVE A PRIMA FACIE CLAIM? T
wenty-four years of insurance complaints reveal the prima facie claim is still a mystery to many clients, and the Latin probably doesn’t help. A prima facie claim is what the insured must prove in the first instance - that they have suffered a sudden, unexpected loss, which is covered by the policy. About 20% of general insurance complaints to the IFSO Scheme involve the insured being unable to prove a prima facie claim. “Financial advisers have a really important role in educating their clients about the claim process and what clients must prove to get their claim paid,” says Karen Stevens, Insurance and Financial Services Ombudsman. “We hear from a lot of unhappy clients, who are surprised that it’s on them, not the insurer, to prove their loss and provide the evidence. It’s a good idea to set these expectations early, before clients need to make a claim.” ADD VALUE FOR YOUR CLIENTS • Encourage them to gather proof of ownership and value when they take out the policy, and review at renewal • Explain their obligations to provide evidence for a claim • When assisting clients with a claim, ask them whether they have evidence to demonstrate that the claim is within the scope of the policy • If a client is challenging a claim decision, ask them what evidence they have to challenge the insurer’s decision, and explain that it’s likely they will have to provide some evidence for the insurer to change its position. PROVING THE LOSS, AND THE CAUSE OF THE LOSS In December 2016, Tom* and Sue* made a house insurance claim for a broken water pump and bore. The insurer asked for a repair report to show why the bore had stopped pumping water. But Tom and Sue said the pump was stuck 35 metres underground and couldn’t be retrieved. The insurer declined the claim on the basis a prima facie claim hadn’t been established for loss or damage to the pump and bore.Tom and Sue said it was impossible to show what happened to the pump, because it was stuck in the bore.They complained to the IFSO Scheme. Under the policy,Tom and Sue had to show the damage was both sudden and unexpected. Although the pump was not accessible, they hadn’t been able to provide any information about why the pump and bore stopped pumping water. The insurer was entitled to decline the claim. LESSONS • Clients often expect insurance to cover all unexpected events • Clients often don’t realise they have an obligation to prove the loss • Clients may expect the insurer to pay for any expert reports to prove the loss. 36
PROVING THE DAMAGE WAS ACCIDENTAL, AND THE CAUSE OF THE DAMAGE Dave* phoned his insurer to report his car was missing from his rural home. Dave said he’d noticed the keys were missing from the kitchen table and phoned the police. Later that day, Dave phoned his insurer again to confirm the police had found the car down a bank not far from his house. He made a claim for the damage. The insurer didn’t believe Dave. It believed he’d pushed the car down the bank, in the hope the car wouldn’t be found within 10 days and, therefore, would trigger a full agreed value payment of $30,000. The insurer declined the claim on the basis the damage was not “accidental”, and that Dave had breached his duty of utmost good faith. Rather than alleging fraud, the insurer said Dave hadn’t established a prima facie claim. The insurer cancelled the policy, and Dave complained to the IFSO Scheme. In order to prove the prima facie claim, Dave had to show the damage was “accidental”. The insurer relied on a body of circumstantial evidence to decline the claim and support its conclusion that Dave had pushed the car down the bank. However, the IFSO Scheme case manager said there was no direct evidence to support a finding that Dave pushed the car down the bank.The insurer hadn’t assessed the vehicle or its value. As the insurer hadn’t provided sufficient evidence to support such a serious allegation, the case manager found it was not entitled to decline the claim. The case manager also found the obligation was on Dave to prove that the damage was a direct result of the car going down the bank, and that the insurer would be entitled to assess any other damage in accordance with the policy. After the complaint, the insurer assessed the car, which showed substantial mechanical damage.The insurer asked Dave to show the mechanical damage was caused by the accident. Dave couldn’t prove this, so the insurer only paid for the panel damage, which Dave could demonstrate was caused by the accident.
LESSONS • Clients must prove that the loss was caused by the event claimed for • Clients must provide detailed evidence of loss, including any issues around causation • Insurers may rely on the insured failing to prove a prima facie claim when it has suspicions about the legitimacy of the claim.
“Financial advisers can really add real value for their clients,” Stevens said. “The best time to set expectations around insurance is before they need it. If you can help prepare your clients for the unexpected, they will be grateful to have insurance cover when the time comes.”
IFSO CASE STUDY
TRUST TROUBLE I
n June 2017, the insured, trustee of a trust, telephoned the insurer to arrange cover for a planned renovation of a house, including removing and replacing the roof. He was told there would be no cover for damage resulting from the roof removal and was advised to contact an insurance broker to arrange construction cover. In July 2017, he telephoned the insurer and was again advised to contact an insurance broker. He also arranged for an increased house size and sum insured to commence at the end of September 2017. Seven days later, he telephoned the insurer to make a claim, because heavy rain from a storm the previous evening had caused the roof to leak. The insurer appointed an assessor, who reported that the roof had been removed and the house had been shrink-wrapped. High winds during the storm had caused the shrink-wrap to rip and allowed rainwater into the house, soaking the ceilings, walls and floors of the house. The insurer declined the claim, because the damage occurred as a direct result of the roof being removed, which was excluded under the policy. The trust argued the insurer had breached its duty of good faith, because it did not advise the trustee that any claim arising from the roof removal would be excluded and it misled him into believing there would be cover for the house during the renovations, because it increased the size and sum insured of the house. The trust believed the insurer should have advised the trustee to arrange other house and contents insurance during the renovation, not just construction insurance. THE CASE MANAGER’S ASSESSMENT The insured had to prove a prima facie claim that he had suffered “sudden and unforeseen accidental physical loss or damage”. The storm had caused the shrink-wrap around the house to rip and allowed water into the house. The insurer had to prove that the policy exclusion for loss, damage or claims “arising from … structural alterations or repairs including the removal or alteration of the roof ” applied, in order to decline the claim.
According to the ANZ Insurance Reporter, “the words ‘arising from’ carries a sense of consequence”. The case of Quintano v BW Rose Pty Ltd v Ors (2009) states “the requirement that a claim ‘arise from’ a matter” will be satisfied, if “it originates in, springs from, or has its foundation in, that matter”. The damage would not have occurred but for the storm, which tore the shrink wrap and caused rainwater to enter the house. However, the rainwater would not have entered the house, but for the roof removal. Therefore, the case manager believed the necessary “causal connection” between the damage and the roof removal was established. It is accepted law that, if there are concurrent causes and one is excluded, the claim must fail.The case manager also considered the allegation that the insurer had misled the insured. It is accepted law in New Zealand that an insurance company must provide a copy of the terms and conditions of the policy to the insured. There is a duty on an insured person to read and understand the terms and conditions of the policy. An insured is also entitled to ask questions about the cover provided. The case manager listened to both of the telephone calls and noted the insured was specifically told that any damage resulting from alterations to the roof would be excluded. The case manager did not believe the increase could have misled him into believing that he had cover for the roof removal, when he had been advised that he did not. The case manager did not believe he was misled into believing that only the construction was excluded and resulting damage would be covered. The case manager considered a number of other house insurance policies and noted that the roof exclusion was not unusual. The case manager believed the insurer correctly advised the insured about the policy cover and, in doing so, drew his attention to and provided him with the opportunity to read and understand the policy, or make further enquiries if necessary, before undertaking the roof removal. Therefore, the insurer had established it was entitled to apply the exclusion to the claim. The complaint was not upheld. www.covernote.co.nz
IFSO CASE STUDY
FAMILY FALLOUT A
family trust owned a house. The trustee of the trust was a trustee company.The directors were a couple and the woman’s mother. The trustee company arranged insurance for the house through its financial adviser. The couple lived at the house. They arranged cover for their contents at the house through the broker. They then separated. In July 2017, the man reported a burglary at the property to the police and the broker and said the house had been vandalised and a number of items taken. The woman’s mother also contacted the broker to advise of the damage. The next day, the broker logged a claim for the damage and the theft. The broker advised the couple of the claims to their separate email addresses. The insurer opened two claims for the damage: one for the mother and one for the couple. In August 2017, the broker emailed the man, copying in his partner, stating that she had asked the insurer to appoint a loss adjuster “to your claim”.
In or about August 2017, the insurer appointed a loss adjuster to assess the claims. About two weeks later, the broker emailed insurer stating that, as she had been unable to contact the couple so she had left a message for the woman’s mother to call her. She then emailed the broker advising that the couple were separated. At the end of August 2017, the insurer closed the mother’s claim for the damage, because it was a duplicate of the man’s claim. On September 5, 2017, the broker advised the insurer that the man had asked about cash settlement of the house claim. The broker suggested that the couple both sign the discharge form as they were separated. On September 6, the insurer confirmed it would cash settle the house claim, but it would require the discharge to be signed by the couple. On September 7, the loss adjuster emailed a discharge form to the man to cash settle the house claim. The loss adjuster explained that it also needed to be signed by the woman and witnessed. On September 11, at 5.10pm, the man emailed the signed discharge form
IFSO CASE STUDY
to the insurer to settle the house claim for $15,893.79 less the excess of $750, being $15,143.79. On September 13, the insurer approved the payment of the settlement amount and paid it to the trust through the man’s bank account, which was nominated as the appropriate account on the signed discharge form. On September 13, the broker emailed the couple at their separate email addresses, confirming the settlement amount had been paid. The woman’s lawyer emailed the broker regarding the signed discharge form. In relation to the contents claim, the lawyer advised the items were relationship property and she did not agree to cash settle the contents claim. On September 15, at 4.26pm, the woman’s mother emailed the broker stating that her daughter had not signed the discharge form and that it was “a clear case of fraud”. She asked the broker and the insurer to recover the settlement amount and pay it directly to the builders to repair the house. On September 18, at 4.11pm, the broker emailed the insurer, advising that the mother had said the discharge form had been fraudulently signed. The next day the broker called the insurer to advise the same. On September 25, 2017, the insurer emailed the broker, stating that even if the discharge form had been fraudulently signed, the policy allowed a policy in the name of a trust to be treated as a joint policy and that each of the insureds was deemed to act with the express authority of each other and one insured could make or settle a claim. On September 16, the woman’s mother made a formal complaint to the insurer on behalf of the trust, regarding the cash settlement of the house claim. On October 3, the broker confirmed to the insurer there would be no claim from the woman. On October 10, the insurer responded to the complaint, advising that it believed it was entitled to rely on the signed discharge to meet the house claim under the house policy. On October 13, the broker emailed the man and the insurer separately, confirming the schedule of loss for the contents claim. On October 14, 2017, the insurer emailed the broker regarding the contents claim and asking her to advise the couple that the contents claim would be cash settled. She asked the broker to confirm with the man the account the settlement should be paid into. On October 16, the broker emailed the insurer to confirm the man’s bank account details for the settlement of the contents claim. The insurer emailed the broker, confirming that the cash settlement for the contents claim had been paid into the man’s account. On October 17, the broker emailed the man, copying in his estranged partner, advising the insured had paid the $6,845.85 cash settlement of the contents claim into “your account”. The woman’s mother complained to the insurer about it cash settling the house and the contents claim on the instructions of the man, directly to his account. THE CASE MANAGER’S ASSESSMENT The case manager believed that, in addition to its legal responsibilities to the trustee under the house policy and to the woman under the contents policy, under section 28 of the Consumer Guarantees Act, the insurer had a duty to carry out its services with reasonable care and skill. THE HOUSE CLAIM The policy condition provided that, if the insured is in joint names or includes the name of a trust, then the policy is treated as a joint policy. This means that each person is “deemed to act with the express authority of each other” and that each person has the right to “make or settle a claim under the policy”. The trustee of the trust, which was a trustee company, was the insured under the house policy. I It was the case manager's view that, as the trustee was a single legal entity,
the policy condition allowing the insurer to treat trustees of a trust as joint insureds, did not apply. The trustee company acted through its directors. While the information provided to the IFSO scheme clearly indicated that the insurer was aware that the couple were separated, they (together with her mother) were both still directors of the trustee company. The signed discharge was undertaken by "...We, the [X] Family Trust", and was signed by the man and purportedly by the woman. While the woman’s mother believed that her daughter’s signature was signed fraudulently, it was the case manager's view that, as directors of the trustee company, the couple were legally able to enter into a binding agreement on behalf of the trustee company. The woman and her mother said the discharge form was signed fraudulently by her estranged husband on her behalf. Section 18 of the Companies Act provides that a company cannot assert one of its directors does not have the "authority to exercise a power which a director of a company carrying on business of the kind carried on by the company customarily has authority to exercise", even if the director "... acts fraudulently or forges a document that appears to have been signed on behalf of the company, unless the person dealing with the company or with a person who has acquired property, rights, or interests from the company has actual knowledge of the fraud or forgery". In the case manager's view, this meant that the trustee company could not assert that the man or woman did not have the authority, as directors of the trustee company, to agree to the settlement of the house claim and that, as the insurer was unaware the woman’s signature was allegedly fraudulent or forged, the trustee company was bound by the signed discharge, even if her signature was, in fact, forged. The case manager believed the signed discharge was a contract between the trustee company and the insurer. As the signed discharge included all the information required by the insurer to cash settle the house claim, including the bank account details for the payment, the case manager believed that the insurer had carried out its services with reasonable care and skill. THE CONTENTS CLAIM On the basis of the joint insured’s provision, legally, the insurer was entitled to treat any communications from the man as an action “with the express authority” of the woman as the joint insured. Also, under the joint insureds provision, the insurer could treat him as being able to “make or settle a claim”. On this basis, the case manager believed the insurer was legally entitled to communicate only with the man regarding the contents claim and settle the contents claim under the policy directly with him. The woman’s lawyer advised the broker by email that she did not agree to a cash settlement of the contents claim. From the information available to the IFSO Scheme, it appeared the lawyer’s email was not provided to the insurer prior to the contents claim being settled. The insurer asked the broker to advise the cash settlement of the contents claim to the couple before the settlement was paid to the man. For the purposes of submitting the contents claim and communications about the contents claim (and the house claim), the broker acted as the insured’s representative. The broker was not an agent of the insurer. On the basis that the insurer was unaware of the woman’s instruction that the contents claim was not to be cash settled, as this email was sent to the broker (her agent) and the insurer had asked the broker to advise her of the settlement two days before the cash settlement was made, the case manager believed that the insurer had met its obligation to use reasonable care and skill in carrying out its services. On this basis, the case manager believed the insurer was legally entitled to cash settle both claims directly with the man. The complaint was not upheld. www.covernote.co.nz
WHAT HAPPENS IF YOU CHANGE YOUR MIND? Can an insurance broker renege on a proposed underwriting agency relationship after the negotiations with the underwriter are finalised but before a formal agreement is signed? By Crossley Gates
ntering into a business relationship with another party can be complicated; many issues need to be discussed and agreed to. The parties need to be free to negotiate without commitment until they reach substantial agreement. Once they do, they often engage lawyers to prepare a written contract, which they sign. What is the position if one of the parties changes its mind before the lawyers agree to the terms of the written contract? Can that party rely on the absence of a signed contract to walk away? The Ontario Superior Court of Justice considered this issue in a recent decision involving the insurance industry. The insurance broker concerned changed hands towards the end of the negotiations.The new owner decided not to proceed with the underwriting agency. It argued there was no binding contract with the underwriter because the parties never concluded the negotiations and recorded them in a signed contract. The underwriter argued the opposite; there was substantial agreement between the parties and a binding contract had come into existence. It didnâ&#x20AC;&#x2122;t matter that no signed contract existed. BACKGROUND The insurance broker approached a chosen underwriter to enter into an exclusive agreement to develop and market a new home insurance product. 40
The insurance broker already had an existing relationship with that underwriter, promoting its existing product, along with other underwritersâ&#x20AC;&#x2122; competitor products. The insurance brokerâ&#x20AC;&#x2122;s proposal to develop a single relationship with one underwriter was unique to the insurance industry in Canada at the time. The negotiations progressed smoothly. The parties agreed that the insurance broker would rollover all of its existing clients with home insurance into the new product with that chosen underwriter. The major financial details were all agreed. The insurance broker advised its employees of the new business arrangement. It also advised the underwriters of the competitor products that their business would be placed with the chosen underwriter at renewal. Several of those underwriters were unhappy and they exercised their right to terminate their relationship with the insurance broker early. The insurance broker was expecting this and it had made special arrangements with the chosen underwriter to underwrite these policies early before the new business arrangement was due to start. The underwriter took on additional staff to cope with this. At this point, the insurance broker was sold to new owners. Could the new owners now walk away from the business arrangement with the underwriter? This turned on a single point of law: was there a contract between them?
THE LAW The Superior Court reviewed the law about legally binding contracts. For a legally binding contract to exist, the parties must have agreed on all the essential terms of the proposed contract. An agreement is not final and binding: • If it is merely an agreement to agree later on essential terms, • If what has been agreed to is sufficiently uncertain, or • Where the parties intend that there is no binding agreement until a subsequent formal contract is signed. The determination of whether the parties intended to contract and whether the essential terms of the contract can be determined with a reasonable degree of certainty is arrived at from the perspective of an objective, reasonable bystander in the light of all the material facts. The subjective intentions and beliefs of the parties are irrelevant. The nature of the transaction and the context in which the agreement is made establish the essential terms. The parties’ interests also establish them. In this case, the court established the following essential terms: • Exclusivity of the agency, • Development of a tailored home policy for exclusive use, • The term of the agency, • How the agency could be terminated by either party, • The compensation payable between the parties,
The underwriter agreeing to insure the clients insured with competitor underwriters who cancel their agency with the insurance broker prematurely. The court then turned to the evidence before it and it found that the parties had agreed to all six of these essential terms. Therefore, a contract was created between the parties. This meant the insurance broker was not free to walk away from the new relationship without giving the required notice of termination required under it. If it did walk away, it would be in breach of contract, allowing the underwriter to recover its losses from it by way of damages. A New Zealand court is likely to take a similar approach to the Superior Court. This case provides a good example of the practical application of the law to a business relationship that goes wrong before the parties sign a formal written contract.
Crossley Gates is a partner at Keegan Alexander. Email: email@example.com Direct Dial: (09) 308 1809
ASK AN EXPERT
Partial replacement QUESTION…
Our client has had one rim damaged after a stone was lodged between the brake calipers and the rim. The client has not been able to buy the same rim as they have been discontinued so has had to purchase a brand new full set. QBE have advised that they will only pay for one damaged rim, regardless of whether or not they can match the set and have noted consequential loss as the reason for not paying for the set. Is this the case or should they be paying for the full replacement set and claiming the three undamaged ones for salvage costs. Any way around this for our client?.
Our client purchased a contract works insurance policy for a 12-month period to cover some major alterations they were doing in their home. Included in the contract works policy was cover for the existing structure. The home was also fully insured during that time with the same insurer under a domestic home policy. During the period of construction, the contractor covered the client’s carpets in a film designed to protect the carpet. Once the construction was completed the film was removed but the glue from the film had stuck to the carpet which cannot be removed. The carpet needs to be replaced. The manufacturer of the film advised that the wrong type of film was used as it was recommended for use only on synthetic carpets, not pure wool carpets as our client has. The insurance company has advised that neither the contract works or home policies would respond to the claim as the builder has used an incorrect product to protect the carpet, which they said would be classed as faulty workmanship. As the carpet did not form part of the scope of works, I am not sure that the faulty workmanship exclusion would apply in this case. Any thoughts on this?
REPLY… CROSSLEY GATES This is a difficult situation, but in the absence of a pairs or sets type of clause like that found in contents policies for jewellery, I think the underwriter's decision is probably correct. The policy insures physical damage to the vehicle. One rim has suffered physical damage and this satisfies the insuring clause, but the others haven't, so they don't satisfy the insuring clause. To the extent there is an economic loss in relation to the three undamaged rims arising from the one damaged rim, the consequential loss exclusion will apply. One way of looking at it is to say, the underwriter insures the risk of damage, but not the risk that where the damaged item is part of a set, the cost of having to replace the rest of the undamaged set as a consequence. In contrast, the contents policy does insure this risk by way of the express pairs and sets clause.
Ex-gratia payments and third parties QUESTION… In a situation where an insurer makes an ex-gratia payment to their client under a material damage policy, does the insurer still obtain the right to subrogated recoveries against a liable third party?
REPLY… CROSSLEY GATES, The short answer is yes. Even if the payment is technically ex gratia, the insurer is subrogated. 42
REPLY… CROSSLEY GATES The carpet is potentially covered under both policies as the house policy was still in force and the contract works policy also covered the existing structures (the carpet). Contract works policies do normally have an exclusion for faulty workmanship, with a write back for resultant damage (damage beyond that initially caused by the faulty workmanship). The damage to the carpet does appear to have been caused by faulty workmanship and it is the initial damage, not resultant damage. However, is the damage covered under the house policy? That damage is not to the contract works but rather to existing property that was being protected during the contract works?
ASK AN EXPERT
Tenant damage QUESTION… I’m dealing with a material damage policy, taken out by the insured, a property owner. The insured's tenant runs a backpacking business from the building. The tenant allowed one of their staff members to occupy a room in the backpackers. The employee later left the role with the backpacking business. When the tenant (backpacking business owner) inspected the room, they noted that the carpet in the former employees room had been removed and replaced with an ill-fitting carpet. Does the building owner (the insured) have a claim against their MD policy under the theft extension? The MD policy excludes theft by an employee but it does not exclude theft by a tenant.
REPLY… CROSSLEY GATES The first issue is who owned the carpet? Was it the landlord or the tenant? If it was the landlord, then the theft by an employee exclusion is unlikely to apply because the thief was not an employee of the landlord but rather an employee of the tenant.
Wear and tear QUESTION… My client has a motor vehicle accident whilst towing a trailer where he lost control and spun off the road. The insurer accepted the claim but disputes some of the damage advising it is general wear and tear (this involves scratching to the paint work) and inconsistent with the description of the accident. My client is adamant the damage was caused in the accident. When he spun off the road some wire was caught on the truck and caused the damage - this was not noted in the description at the time as it was relatively minor to the major damage and how the accident occurred. After the accident occurred the client actually took a photo of his vehicle in-situ on the side of the road and luckily you can see the wire wrapped on the vehicle. This was subsequently sent through to the insurer who still maintains that the damage is not consistent with being caused by the wire but wear and tear (this from an inhouse adjuster who has not seen the vehicle) and is relying on a previous adjuster's report who was unaware of the wire. They have accepted other damage to that side of the vehicle caused by the wire, which had to be cut away to enable the vehicle to be salvaged. I have seen the damage, it is scratching to the paintwork and could easily have been caused by the wire, the panelbeater agrees it could well have been caused by this - i.e. he cannot discount it. My client did take very good care of his vehicle as is evidenced by its upkeep (it is only just two years old).
My question is thus - When making a claim under an insurance policy, the initial onus is on the insured to establish that he has suffered a loss, which is covered by the policy. I believe my client has shown it was more likely than not that the disputed damage occurred during the accident - with the insurer wanting to decline this damage, what onus is on them to disprove otherwise?
QUESTION… I am having discussions with an insurer at the moment regarding run-off cover for public liability (PL) insurance. Not for the first time, I have been advised that run-off cover is not required for PL insurance as it is occurrence-based wording. I have a recollection however of hearing Crossley Gates speaking and contradicting this statement. Unfortunately, I cannot recall his reasoning, but I know that it mad perfectly good sense at the time. Would appreciate any input from anyone surrounding this one.
REPLY… CROSSLEY GATES PL policies don’t have a run off extension in the PI policy sense. Hence the reaction you received. The need to buy PL cover after a person ceases trading is because the policy responds to property damage during the period of insurance. The risk is the insured may be negligent now but the damage doesn’t occur straight away, rather after the insured has ceased trading. The answer is to renew cover after trading ceases That way there is cover when the damage occurs.
REPLY… CROSSLEY GATES The standard of proof is the same, more likely than not. From your account of the evidence above, it sounds to me that it is more likely than not the damage was caused by the accident. If the insurer continues to disagree with your client, and your client wants to take the matter further, it will have to consider taking legal action.
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
hris owned a small furniture business. He purchased a range of business insurance policies through a broker. One of the policies Chris purchased gave him cover for natural disasters. But when the broker sent Chris the insurance documentation, it forgot to include the policy itself. The policy had a specific endorsement on it about the excess Chris would have to pay in the event of a natural disaster, namely 5% of the total sum insured. Chris’s total sum insured was $175,000, so his natural disaster excess was $8750, no matter how big or small the claim. The problem was that Chris did not know that, because he had never seen the policy. Unfortunately, Chris’s business was affected by the Kaikoura earthquake of 2016. The earthquake caused damage to some of the furniture in the shop. Chris made a claim for just over $11,000, but was shocked to discover – for the first time - the size of the excess. DISPUTE Chris complained to FSCL, saying that he would have had the broker shop around for other insurance had he known how much the excess was. The broker apologised for forgetting to send Chris the policy, but it 44
also said that 5% of the total sum insured was the industry standard excess in Chris’s location for a natural disaster. The broker’s view was that Chris had not actually suffered any loss as a result of its failure to send the policy, because he could not have got a better deal on natural disaster insurance with any other insurer. REVIEW FSCL sought advice from other insurance brokers as to whether Chris could have got a better deal by shopping around. The other brokers agreed that there was no other insurance cover available for Chris that would not include a 5% excess. It considered that the broker’s failure to provide a copy of the policy did not cause Chris a loss. However, FSCL also formed the view that Chris deserved some compensation for the stress and inconvenience he suffered when he found out about the size of the excess. The scheme agreed that the broker should have sent him the policy at the outset. OUTCOME FSCL negotiated a settlement between Chris and the broker. The broker made a small payment to Chris to compensate him for his stress and inconvenience.
FSCL CASE STUDY
MARINE MIX-UP B
ryan, an experienced mariner, noticed damage to his yacht when it was moored at a marina. Fortunately, Bryan had insurance. There was some dispute with the insurer around the cause of the damage. However, in the end, the insurer agreed with Bryan and paid him nearly $43,000 in settlement of his claim (including the time Bryan spent on his own claim). However, Bryan was not happy. He did not feel that the insurer had acted in an honourable way and said it had breached the law. Bryan wanted the insurer to pay him $150,000 in punitive damages and complained to FSCL. FSCL did not uphold Bryan’s complaint, finding that the insurer had provided Bryan with a high standard of customer service and had not breached any applicable laws. Bryan then raised concerns about his insurance broker who had assisted him with the marine insurance claim. Bryan alleged that the broker had
REVIEW Upon review, as Bryan was not claiming for any financial loss, FSCL agreed with the broker that their offer was reasonable. The scheme wrote to Bryan declining to investigate his complaint because the broker had offered him the maximum compensation FSCL could award for non-financial loss ($2000). While FSCL acknowledged there had been relationship difficulties between the parties, it noted an investigation would be unlikely to find the broker had caused sufficient inconvenience to warrant compensation of $2000. It also found that terminating a relationship with a client was the insurance broker’s commercial judgement decision and FSCL was unable to look behind the broker’s decision to terminate their relationship with Bryan. Further, insurance brokers are not subject to the requirements of the Fair Insurance Code.
brought disrepute to the insurance industry by not responding to his questions and terminating the business relationship. He complained that the broker had effectively withdrawn an apology made to him by saying they considered Bryan’s comments were unfair and unfounded. The broker referred Bryan’s complaint to FSCL. They made a without prejudice offer to pay Bryan $2000 compensation for inconvenience, which he rejected. Bryan wanted FSCL to investigate the broker’s conduct, ethics, and compliance with the Fair Insurance Code. Bryan complained that the broker misrepresented his position to the insurance company. When Bryan voiced his concerns, the broker terminated the relationship. He wanted action taken against the broker, such as a public finding of the broker’s guilt.
OUTCOME Bryan noted that FSCL does not publicise its decisions against scheme participants and agreed to accept the settlement offer for $2000 in final settlement of his complaint. FSCL can decline to consider complaints where it considers that a scheme participant has made reasonable efforts to settle a matter with a complainant. FSCL is a dispute resolution scheme whose powers are compensatory, rather than punitive, in nature. The scheme cannot take professional disciplinary action against financial advisers and brokers. In cases where there is no direct financial loss, FSCL is limited to an award of compensation not exceeding $2000 for non-financial losses as a result of a participant’s actions, such as stress and inconvenience. www.covernote.co.nz
Professional Development: Professional IQ College
The real facts about competency
e have been approached by a number of members recently to clarify what will be acceptable to meet the forthcoming code of conduct for financial advisers. The difficulty is that the new code is yet to be published, although we understand it will be finalised sometime in the first quarter of this year. There was an initial draft published last year for consultation and this does give some indication as to what the code will contain. Of particular interest are the competency requirements. The draft made it clear that the benchmark would be the NZ Certificate in Financial Services (NZCFS), level 5. Achieving level five will be the simplest and easiest way to attain competency, however it also indicated there may be other ways of proving compliance. Unfortunately, it was not clear how these alternatives would work, particularly in the absence of a final version of the code. Some other organisations are suggesting alternate options be taken, but they are at best guesses as to what might be acceptable. For example, recognition of prior learning (RPL) has been promoted 46
as a solution, but there is no certainty this will be acceptable. We know RPL alone will not achieve equivalence to the NZCFS, as additional study will be necessary e.g. in regard to legislation and the regulatory environment. Undertaking the RPL process gives no guarantee it will prove competence. Much depends on what learning has been undertaken and how recent it was. For RPL to succeed you need to provide detailed evidence of learning that bridges the gap between what you learnt in the past and what is in NZCFS, and then prove ongoing training in order to remain current. All this needs to cover the same subject matter as the qualification. For insurance brokers under the new code, Professional IQ College as an NZQA accredited training organisation, (unlike some other organisations in this field) is the best option to avoid an expensive and uncertain outcome. The college is preparing workshop solutions to simplify the qualification process and less expensive than the alternatives. No maybe, no spin, just a ticket to a successful career.
Business interruption natural disaster claims and issues
Auckland & webinar
In one hour we share some of the actual issues we experience and how we resolve differences to get to a fair claim settlement..
Body Corporate Law and Insurance Implications
Auckland & webinar
More details to come..
What went wrong? Declined commercial vehicle claims
Auckland & webinar
Using case studies of real claims from the IFSO Scheme this webinar will discuss issues for clients at claim time, common problens & you role in assisting clients.
Outlook: Calendar, contacts, tasks
Auckland & webinar
More details to come..
Reaching Out: Obtaining Appointments With Prospective ?
Auckland & webinar
More details to come.
When you talk, what does your client hear?
Auckland & webinar
Why, when you meet some clients they instantly like you, whilst sometimes you need to work hard to create that connection? Why do clients sometime go ‘cold’ on you?
Art of Persuasion
Auckland & webinar
Communications that sell.
Gross Profit: Don't get it wrong
Auckland & webinar
This session will cover the importance of gross profit when putting a business interruption programme together.
Intellectual Property Risks
Auckland & webinar
Delta will present. More details to come.
Time Management: Getting More Done in Less Time
Auckland & webinar
More details to come.
Auckland & webinar
Have you ever felt that during a conversation or interview the person speaking to you is not telling you everything but you can’t pinpoint the problem?
Tips for avoiding complaints
Auckland & webinar
Using cases where the adviser has successfully ‘defended’ a complaint and why/how.
Business Interruption – Importance of cover for Additional Increase in Cost of Working
Auckland & webinar
BI is more than just the insurance of Gross Profit. Cover is automatically provided for Increased Costs as part of the Gross Profit item. But there are limitations to what can be claimed under this item – often referred to as Item 1(b).
So, You want to be a mediator?
Auckland & webinar
Learning the basics of mediation and how to apply them to client interactions.
Action Planning: How to Create Marketing Action That Get Implemented and Produce Results
Auckland & webinar
More details to come.
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 (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
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Jo Mason Chief Executive Officer NZ Brokers Management Ltd PO Box 334 012 Sunnynook North Shore City Auckland 0743 Tel: 09 869 2785 email@example.com
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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
Northco Insurance Brokers Ltd
Baileys Insurance Brokers Ltd
Northcrest Insurance Brokers Ltd
Bay Insurance Brokers Ltd
O'Connor Warren Insurance Brokers
Boston Marks Group Ltd
OFS Insurance Brokers Ltd
Brave Day General Ltd
Omni Fire & General Ltd
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Broker Direct Services Ltd
Paterson & Co NZ Ltd
BrokerWeb Risk Services Limited
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Builtin New Zealand Ltd
Peter C Cranshaw Insurance Broker Ltd
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Primesure Brokers Ltd
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Property and Commercial Insurance Brokers
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PSC Connect NZ Limited
River City Insurance Brokers 2000 Ltd
Coastal Insurance Brokers Ltd
RMA General Ltd
Commercial & Rural Insurance Brokers Ltd
Rothbury Group Ltd
Crombie Lockwood (NZ) Ltd
Runacres & Asssociates Limited
Dawson Ins. Brokers (Whakatane) Ltd
Seneca Insurance Brokers Ltd
Dawson Insurance Brokers (Rotorua) Ltd
Sit & Blake Limited
Edward Ruys & Co Ltd
South Pacific Insurance Brokers Ltd
Emerre & Hathaway Insurances Limited
Sweeney Townsend & Associates Ltd
Frank Risk Management
Thames Valley Insurance Ltd
FundAGroup Insurance Brokers Limited
The Advisers 1 Limited
Future Insurance Mortgage
Thorner General Insurances Ltd
Glenn Stone Insurance Limited
Towes Insurance Brokers Ltd
Grayson & Associates Ltd
Trevor Strong Ins Ltd
Gregan & Company Ltd
Vercoe Insurance Brokers Ltd
GYB Insurance Brokers Ltd
Vision Insurance (S.I.) Ltd
Harden & Hart Insurances Ltd
Waikato Insurance Brokers Limited
Hazlett Insurance Brokers Ltd
Wallace McLean Ltd
Honan Insurance Group (NZ) Ltd
Wanganui Insurance Brokers Ltd
Hood Insurance Brokers NZ Ltd
Willis Towers Watson
Hurford Parker Insurance Brokers Ltd
Yesberg Insurance Services Ltd
Hutchison Rodway Ltd
ILG Insurance Brokers
North Shore City
Ingerson Insurances Ltd
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