RISE OF THE BOTS Expect chatbots to pick up more of the grunt work, but thereâ€™ll still be a need for human advice.
Customer and conduct:
Lessons, questions and future outlook
InsurTech can give traditional insurance a lift
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Gary Young CEO, IBANZ
Goodbye and good luck
elcome to the first edition of Covernote for 2020, I trust you find plenty of interest in our publication. This year has started with a flurry of activity as the Government continues to target financial services including insurance. We have never seen as many reviews under way at one time which will significantly affect IBANZ members in their day-to-day work. Those of you who have read my regular comments in our weekly news will already be aware of the extent of the legislative and regulatory changes being considered. Indeed, I hope you do make use of our Live News page, part of the Covernote website, to stay up-to-date with news relevant to the general insurance broking sector. We provide a selection of current news item chosen from a range of media without the common â€œclick baitâ€? items so common in online news. With several submissions completed and more in the pipeline we are looking forward to a busy year promoting the value of insurance brokers and protecting them from the excesses of compliance. We are fortunate that in New Zealand governments have generally steered clear of the overly prescriptive approach taken elsewhere. One only has to look across the Tasman or to Britain to see what damage can be done. Often it is well-meaning initiatives that have not been thought through which result in unintended consequences. Right now, we face such risks with the focus on banks and life insurers. A failure to understand the difference between life and general insurance has the potential to wreak havoc on the general insurance market. Another example is addressed in our recent submission on changes to legislation which would destroy the viability of premium funding for consumer insurance. It is our task at IBANZ to represent our members interests and those of their clients. We have increasing challenges in this role. Speaking of roles, my role at IBANZ is about to end. Fourteen years ago, I had the good fortune to be offered the opportunity to build an association from the merger of two predecessors. It has been an immensely enjoyable journey and I have been lucky to have a great team to work with in our office. Together we are always looking to do the best for members, helping to create a great environment in which to work as professional advisers. I have also been fortunate to have the backing of the IBANZ board, made up of members willing to give back to the profession through working with our association. The focus of what we do has inevitably changed over the years. Back in 2006 there was no government focus on our sector, professional qualifications were voluntary as was CPD although as a professional association we sought to set a standard for members. Now our focus is definitely on advocacy with lobbying government a key role as well as ensuring where possible the media have their facts right. I look forward to seeing IBANZ continue its crucial role in speaking up for our profession where it matters most. Thank you to everyone who have given me their support during my time as CEO. The many friendships have made it a real pleasure, hopefully I have made a positive difference in your professional lives. Gary Young, CEO, IBANZ
Features 3. Comparison sites on hold for now 4. Criteria for earthquake-prone loan scheme revealed
5. More conduct rules on the way 8. Joint insurance venture creates new opportunity for marine industry 10. Policyholders claim for pricey pets 12. COVER STORY: Rise of the bots Expect chatbots to pick up more of the grunt work,
but thereâ€™ll still be a need for human advice.
Regulars 26. Delta Insurance gets busy with lazy sneakers
1. Welcome to CoverNote 37. Ask an Expert
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COMPARISON SITES ON HOLD FOR NOW N
ew Zealand’s general insurers are unlikely to be forced to comply with a comparison site any time soon. The idea was suggested as part of insurance law reform work by the Ministry of Business, Innovation and Employment. It noted that it was sometimes difficult for consumers to get a clear view of what was available from insurers. “Due to its complexity and the amount of information that must be provided to get a quote, it is often prohibitively time consuming for a customer to 'shop around'. Insurers also present policies in different ways so it can be difficult for a consumer to compare the information they get on a 'like for like' basis. Submissions on the issues paper noted that there is a lack of reliable sources a consumer can rely on for information to compare different policies. We also have received evidence of an insurer issuing a cease-and-desist letter to an insurance comparison website.” It noted that the current settings allowed insurers to prevent third parties from creating a comparison platform, as is common in other countries. Attempts to set up sites have previously been unsuccessful – former Vero chief executive Roger Bell tried to launch iCompare without success. An option mooted by MBIE was to require insurers to work with platforms. That could happen by making it mandatory for them to engage with independent websites, prohibiting contractual terms that have the effect of prohibiting the use of publicly available information for price comparison purposes, or establishing a government-run website that
insurers were required to work with. It noted that care would have to be taken to ensure commercially sensitive information was not revealed. After consultation, though, MBIE dropped the idea. “There would likely need to be a high level of regulation applied to facilitate a comparison website (both in the information required of insurers and the operation of the website itself). The evidence is not clear at this stage that the benefit such a website would provide to consumers would outweigh the costs involved. We consider that further analysis would need to be undertaken before we can recommend an option relating to comparison websites.” Instead, it wants insurers to give consumers information about their policies and business in a prescribed format. “The availability of this information could be used to help consumers choose an insurance provider and to promote transparency by providing standardised information through which consumers could compare policies or insurers. “This option was not explicitly consulted on as part of the options paper consultation. However, it is being considered as having certain information publicly available would likely assist consumers with accessing and comparing information before choosing an insurer. Consultation would be carried out before making any regulations setting out the details of information insurers are required to publish.”
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CRITERIA FOR EARTHQUAKE-PRONE LOAN SCHEME REVEALED
wner-occupiers of unit and apartments living in earthquakeprone buildings will have certainty about what support they’ll be eligible for from the Government, Minister for Building and Construction Jenny Salesa says. The Residential Earthquake-Prone Building Financial Assistance Scheme will help unit owners facing financial hardship over earthquake strengthening costs. "Fixing an earthquake-prone building where there are many unit owners can be a complex initiative to undertake. Getting the finance to do this work can prove difficult if not impossible for some people in this situation. "Without the support of low-interest loans like these, some unit owners may be forced to sell if they’re not able to earthquake strengthen their home. "We’re pleased we can now give these unit owners some certainty by releasing the criteria for this important financial lifeline," Salesa said. Loans are available for owner-occupiers in high-seismic risk areas and for units bought before July 2017.
To apply they have to prove they cannot get a loan from the bank or that if they could it would put them into significant hardship, Finance Minister Grant Robertson says changes to the insurance market and significant rises in insurance premiums following the Canterbury and Kaikoura earthquakes have pushed up costs for unit owners. "By providing loans of up to $250,000 for unit owners, we can ensure more people can do the remediation work needed to stay in their homes. "Unit owners can register their interest. They’ll be informed as soon as applications are able to be made for the loans. The key thing is that they know the criteria and can start having conversations with their body corporates," Robertson said. The interest rate for the scheme will be set at 60% of the Reserve Bank’s monthly average of five-year fixed interest rates, plus a low-equity margin of 1.25%. Rates are fixed for five years. Repayments are voluntary but the loan has to be repaid when the unit is sold or 12 months after the owner dies.
MORE CONDUCT RULES ON THE WAY
bill that will put more conduct obligations on insurers has passed its first reading in Parliament. The Conduct of Financial Institutions Bill was drafted after reviews by the Financial Markets Authority and Reserve Bank, which were critical of banks and life insurers. It requires insurers, banks and non-bank deposit takers obtain a licence from the FMA, as well as their other regulator-required licences. It also requires them to comply with “fair conduct” principles to ensure that customers and consumers are treated fairly. That will mean paying attention to their interests from the design of the products to after-sale client servicing. They will also have to have a conduct programme to back up their adherence to these principles, enforcing client-first obligations at all levels of the business. Insurers will also have to ensure that their brokers comply with that programme. Volume-based incentives for staff and intermediaries are set to be banned and there will be regulations determining how other remuneration structures can be set. The Ministry of Business, Innovation and Employment has acknowledged that may mean a reduction in upfront commissions for life insurance advisers. “The recent reviews, by the Financial Markets Authority and Reserve Bank of New Zealand, into the conduct of banks and insurers found factors such as target-based sales incentives were leading to behaviour that put profit ahead of people,” Commerce and Consumer Affairs Minister Kris Faafoi said after the bill was referred to select committee. “The Financial Markets (Conduct of Institutions) Amendment Bill delivers on a number of changes to require banks, insurers and other
financial service providers to have the right systems in place for ensuring they treat their customers fairly. “Last year I announced a ban on incentives that are based on meeting sales targets, along with a new conduct licensing system for banks, insurers and non-bank deposit takers, such as credit unions. “These measures will be implemented through obligations for licensed entities to have in place and comply with programmes outlining the standards of fair conduct their business operations will need to meet. “The conduct programmes will also apply down the chain to intermediaries that licensed entities use to distribute their products and services,” Faafoi said. To support the bill, the FMA will have a wide range of tools to require financial institutions to make changes to their business. “Since the conduct and culture reviews, the Government has moved swiftly to see that the industry addresses conduct and culture issues. “The Government also recently announced changes to make insurance contracts fairer and more transparent for consumers. These changes will complement the new conduct regime by ensuring customers understand their policies and are treated fairly in all their dealings with insurers,” Faafoi said. National is not supporting the bill in its current form. MPs highlighted particular concerns about the potential for adviser commissions to be limited in a way that disrupted business structures. Industry commentators have also raised concerns about the potential duplication of obligations when this bill is viewed alongside the Financial Services Legislation Amendment Act, which introduces a code of conduct for financial advisers. www.covernote.co.nz
‘I’VE SEEN THE POWER OF INSURANCE FIRST HAND’ Julian Clarke, director of Apex’s Christchurch branch, shifted to the industry after a long career in law. How did you get into the industry? After a long career in another industry I decided that it was time for a change in 2018 and I looked around for an industry where I felt that I could make a fundamental difference to people‘s lives if I did a good job. Having seen the effect of fire and general insurance in place for my own business during the Canterbury earthquakes, I knew that having good insurance in place can make a fundamental difference to the survival of a business, and indeed even make it flourish while your competitors are floundering. I spoke to a number of businesses about getting into the industry and was delighted with my choice in Apex Insurance Brokers who have recently and deservedly won the 2019 IBNZ Best Insurance Workplace award. The culture of any business that I work in is of paramount importance to me. The team at Apex Insurance could not have been more supportive and welcoming to me right from the outset. What did you do previously? Previously I was managing partner for almost 20 years of one of New Zealand’s largest law firms. Even though I am now an insurance broker, I remain a registered lawyer, and find my legal skills and broader business knowledge are extremely useful for my clients and for the interpretation of policy wording. At the end of the day, insurance policies are a legal contract. Having been a customer of the insurance industry for so many years has given me an invaluable insight into the needs of my clients now that I am on the other side of the table.
client’s business and to explain to them the various risks they face and how certain insurance products can help them to mitigate those risks. It is enjoyable seeing those clients reach a level of understanding that they previously did not have, and therefore be prepared to pay for the insurance cost now that they understand how it might respond. What are the biggest challenges? Making sure that you choose your clients carefully. It’s important to choose not to act for some clients who will try to put pressure on you to deliver a compromised service or advice. It’s a given that those types of clients are going to cause you more pain than they are worth. Of course, identifying them at the outset can be a challenge! What’s the biggest opportunity from here? There are some fantastic brokers out there and then there are some who seem to have lost the art of client service or taking the time to be accurate in their work. Like any industry, I believe there is opportunity to perform at a high level and deliver accurate consistent results for good clients that will see them then become your advocates.
How big a challenge will it be to adjust to the new rules? Our firm is already well ahead of the curve in terms of Level 5 qualifications etc, but for some brokers that is going to be a challenge that they leave until too late. I actually don’t think it will be too much of a challenge at all. Having worked in and alongside other industries that have gone through legislative upheaval, the reality What do you enjoy about your job? is that we will soon adapt and overcome any required I love being back at the coalface dealing with clients changes. Yes, there will be more bureaucracy but I do who are creating or selling products and services. believe that a higher standard of output will be delivered I particularly enjoy taking the time to understand each as a result.
JOINT INSURANCE VENTURE CREATES NEW OPPORTUNITY FOR MARINE INDUSTRY
joint venture between Apex Insurance and insurance industry veteran Brent Mullan is bringing new marine insurance solutions to a market which has a far-reaching impact on the economy. Apex Marine & General will operate in a dynamic sector that covers everything from large scale seafood operators to niche tourism and Apex managing director James McGhie said he was excited at the prospect of starting 2020 with a new venture. “Businesses covered by marine industry regulations require specialist insurance and many are unaware that buying off-the-peg products can leave operators high and dry if their claim is not covered under their policy. “Our success has been built on collaboration and identifying new opportunities to help our clients meet the challenges of their industry. Brent’s energy, passion and high-level experience not only adds value to existing Apex customers but will expand our ability to create new networks and relationships.” A regular boatie and competitive yacht racer with 25 years’ global insurance experience, Mullan is passionate on the subject of the New Zealand marine industry. “While the sector has its ups and downs overall our sustainability rates very well and New Zealand has been rewarded for innovation and risk-taking. We’re seeing significant investment in seafood and tourism as well as a booming pleasurecraft market across the country.
Our ‘prescription-style’ approach means spending time with clients to understand their operations and we shape our offering to give them the best chance of success.” Mullan felt improving the sustainability of smaller operators was key to seeing the regions thrive. “One of the coolest things about insurance is you get out and about, learn the culture, meet the people. It’s the best part of the job. A really big area of us in terms of education and support are the one or twoperson teams who are having a crack. Tradies and boaties often don’t seek specialist advice yet they have the same liability exposure as bigger companies.” With regulation changes sweeping the insurance industry many operators are faced with rising cost of doing business independently. Mullan, who has national business development experience, cites Apex’s willingness to integrate new ways of working with brokers into their structure as a factor in partnering with the privately-owned and local company. “Apex are young at heart, growing, and kiwi owned. They offer fresh thinking and are particularly strong in key areas of liability and cyber, which is increasingly important to clients. Apex’s willingness to offer innovative risk solutions to clients backed by their own values around sustainability and community while meeting our industry’s code of conduct made them the logical choice to go into business with.”
POLICYHOLDERS CLAIM FOR PRICEY PETS S
outhern Cross Pet Insurance has released its 10 most unusual claims of 2019. The list featured a serial sock swallower, a cat who played with fire and a dog suffering a chocolate overdose. The claims highlight how even everyday items can spell real danger for our furry friends - and how costly it can be for their owners. In one example, a dog with a taste for socks stole a pair and swallowed them, resulting in the owners’ third claim relating to sock ingestion. A chocolate-loving canine ended up at the vet after feasting on five Easter treats, while a cat needed treatment after burning its paws on a wood burner. "Even the most well-behaved pets aren’t immune to having accidents or getting up to mischief - but there’s no such thing as ACC for cats and dogs," said Southern Cross Pet Insurance general manager Anthony McPhail. "We get quite a few claims for things you would never dream might happen and a lot of these situations can be very costly and stressful for the animal and the owner. "Our experience shows it’s important not to underestimate how much vet bills can cost. Pets give us so much joy but when they are sick or injured there’s no safety net unless you have the peace of mind of pet insurance." Although New Zealand has one of the world’s highest pet ownership statistics, insurance rates here are low compared to other pet-loving nations. SOUTHERN CROSS PET INSURANCE’S 10 MOST UNUSUAL CLAIMS OF 2019 WERE: A Persian cat fell into a swimming pool while being chased by another
cat. The waterlogged feline was taken to the vet and diagnosed with hypothermia ($1,065). A Labrador swallowed a pin cushion, complete with pins, while the owner was sewing. The pin cushion and pins had to be surgically removed ($3,488). A Hungarian Vizsla dog had bad breath and was ‘zonked out’ in the evenings. Eating sheep pellets sprinkled on the garden as fertiliser were the suspected cause ($352). An Ocicat came off second best from a fight with a feisty blackbird and was treated for a scratch to one eye ($103). A Boxer ended up with a bellyache after it raided the family’s stash of Easter treats and ate five chocolate kiwis ($270). An overly enthusiastic Bernese mountain dog ran straight through a closed sliding door and sustained a serious wound to one of its legs ($1,101). A Labrador’s trip to the beach turned sour for its owners when the dog discovered a pair of shoes and socks on the sand and promptly swallowed the socks. The serial sock stealer was taken to the vet to have them removed ($2,789). A Tonkinese cat played with fire by jumping up on the wood burner at home and burning its paws ($177). A Labrador Cross was so eager to escape from the boarding kennels, it ate through a fence, but was foiled at the next hurdle when it got stuck in a second fence. A vet treated the dog for a spinal fracture along with multiple wounds and abrasions ($6,999). A cat arrived home with a fishing line tangled in its tail. The moggy sustained a tail wound which required treatment by a vet ($271).
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Rise of the bots Expect chatbots to pick up more of the grunt work, but there’ll still be a need for human advice. By Angela Cuming
he next decade will mark significant changes in the insurance industry, with insurers working overtime to rebuild trust and keep customers happy. The key to succeeding in those goals may all come down to replacing call centre staff with fully automated chatbots, one commentator says. Chatbots are computer programs or simply artificial intelligence (AI) systems that can conduct natural-sounding conversations with humans. Due to rapid growth in technology, chatbots have recently made great strides in the insurance industry and before too long will be a common feature, say experts like Dr Michael Naylor, a senior lecturer at Massey University. “By the end of this decade if an insurance company isn’t using chatbots that company will cease to exist,” he says. Chatbots are perfectly aligned to the insurance industry because they can provide customers with efficient service when responding to quick and common requests, such as passwords, policy copies, and billing questions. Chatbots can speak to and understand people to a degree that feels nearly human, allowing them to personalise and automate multiple processes and enhance the relationship between the insurer and the policy-holder.
“Advances in technology mean that customers would not be able to tell that they were not speaking a person on the other end of the phone,” Naylor said. “It means an insurance company will be able to handle roughly 95% of customer inquiries without actual staff.” So, what would that mean for insurance companies? Lower operating costs for one thing. “One way insurance companies are going to be able to survive in an increasingly competitive market is to have less staff and slowly reduce the firm down to a software base,” Naylor said. And while chatbots were expensive to set up the cost was more than offset by their long-term benefits, he said. He points to what happened after the 2011 Christchurch earthquake as an example of where chatbots could have been of use. “One of the main problems with Christchurch both for the insurance companies and the EQC was the sheer amount of work they had to do versus the amount of work they actually could do,” Naylor said. 12
“It was a case where EQC had 20 staff, mainly financial people, and how do you deal with 40,000 upset and stressed customers all at the one time? You can hire extra people but they have to be trained up properly, but chatbot software can cope with one person or 10,000 people, it makes no difference, even in times of natural disasters the likes of which New Zealand is no stranger to.” Would a customer know they were not speaking to an actual person on the other end of the phone line?
PEOPLE THINK ABOUT A COMPUTER BEING MONOTONE AND WITH WORDS EVENLY SPACED AND THE LIKE, SO THAT’S WHAT I MEAN BY IMPERFECTIONS. WHEN YOU SPEAK TO A CHATBOT THERE’S NOT THAT ROBOTIC VOICE
Naylor said they would have no idea. “There’s something called a Turing Test, which means can you tell if you are talking to a computer, and in terms of voice codes no you can’t,” he said. “I mean when you think about it people think about a computer being monotone and with words evenly spaced and the like, so that’s what I mean by imperfections. When you speak to a chatbot there’s not that robotic voice.” That’s not to say chatbots will be infallible and never make a mistake. “Yes, they will make mistakes but if you have a worldwide firm, once
you make the same mistake say 20 times the software person picks it up, amends it or changes it,” Naylor said. “The same mistake will have to made enough times for the computer to learn it’s a mistake, but they will be able to recognise the pattern and amend it.” But that’s not to say human voices will become entirely extinct from insurance companies and insurance broking. “There will always be times when you need a human, a time when the chatbots can’t cope,” he said. “But part of that has to be for the computer to recognise that and to pass the customer on to a human worker. And you may not recognise that you were talking to a computer and have been transferred, that’s how good the chatbot will work. However, the human that the call is transferred to should have on their screen all the information which the chatbot has already put in.” He said brokers who were purely transactional would disappear. “Software can offer great generic advice and can even customise it. However any adviser will tell you that you can provide all the rational in-the-interests-of-the-client advice you want but clients often do not follow it. Software cannot currently offer the emotional support and interpersonal skills required to ensure that clients follow through on the advice. So advice will survive.”
Some advisers could use software to help their businesses and cut administration, he said. “Broking will disappear but advice will flourish… advisers will do better than insurance companies. The top third of advisers will make a lot more money. The bottom third, who struggle with using software, will face rising costs and competition from everimproving roboadvice.” Another way chatbots may help is when a customer lodges a claim and they must provide information about what happened, say, in a motor vehicle accident. “Currently what happens is you log in and write down what happens, like ‘my car was coming down the road and hit another car’,” Naylor said. “But if you can write it in why can’t you talk it in? I mean if you talk to most kids below 10 years of age, they prefer to talk with their computers rather than type.” The rise of chatbot technology would happen sooner than people might realise, he said. “Lots of firms already use basic versions of chatbots but really good chatbots are about two or three or four years away,”. Customers will almost certainly not even be aware of the change-over, Naylor said.
CUSTOMERS ARE INCREASINGLY LOOKING FOR CONVENIENCE, CHOICE AND COMMUNICATIONS ON THEIR TERMS.
“What they found particularly with insurance in Christchurch is that the multinational firms moved their call centres to abroad but people in Christchurch weren’t prepared to talk to someone in the Philippines or Egypt, they wanted to be talking to someone would have some understanding of what they were going through, but we simply didn’t have enough people to be doing that.” But chatbots have a way around that, he said, with the ability to change the recorded voice’s accents and tones. So, for instance, a company with a physical presence in New Zealand can use a chatbot voice that has a Kiwi accent to alleviate any concerns customers may have about speaking to an overseas call centre. But it gets even more sophisticated from there. “And then of course you start to get the feedback like does a young female get a better response than an older female or an older male or does this accent or that accent get a better response,” he said. “So, you can actually analyse the voice of the customer who is calling the company and give back to them a voice they will respond to in a positive way.” And the whole point of chatbots was not just to cut operating costs but to guarantee survival by moving towards a much more customer-focused way of doing things. 14
“It’s all about feedback, what customers respond to and what they like,” he said. “In the past insurance companies have done customer service very badly and therefore the insurance industry had this idea that insurance had to be sold but that no one wants to talk about it when in actual fact American insurance firms are showing that it is actually just bad customer service that puts people off. So, if you approach selling insurance by giving good customer service then customers will start to recommend insurance companies to their friends.” The historical problem had been customer service had been expensive for insurers to get right, Naylor said. “So, companies have been focussing on underwriting and keeping costs down instead, and while software has a very high fixed cost to install but once it’s in the cost to customise a chatbot to respond well to customers is very low. So, the insurance companies that do well will be the companies that actively use this type of technology going forward. “To put it frankly in 10 to 20 years’ time unless you are an insurer that is making your customers happy you won’t be in business.” One insurer that has been quick on the uptake of chatbots is Tower Insurance, which recently announced a $47 million investment in a new technology platform. “Digital is the way of the future, and our new platform is completely unique in the New Zealand market, removing complexity internally, and for customers,” Tower Insurance chief executive officer Richard Harding told the Insurance Council of New Zealand late last year. “The key enabler for our strategy is a technology platform that allows us to deliver something genuinely better to customers.” The company has since introduced “Charlie the Chatbot” to its customers, a smiling cartoon robot that greets you when you file a claim via the company’s website. Charlie promises to provide customers a “quality product and service” and an “amazing claims experience”. “Customers are increasingly looking for convenience, choice and communications on their terms,”Tower’s chief customer officer Michelle James said. “Many are becoming super comfortable engaging with companies through online chat and chatbots for simple answers, and it’s no different with their insurance provider. It saves them time, puts the control back in their hands and allows them to multi-task, and get on with the things important to them.” Charlie is Tower’s “first small step” towards AI, James said. “And we have big plans for Charlie too.” Given the sheer volume of customer data chatbots will allow insurance companies to collect, the long-term focus of insurers needs to be making sure customers trusted the company they have taken out a policy with, Naylor said. A similar sentiment was recently made by Harding, who said the insurance industry needed to increase transparency and rebuild trust. “As these systems evolve companies will be wanting more and more customer data, particularly with something like health insurance where they will want to be able to, say, link to that person’s doctor, and that will only be possible if there a person absolutely trusts their insurer. They will also have to trust that their insurer’s system won’t be hacked, so companies will really have to have top-class security. “It really is all about trust,” Naylor said. “The customer has to be okay with handing over more and more confidential data because what the insurer gives back to them will be worth that trade-off.”
Andy on the left
Recipe for success Andy Rowe discusses his experiences in the insurance industry and his love for a perfect BBQ
ndy Rowe started in the insurance industry a few years after school, when he was looking for a role in which, in his own words, he could use his brain and work in a career that was interesting and rewarding. After a variety of different roles across IAG for over 14 years, and a recent stint into the broker world as head of commercial for a large independent brokerage in Auckland, Andy has returned to NZI as the national broker partner, strategic growth and delivery. “I spent a lot of time working with brokers from the NZI point of view, and I thought I had understood their role pretty well, but it’s not until you are on the other side of the fence and you get to really understand what the broker goes through and the additional pressure they face.” “Now I have a new-found respect for what brokers have to go through to deliver the terms that we give them and a new understanding of what’s life like as a broker, which I will take with me into my new role.” Understanding other points of view and processes are also a key element in another of his passions; barbecuing. He is part of an awardwinning barbecue team and competes in a North Island circuit. For Andy Rowe, getting things right entails many hours of hard work,
time and dedication – not unlike insurance. “One of the hardest meats to cook is a brisket. If you get it wrong, it can be a difficult situation, but when you get it right it’s magical, and the best bite you will ever have. “It’s a bit of an art to manage fire and smoke, and take a tough cut of meat to perfectly tender and delicious, after 8-10 hours of cooking.” Andy Rowe shares his passion for the barbecue among colleagues and brokers, and for him, the BBQ season doesn’t stop with summer, it’s dedication all year long. “I’ve got five barbecues at home. All different shapes and sizes. They range from a really small portable charcoal BBQ to a 600 kg steel smoker, which I had custom built.” After 15 years in insurance, balanced with his passion for barbecuing, Andy Rowe has no plans to leave the industry he loves. “Brokers and underwriters are really good people. We all work hard and get to form strong relationships over many years. The public might not always see this, but we do make their world a safer place. The fact that you can see a disaster of any scale and know that people can rebuild their homes or replace their cars with our help. What we do really helps people’s lives”.
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CUSTOMER AND CONDUCT: LESSONS, QUESTIONS AND FUTURE OUTLOOK By James Brownell, director, insurance conduct lead, KPMG New Zealand
ollowing on from the Australian Royal Commission and subsequent New Zealand banking reviews, 2019 was a year of intensive focus from the Financial Markets Authority (FMA) and the Reserve Bank of New Zealand (RBNZ) on culture and conduct in the insurance sector. The FMA/RBNZ’s review of life insurers in January led them to request both life and general insurers to undertake two specific activities: 1. An in-depth product review 2. A gap analysis against the Australian Royal Commission findings.This has resulted in a significant programme of work across the insurance sector. This work needs to be considered against the backdrop of substantial regulatory change relevant to culture and conduct. Amongst other reviews around insurance contract law and the role of appointed actuaries, two key changes include the introduction of a new
advisory regime (Financial Services Legislation Amendment Act) and the Ministry of Business, Innovation and Employment (MBIE)’s review of the conduct of financial institutions and the introduction of a new conduct regime. Under both of these changes, new licencing requirements for insurers and advisers will impact the way that the sector is regulated, introduce additional obligations for insurers and advisers and give the FMA more power to monitor and enforce against licencing obligations. This will put the regulatory regime here more in line with frameworks in Australia and the United Kingdom, and will have a significant impact on manufacturers’ obligations both in terms of how products are designed and how customers are engaged. In this article we will focus on the challenges and lessons learned so far from both the life and general insurance market, the questions
that organisations should be asking to ensure they have done enough to address regulators concerns and the future outlook for the general insurance market, including how conduct and culture should be integrated into insurersâ€™ strategies going forward. LESSONS LEARNED FROM THE WIDER INDUSTRY Recognising there are distinct differences between life and general insurance operations in terms of both product complexity and distribution, there are nevertheless important lessons to be learned from the life sector given they have been subject to direct reviews by the regulators and have therefore had a four month head start. PRODUCT REVIEW New Zealand insurers have not been required to have formal or comprehensive product review processes, and some have relied on informal processes and discussion.
As a result, the amount of work the specific product review requirement has entailed has generally been underestimated by the market. Indeed, the RBNZ and FMA recently formally requested a large number of life insurers to re-submit their product reviews, because they were either incomplete or did not go deep enough in terms of identifying risks and issues, and/or investigating issues that had been identified. This will be most relevant for general insurers with a large number of products and distribution channels, and where products have rapidly evolved over the last five years, meaning substantial legacy books. Organisations without appropriate data management and governance have struggled to pull together consistent and meaningful analysis across their product portfolios IDENTIFICATION AND REMEDIATION OF ISSUES The regulators are realistic, and understand that organisations are not www.covernote.co.nz
perfect; therefore, where no issues have been identified, they are likely to be sceptical that the process has been rigorous enough. Insurers need to be proactive in identifying potential issues. In some cases, executive teams may have overly positive or biased views; gaining independent feedback from front-line staff, mystery shopping and feedback through customer forums can be effective ways of demonstrating this. Where issues have been identified, insurers typically do not have formal investigation or resolution frameworks so calculating customer impact and identifying root causes is incomplete and unsurprisingly progress in terms of rectifying issues has been slow or absent. This is demonstrated through examples of insurers knowingly sending out incorrect information to customers. There are plenty of case studies outside of New Zealand which demonstrate the importance of investigating and remediating issues quickly and efficiently in order to limit the longerterm negative impacts. SYSTEMS AND CONTROLS The majority of issues we identified through working with our clients have not originated from bad intentions, but point to potential cultural issues around allowing systems and operational risk issues to continue unabated. It is apparent that there has been some reluctance to invest in systems, to address known issues and a general lack of accountability for identifying and establishing controls to stop issues from continuing to occur. A lack of appropriate consideration for operational and conduct related risks, including putting formal tolerances in place so that they can be proactively monitored and mitigated has also exacerbated these problems. OVERSIGHT OF INTERMEDIARIES Any conflicts of interests created by commissions need to be proactively monitored by insurers, as it is apparent that soft commissions are still being used and are considered by the FMA and RBNZ as high risk. In the general insurance market there are a wide variety of distribution channels and types of arrangements which has made investigation and oversight of these more challenging. The FMA and RBNZ have made it clear that the onus sits with the manufacturer to ensure customers are getting good outcomes from their products. Expectations are that insurers understand the outcomes being delivered to customers by intermediary channels. For agency relationships, where insurers only provide product design and pricing support and legacy arrangements, this has meant insurers have to take a different approach. Utilising data and analytics will help insurers to understand whether intermediaries are doing the right thing for their customers. WHAT ARE THE KEY QUESTIONS INSURERS NEED TO ANSWER? Based on the work we have carried out in the insurance space, we have outlined the questions that insurers should be asking to understand whether they have done enough to change the way they are considering customer outcomes in their organisations. How do firms ensure that they have identified all the culture and conduct issues that exist within their business? How are issues investigated and remediated within your organisation, what frameworks are in place to ensure these are carried out effectively? How do you ensure you get to the bottom of the issues identified to ensure they don’t happen again? How do you demonstrate that commissions across your portfolios are appropriate and do not drive poor customer outcomes? What kind of oversight is required / practical to ensure you know your products are being sold appropriately? What do you do when you identify misconduct by an intermediary? How do you know that the way your staff are incentivised results in good customer 20
outcomes Where does it makes sense to invest in appropriate data collection where capability does not already exist? How is culture and conduct being considered as part of your overall IT transformation? How do organisations gain comfort that data governance and quality in particular with legacy systems? How does the business manage its risks and ensure its control environment is operating effectively? How are legacy portfolios reviewed when there could be knowledge and data gaps? What are the appropriate lead and lag metrics to monitor customer outcomes? How can the product review process be leveraged on an ongoing basis to ensure changes are having the desired effect?
INSURERS WHO ARE TREATING THEIR CONDUCT AND CULTURE PROGRAMMES AS A CONDUIT FOR CHANGE RATHER THAN A COMPLIANCE BOX TICKING EXERCISE ARE THOSE WHO WILL HAVE A COMPETITIVE ADVANTAGE OVER THEIR COMPETITORS.
FUTURE OUTLOOK Based on initial feedback to life insurers and the legislation for a new conduct regime that has been fast tracked for implementation, it is clear that the focus on conduct and culture is here to stay and is likely to intensify as we move into 2020. CUSTOMER CENTRIC FOCUS AND MEASUREMENT Understanding customers’ needs and customer outcomes is about more than culture and conduct, it is essential for an organisation to innovate and stay competitive in a rapidly changing environment. A more customer centric focus and an improved understanding of customers’ circumstances and needs will ultimately result in higher retention and sales. Lack of investment in this is a double-edged sword - in an increasingly more connected and open world, negative outcomes can have a significant impact on an insurer’s reputation. Appropriate measurement and reporting of customer outcomes is critical to enable strategic decision making; customers’ needs and financial performance should be synonymous. Use of advanced techniques for data analysis allows insurers to gain insights where data is unstructured or to identify trends and relationships that would otherwise not be possible. New Zealand banks and now insurers are developing customer outcome measurement tools and dashboards which have tolerances built in and allow appropriate ongoing monitoring, allowing insurers to be at the cutting edge of product design. There will undoubtedly be challenges the insurance market need to face up to in the foreseeable future if insurers want to get ahead of the coming conduct regime and build culture and conduct into their strategic direction. Insurers who are treating their conduct and culture programmes as a conduit for change rather than a compliance box ticking exercise are those who will have a competitive advantage over their competitors.
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INSURTECH CAN GIVE TRADITIONAL INSURANCE A LIFT New technology can be a benefit, not a threat, to the industry. By Gallagher Bassett
nsurers know their customers’ lives are being shaped and transformed by new technologies. These technologies are also rapidly transforming the insurance industry, which in undergoing an ecosystem disruption, largely caused by technologydriven competitors and new entrants. As the market changes, insurers are facing growing pressure to adapt and reinvent themselves. SHIFT FROM VIEWING EMERGING INSURTECHS AS OPPORTUNITIES RATHER THAN THREATS The emerging insurtech (or “Insurance Technology”) industry, is gaining strong traction, with many start-ups developing new business models and enhancing customer experiences. PWC’s insurtech report highlighted that 56% of insurance companies surveyed felt that between 1% to 20% of their revenues were risk to InsurTechs. Insurers are becoming increasingly aware of the opportunities of partnering with emerging insurtechs. Through strategic partnerships, 22
traditional insurers attain economic benefits and overcome challenges that they have traditionally faced. Insurtechs offer alternative ways of addressing customer needs, because of their data-driven experience models, agile structures, risktaking mindsets and streamlined operational costs. They also have inherent advantages to launch new business models that traditional insurance companies are unable to do internally. Despite being digitally native and being able to face insurance problems without past assumptions, Insurtechs typically have limited knowledge of regulatory environment, financial strength and claims data to accurately price and underwrite risks. Traditional insurers are highly experienced with concrete institutional knowledge of the industry. They are well aware of the common pitfalls and challenges of operating in the industry, and have extensive experience navigating complicated regulations that govern the sector. Insurers can therefore use their extensive industry knowledge to assist
InsurTechs to optimise their technology. Strategic partnerships allows traditional insurers to focus on what they do best, insurance.Through the use of new technologies, Insurtechs can make insurers more efficient through use of new technologies and empower them to drive digital disruption. Strategic partnership is the key for both traditional insurers and insurtechs to achieve success. HOW DO CUSTOMERS BENEFITS FROM PARTNERSHIPS BETWEEN INSURERS AND INSURTECHS? Customers are becoming increasingly tech savvy and their expectations for insurers reflects this. With their digital expertise, i nsurtechs can help insurers leverage cutting-edge and emerging technologies to interact and reach customers where they are-mobile, online and 24/7. Insurtechs have dramatically changed the traditional low-interaction model between the insurer and the customer. With their expertise in emerging technologies,Â such as artificial
intelligence (AI), the Internet of Things (IoT),Â blockchain, big data and analytics, insurtechs can offer solutions for the challenges insurers are facing in this increasingly competitive and digitised space. A strategic partnership allows insurers to leverage new technologies to enhance customer engagement and adapt their product offerings. Insurtechs and traditional insurers, can combine their knowledge and expertise to improve personalisation of their services. This can be achieved utilising their understanding of customer needs and taking advantage of real-time data from connected devices, such as wearables. Through deepening relationships with their customers, a strategic partnership furthermore offer insights into risks and enables traditional insurers to base premiums on highly specific risk assessments. It also enables proactive risk mitigation services and the ability to provide timely care interventions. A great example is Hiotlabs, a Stockholm-based insurtech that offers "prevention as a service" by using Internet of Things sensors to measure www.covernote.co.nz
temperature and humidity inside buildings, allowing early detection of water damage. CREATING NEW CUSTOMER TOUCHPOINTS AND REVENUE STREAMS By utilising a collaborative model with traditional insurers using Application Programming Interfaces (APIs), new customer touchpoints are created. By offering a variety of insurance apps, APIs can assist insurers to deliver seamless customer protection and subsequently access new revenue streams. An example of successful integration of APIs was achieved by Matric. They use API to integrate with third-party mortgage platforms and home insurers’ systems. When clicking the "request quote" button, already 95% of the details required to offer a home loan quote are sent out automatically to the carrier. This means that the customer only has to answer a small number of additional questions for a near-instant quote. ASSISTING INSURERS TO STREAMLINE PROCESSES Partnering with insurtechs can allow traditional insurers to streamline their processes and achieve operational efficiency through use of technology, for example, by implementing cognitive document processing. Insurtechs are beginning to offer ways to utilise Artificial Intelligence and robotic process automation to automate elements of insurance value chain processes. For example, Expediente Azul, a Mexico-based insurtech, offers a mobile and web tool that assists insurers to capture, analyse and store insurance claim documents in the cloud, therefore managing end-to-end insurer and customer interactions during claims processing.
Blockchain technology is another key disrupter as it allows secure, seamless and transparent data sharing and storing.This can facilitate more effective fraud prevention and detection. In addition, blockchain-based smart contracts can lead to instant processing of claims and subsequently quicker payouts. This allows traditional insurers to streamline claims management. FACILITATING AN EFFECTIVE PARTNERSHIP The growing interest in InsurTech partnerships is reflected by Accenture research, which found out that 44% of insurers globally intend to pursue digital initiatives with insurance industry start-ups over the next two years. They also discovered that 31% intend to work alongside start-ups from outside their industry. The insurance industry must be proactive and demonstrate a willingness to engage with insurtechs to create a mutually beneficial and sustainable model. For insurtechs, accessing traditional insurers’ extensive customer bases, industry knowledge and market experience is the key to scaling their offerings. Through effective collaboration, strategic partnerships can allow traditional insurers to attain better customer satisfaction and retention, new revenue streams and a streamline process that allows for operational efficiency. Nevertheless, it’s vital for the insurer to find the most appropriate strategic insurtech partner. This may be particularly challenging as technology is not their area of expertise. The key is to therefore find a partner with a capacity to understand their customer journey and have the ability to work together long-term.
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DELTA INSURANCE GETS BUSY WITH LAZY SNEAKERS
hen Delta Insurance decided to continue their support of the GirlBoss Awards by sponsoring the Emerging Leader Award again last year, they weren’t quite expecting the impact the winner would have on the company. GirlBoss New Zealand was founded by 15-year-old Alexia Hilbertidou in 2015 when she realised she was the only girl studying advanced physics in her year. The aim of the organisation is to close the gender gap in science, technology, engineering, maths, entrepreneurship and leadership, and Hilbertidou has certainly set the wheels in motion to achieve that goal. In 2020, GirlBoss has over 10,000 members, is represented in 55 schools and has an awards programme that attracts over 400 submissions, celebrating the determination and passion of young women defying stereotypes and leading change in their communities. Winner of the 2019 GirlBoss Emerging Leader Award Maia Mariner Russell Burt, principal of Point England School
Craig Kirk, CEO of Delta Insurance 26
was only 12 when she set up Lazy Sneakers, a charitable organisation based on a beautifully simple, yet totally practical and socially in-tune idea: taking quality, used sneakers and sports shoes that were no longer in use – hence the name “lazy” sneakers – and passing them on to others who could not afford them. Maia’s motivations were straightforward. “When I was 12, I noticed some of my friends couldn’t participate because they didn’t have the proper footwear. I talked to my parents and realised it was a much bigger issue than I originally thought. After a lot of research and a lot of brainstorming we came up with the idea of lazy sneakers.” Chief executive Craig Kirk and the rest of the Delta team attending that awards night were impressed with Mariner and her vision for Lazy Sneakers. Says Kirk: “We were so blown away with what Maia was doing, we decided we had to find a way of supporting her.” The team got behind the worthwhile initiative and decided to reach
out not only to their schools and communities, but also to all of Delta’s broker partners, asking for any pre-loved shoes that needed new homes. Delta have been overwhelmed with the level of support. Says Kirk, “We set ourselves the ambitious target of sourcing 200 sneakers by midFebruary. At last count we hit 251. It’s been amazing the extent to which the whole team and our brokers have got involved!” On February 17, Mariner and a team of Delta volunteers went to Point England School to distribute the sneakers to students, ready for the school year ahead. Principal Russell Burt was grateful for the contribution to the school. “There are lots of people in our community who struggle at times to give their kids all the things that they’d like to give them. For these kids to now be able to join in with sports and other activities is absolutely wonderful. It’s a great koha to New Zealand.” Mariner said it was incredibly satisfying each time she gave away the sneakers she had helped to collect. “Today has been so cool. You know, one kid today said this is the best day of his life. It’s really rewarding. We’ve given away 1,500 sneakers already. It’s such a simple gesture giving something and supporting people who don’t have as much as others do. And the best thing is we’re recycling and helping out the planet as well.” Craig Kirk summarises Delta’s first time being involved with a charity of this nature. “Our Delta volunteers said it was incredibly rewarding to help the students find the shoes they liked and to see the smiles on their
Maia Mariner, founder of Lazy Sneakers faces. I’d just like to say a big thank you to everyone who donated – it’s been a real community effort.” Mariner has big plans for the future too. “Our goal for this year is to collect 3,000 sneakers and give away 2,000 sneakers and we’re looking into setting up a charitable trust and taking Lazy Sneakers nationwide. There’s so much potential.”
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DEMYSTIFYING MOULD CLAIMS By Captain Mike Austin, head of marine, Sedgwick New Zealand
Is the insurance industry paying more than it needs to when dealing with claims for cargo damaged by mould?
argo surveyors see a lot of damage from mould and its companion, corrosion. Both involve wetting, the source of which is crucial to policy response. Both can cause dismay as consignees face the unwelcome need to seek recovery from their suppliers, and brokers are called upon to assist a disgruntled client. INSURED RISKS Insured marine losses are those from an insured peril, a fortuitous and harmful event that occurs during the period of cover. It is a loss that stems from something other than the ordinary and expected forces and the environment during transit. Marine policies and the laws that govern them refer to Perils of the Seas. Long before cover notes were written in the coffee house of Edward Lloyd during the 17th and 18th centuries, risks of the seas have been a significant cause of loss that have been shared by the parties to a maritime adventure. Most marine hull insurance policies have been reduced to a list of specified perils that underwriters agree to cover, with all else excluded. Marine cargo policies go beyond perils of the seas because goods are handled before and after shipment. In most cases, these policies are written to cover all risks unless excluded. Some exclusions such as inadequate packaging or inherent vice are specified to avoid doubt, although they would also be excluded if they are not from an insured peril. MOULD AND CONDENSATION Mould is a fungus that grows from spores in the air into a microbial network on a product. It plays a major role in decomposition and is a common cause of damage to cargo. It is moisture that causes most of the unwelcome mould damage to cargo. A common source of water and moisture during carriage is from condensation. Ships have historically experienced this by what was called ship or cargo sweat. That is where condensation occurs on the ship and runs on to the cargo or into the cargo itself and managed by controlling ventilation during the voyage. There has been a great deal of research and trial and error to find ways to avoid condensation damage within containers. Some containers have a controlled atmosphere for transporting foods such as when onions and squash are shipped and doors are left open to help reduce condensation. Other containers have a desiccant included and some have layers of Kraft paper or board over the cargo. The jury is out on its effectiveness as sometimes it works and sometimes it does not. The most common place that condensation occurs is on 28
the roof and walls of the container. Most cargo surveyors have seen water droplets inside a container when the door is opened in the morning.This is as normal as dew on grass or fog on car windows. INSURED LOSS DUE TO MOULD A loss is recoverable under a marine policy when it is caused by an insured peril. Wetting to cargo from exposure to rain or sea water from a damaged ship or container does not need mention here as the damage will form an insured peril. Mould that is caused by moisture from condensation is not considered to come from an insured peril unless there has been a fortuitous event. Fortuitous means accidental and beyond reasonable expectations. Condensation in containers is a known risk that is to be expected. It will probably occur when a particular product, temperature and moisture transit together within the enclosure of a container.When this occurs without any event external to the shipped unit, it is not from an insured peril. It is the task of the shipper to prepare cargo for transit with all the protection necessary for the environment it will experience.This includes taking steps to avoid or control condensation damage to their product. Cargo should not be shipped if unable to survive, without damage; the ordinary environment of transit. All movement of cargo involves risk. Goods must be prepared and packed to withstand the ordinary forces of transit but they may still be lost or damaged from wetting, dropping, fire, flood and stranding or other hazards. These are known risks that may occasionally happen but are unusual and beyond reasonable expectation. WHAT SHOULD INSURERS AND BROKERS BE DOING? Marine surveyors understand the importance to cargo owners and insurers of the need to carefully identify the source of wetting or moisture that has led to the discovery of mould on a product. If the investigation finds that the proximate cause is from an insured peril, a claim is established and if not, a claim will most likely fail. When the above principles are applied and the policy document scrutinised there should be less room for error when establishing whether or not a valid claim exists. In order to ensure that both the insurer and the insured remain happy with their relationship, a cooperative and consistent approach needs to be adopted throughout the marine transportation ecosystem. The high seas are unpredictable and carry risk but understanding those risks and taking steps to minimise damage by foreseeable perils will help reduce damage to cargo and ultimately insurance claims.
POLICE HEALTH PLAN GETS TICK
he Police Health Plan which is administered by the Police Welfare Fund, has been awarded the Consumer NZ People’s Choice Award for 2019. The award is the result of Consumer NZ’s customer satisfaction survey of health insurance providers, in which the Police Health Plan achieved a 98% satisfaction rating from its customers. Chairman of the Welfare Fund, Police Association President Chris Cahill said the PHP rating is at least 5% better than that of the next health insurer and is based on customers rating us between six and 10 on Consumer NZ’s satisfaction rating scale. "Responses for the PHP were 89% ‘very satisfied’ and 9% ‘somewhat satisfied’, and the plan achieved a rating of zero per cent dissatisfaction," he said. In presenting the award, Consumer NZ general manager business Derek Bonnar told the association that no other health insurer had ever achieved a response of zero dissatisfaction. "You knocked it out of the park," Bonner said. Cahill said it was an extraordinary achievement for a small team and was the result of true dedication to the health and welfare needs of members throughout the country. "The team really cares about the members it serves and the Welfare Fund is very proud of the trust members have clearly shown in our health plan." The endorsement allows PHP to display the Consumer People’s Choice tick of approval icon on its promotional material.
IFSO CASE STUDY
WHEN IS YOUR VEHICLE NO LONGER YOUR VEHICLE?
n August 2016, through a broker, the insured arranged insurance on her vehicle. The vehicle was endorsed on to her existing farm package with her insurer. There were no nominated drivers added to the policy. In August 2017, the vehicle was stolen from where it was parked overnight. The vehicle was later found burnt out. The woman made a claim for the loss. The insurer investigated the claim and discovered that ownership of the vehicle had been transferred in March 2017 to the womanâ€™s grandson. He was the main driver of the vehicle, and had a number of criminal and traffic convictions. Based on this, the insurer believed that the insured had failed to disclose material information. The insurer avoided the policy from March 2017, the date on which the vehicle ownership was transferred, and declined to consider the claim. The client disputed the decision, on the basis the broker was aware that her grandson would be one of the main drivers of the vehicle. Therefore, the change in ownership was not material. She also said the broker was aware of his traffic convictions. THE CASE MANAGERâ€™S ASSESSMENT The information provided when an insurance application is completed is the basis of the policy, which is a legal contract. Both the insurer and the insured must tell each other about all of the important information relating to the proposed insurance. That means the insured must tell the insurer about material facts such traffic and criminal convictions, vehicle modifications, previous claims history, or bankruptcy. This is called the duty of disclosure. Information is material if it would influence the decision a prudent insurer would make about whether or not to accept an application and, if so, on what terms. Whether a particular fact is material depends upon the circumstances of the case and is a question of fact. The insurer is
responsible for showing information is material. The duty of disclosure exists when the application is completed. The duty also applies on the annual renewal of the policy. This means the customer must tell the insurer about anything which has occurred since the last renewal date. At law, the insurer is entitled to rely on its legal rights to avoid the policy (or treat it as if it had never existed) if the insured does not tell it about material information. The IFSO cannot make a decision that ignores those legal rights, even if it does not seem fair, or has harsh results, in all of the circumstances. The insurer did not hold a record of the application that the insured should have completed when the farm package was arranged.The insurer also confirmed that the woman did not complete an application when she arranged the policy in 2016. Instead, the insurer relied on her general obligations on renewal as well as the change of circumstances condition in the policy. However, if she had completed the farm package application, which included vehicle cover, or a standalone vehicle cover application, she would have been asked specific questions about her criminal history, and the criminal history of anybody who would drive the vehicle. The case manager had discussions with the insurance company about the credibility of the broker, given his inconsistent recollections of the telephone call when the policy was arranged. In addition, concerns were raised about the endorsement process for adding vehicles to an existing policy, without a requirement for underwriting questions to be asked on each occasion, and the lack of process requiring any answers given in response to be provided to the insured on renewal Following the discussions with the case manager, the insurer accepted that there had been issues with how the policy was arranged.Therefore, it agreed to reverse its decision to avoid the policy, and accepted the claim.
IFSO CASE STUDY
BROKER, CLIENT DISPUTE PHONE CALL I
n September 2006, through the broker, a company arranged cover for a refrigeration truck. In or about September 2009, the company’s director had a telephone discussion with the broker, about adding an endorsement to the policy. He believed he had said the company wanted what is called loss of use cover, which would provide a temporary rental vehicle, if the truck was damaged. However, the broker understood that he wanted commercial vehicle cover for any rental vehicles the company may hire. An endorsement for rental vehicles was added to the policy without altering the premium. In July 2014, the truck was involved in accident. The company made a claim to insurer for the damage. The insurer accepted the claim and paid the repair cost. However, a dispute arose about cover for the cost of a temporary rental vehicle.
at the time of the complaint and there was no telephone notes which assisted. Therefore, there was a direct conflict of oral evidence. However, even if it were established that the client had requested loss of use cover in 2009, and this was not undertaken appropriately, the company would still have to show it suffered a loss as a result. In bringing the complaint, the man said that the cost of the rental was $954.30 per week, for a total of $7,634.44. The insurer had also made an ex-gratia contribution of $3,000. The case manager looked at what position the company would have been in, if it had loss of use cover from 2009. From the case manager’s research, the company was paying low premiums at the time of the complaint, for the loss of use. Therefore, in order to fully consider the complaint, the case manager used the company’s current cover to
The man raised concerns with the broker, stating that he had requested loss of use cover and requested compensation. The broker disputed that the client had requested loss of use cover in 2009. The broker said that he had been offered loss of use cover on a number of occasions, but declined it due to the high cost. Instead, the broker believed that the man had requested commercial vehicle cover for rental vehicles. THE CASE MANAGER’S ASSESSMENT When assessing complaints, the IFSO Scheme takes the available evidence into account. Unlike a court of law, however, the IFSO Scheme does not hear oral evidence on oath. For this reason, documentary evidence is usually more persuasive. Where the parties present conflicting oral evidence, the IFSO Scheme may not be able to establish what happened if there is no documentary evidence to assist. The recording of the telephone call in 2009 was no longer available
determine the position it would have been in. When arranging loss of use cover, an insured needs to select the length of time they want cover for. The company had five weeks’ loss of use cover. If it had had that level of cover in 2014, there would have been cover for about $954.30 times five weeks, for a total of $4,771.50. This did not take into account possible deductions, including excess. In addition, if the loss of use cover were in place from 2009, the company would have been required to pay additional premiums for the loss of use cover between 2009 and September 2013; five years of premiums. The company was paying about $481.56 for loss of use cover. As such, it would have paid an additional $2,407.80 in policy premiums. That was a saving that would need to be deducted from any calculation of loss. Therefore, the total claimable, of five weeks’ hire, less policy premiums ($4,771.50 less $2,407.80) was $2,363.70. Finally, the company also recovered $3,000 from its insurer. This means that, even if it were accepted that the client asked for loss of use in 2009, the company has already been sufficiently compensated for the potential loss. www.covernote.co.nz
TWO INSURERS FACE LITIGATION BECAUSE OF POOR POLICY DRAFTING By Crossley Gates
e look at two recent court decisions, one in the Court of Appeal of Western Australia and the other in the High Court of New Zealand, where poor policy drafting led to policy interpretation disputes. In both cases, the courts applied the law of contract interpretation to determine the dispute. However, clearer drafting by the insurers would probably have avoided the cost of fighting the court cases in the first place. We summarise the two cases below. TOKIO MARINE & NICHIDO FIRE INSURANCE CO LTD V HANS BO KRISTIAN HOLGERSSON  WSSCA 114 The head contractor on a residential construction site subcontracted the painting work to Holgersson.The head contractor held a construction policy with the insurer, Tokio Marine. While Holgersson carried out the painting work, a fire broke out that caused substantial damage to the contract works. Tokio Marine met the head contractor’s claim under the construction policy. It then pursued a subrogation action against the painter, Holgersson. Holgersson argued that it was insured under the construction policy also as a subcontractor, precluding Tokio Marine’s subrogation action against it. The court considered as a preliminary question in the proceeding whether, properly interpreted, the policy insured Holgersson as a named insured or not. The definitions section of the policy defined ‘named insured’ as follows (underlining added): a) You b) … 32
c) Additional Insured(s): i. … ii. … iii. … iv. all contractors and sub-contractors … not being You but being a legal entity with whom You have entered into a Contract and provided their interests are required to be insured jointly by You, and then only to the extent required by the terms set out in the Contract … d) … e) … ‘You’ was also defined as follows (underlining added): … the Person(s) or legal entity named in the Schedule. The parties agreed Holgersson did not qualify as Additional Insured(s). This was because the proviso did not apply; the terms of the head contract did not require the head contractor to insure the interests of Holgersson as sub-contractor. If the matter had rested here, the contractual position would have been clear: objectively, the parties intended that a sub-contractor such as Holgersson was not to be covered because the terms of the head contract did not require it. However, the schedule to the policy stated the persons defined as "you" included:
... all … Sub-Contractors.
This created a clear contradiction within the policy about whether Holgersson was a Named Insured’ the definition of You said it was, and the definition of Additional Insured(s) said it wasn’t. The Court of Appeal resolved this by applying established contract law that says the terms of a contract that are specific to the parties override the terms of a contract that are in standard form. Here, the schedule was completed with the specific parties in mind whereas the definition of Additional Insured(s) was a standard part of the policy. This meant Holgersson was a ‘Named Insured’ and Tokio Marine could not subrogate and sue it. NC MATHIESON AND OTHERS V TOWER INSURANCE LIMITED  NZHC 136 The insured’s house suffered significant damage in three successive earthquakes in the Canterbury sequence during 2010/2011. The policy contained a warranty that said: Warranted that the maximum sum insured is $455,000. After the third earthquake, the house was still repairable but experts estimated that the cost to repair it, as at August 2, 2017, was slightly over $3 million plus GST. While there were some issues about the basis of the insured’s entitlement under the policy, the primary dispute was whether the insured could claim the maximum sum insured of $455,000 once over the policy period or for each of the three earthquake events. Another way of asking this is whether the maximum sum insured was
available per event during the policy period or in the aggregate during the policy period. A policy is for a fixed term of 12 months. By implication, a monetary limit in the policy is only available over that 12-month period. In order to overcome that implication, clear words are required. The usual way of stating this is to apply the sum insured ‘per event’. The court noted that those two words were missing and so the objective intention of the parties must have been to apply the sum insured in the aggregate during the policy period. COMMENT Both decisions apply conventional contract interpretation law to determine arguments created by poor drafting. In the Tokio Marine case, it appears whoever completed the Schedule did not appreciate that naming the sub-contractors in it potentially clashed with the standard definition of "Additional Insured(s)". In the NC Mathieson case, the addition of the words "in total during the period of insurance" after "$455,000" would probably have avoided the whole dispute. Both decisions demonstrate the cost to insurers of not taking sufficient care with their policy drafting. Crossley Gates is a partner at Keegan Alexander. Email: firstname.lastname@example.org Direct Dial: (09) 308 1809
FINANCIAL ADVISERS ARE KEY TO MANAGING CLIENT EXPECTATIONS K
aren Stevens, Insurance and Financial Services Ombudsman, says the best time for consumers to undersand insurance is before they need it. “It’s both our message to consumers, and to financial advisers who belong to the IFSO Scheme. Advisers should ensure their clients understand what they are signing up to, what their obligations are, and how to avoid getting caught without cover,” she said. “Many of the complaints we investigate at the IFSO Scheme could have been better managed from the beginning, with clear communication and information. Managing client expectations up front is the only way to avoid disappointment later.” “Disappointment often leads to complaints,” Stevens said. “If people know what to expect from the beginning - the limits of their cover or what they will need to do for a successful claim - complaints can be avoided. “Some people have unrealistic expectations that insurance will cover any and every unexpected loss. Many don’t understand how the claims process works, and what they need to do to prove they have suffered a genuine loss. “In the same way as we urge consumers to check their policy and keep asking questions, we also encourage advisers to provide good information to guide the process from inception to renewal, and during claims.” Common misunderstandings are highlighted in the following complaint inquiries and complaints received by the IFSO scheme. “Complaint
inquiries are any questions we receive on our 0800 number, our info email, or online, whereas complaints have been accepted for investigation, and go through our disputes resolution process.” “By sharing real examples of when and how things go wrong, our hope is to give you the opportunity to get it right first time - by understanding the issues and engaging with your clients.”
REAL LIFE CASES
1. Excess Excess is a common issue in complaint inquiries and complaints to the IFSO Scheme. At inception and at renewal, advisers could help clear up misunderstandings by explaining what an excess is, why it exists, and how and when an excess would apply to a claim.
Complaint Inquiries Not my fault Colleen’s* car was hit by a van and damaged. The party at fault in the accident wouldn’t respond to her calls. Colleen didn’t want to pay an excess upfront when she is not at fault. Two excesses? A rat chewed through two ends of the one pipe over a few days in Chloe’s* house. The insurer applied two excesses to the water damage
2. Prima facie claim At claim time, advisers can assist clients to understand, and have realistic expectations about, the claims process and about their obligations and options. The mystery of the prima facie claim is the cause of up to 20% of general insurance complaints. “We break it down for consumers by explaining that, to make an insurance claim, they need to show they have suffered a loss, and that loss must be covered by the policy,” says Karen. “This is the prima facie claim. If the insured has no proof to demonstrate these points, the claim can be declined. Financial advisers can really help by explaining what the requirement to prove a prima facie claim involves, including explaining how to prove the loss and prove ownership.”
Complaint Inquiries Burst pipe, not sudden, no cover Colin* noticed water damage in his house. He said it was from a burst water pipe inside a retaining wall. Colin said he cannot access inside the retaining wall to see exactly what happened as it is too expensive. The insurer declined the claim on the basis that Colin had not proven the damage was sudden and unexpected. Earthquake claim, not earthquake damage Kim* made a claim for damage to her house following the Kaikoura earthquakes. The insurer declined the claim on the basis that the damage did not occur as a result of an EQ. No receipts for jewellery Tim’s* home was burgled twice, but he didn’t have receipts for the stolen jewellery. The insurer said the photos Tim provided weren’t sufficient proof and declined part of Tim’s contents claim. Boat engine damage Sam’s* boat engine was damaged when a bag got stuck, causing water to spill into the motor. Sam had an engineer’s report to support this view, but the insurer had two reports supporting mechanical damage, which was excluded under the policy. The insurer offered to cover 50% of the claim. Complaint Linda* claimed several items of jewellery had been stolen from her home during a number of burglaries. Her insurer appointed a loss adjuster who reported there was no evidence of forcible entry and no proof of ownership. Linda had claimed the jewellery had been stolen by a carer employed by her healthcare provider.The healthcare provider investigated and reporter it had been unable to establish a loss had occurred. The insurer then appointed an investigator. Based on his enquiries with Linda’s family members and the healthcare provider, he reported there was
no evidence to support the claim. Linda’s policy covered “accidental loss” of contents where “loss” was defined as “[p]hysical loss”, and “accidental” as “[u]nexpected and unintended”. On the claim form, Linda stated the thefts occurred “several times … about two weeks ago” and, to the question “Do you think that any other person is responsible for the loss or damage?”, Linda answered she suspected the carer. The police report contradicted the information in the claim, as it stated the jewellery had been taken from the house “over a period of two years”. The healthcare provider reported Linda had “noticed items being missing over the last few years … [and Linda had] said … ha[d]n’t seen them in months”. There was no evidence of burglary or forced entry and the carer had been an invited guest to the house.There was no information or evidence of “[p]hysical loss”. The insurer informed Linda it was unable to accept the claim, because she had not proven she had suffered a loss at the house during the period of insurance. 3. Gradual damage Of all the general insurance complaints to the IFSO Scheme, 12% relate to gradual damage. “We hear from many people who don’t understand that insurance is there to cover you for damage which happens suddenly and accidentally, and not for damage that happens gradually,” says Karen. “Water damage is a recurring issue, especially when the damage is discovered suddenly, but has been happening over time. We explain it is not the discovery, but the cause, of the damage that must be sudden.”
Complaint Inquiries Slow leak from washing machine Jane’s* tenants did not tell her the washing machine had leaked, causing significant damage. Jane wanted her insurer to contribute to the cost of repairing the damage. Flooded basement, sinking driveway Sue’s* basement cupboard flooded in a sudden rain event, and months later she discovered the driveway sinking in the middle. The insurer declined the claim as it said it was gradual damage caused by the basement, but Sue said the damage was caused by the rain event. 4. Market v Agreed Value “The difference between market and agree value in vehicle insurance is another really common complaint area,” says Karen. “Financial advisers could make a big difference by taking time at inception to explain to clients the type of vehicle insurance policy they are signing up to and what to expect if their vehicle is written-off in future.”
Complaint Inquiries Both Bill and June disappointed by payouts Bill* understood he insured his car for $8,000. After the car was written off in an accident, he was paid out $3,500 by his insurer. June’s van was written off and the insurer offered a $4,000 payout. June said vans of the exact same year, condition, and kms were selling on Trademe from $6,000 to $9,000. June said the insurer was valuing her van low on purpose to drop its payout figure. The insurer asked June to get three valuations of the van. June said that was the insurer’s job. She said finding out what cars sell for is easy on the internet and using a valuer paid by the insurer is not independent. www.covernote.co.nz
*Not real names.
claim, as it said the damage was caused by more than one event. Complaint Car accident, not “completely free of blame” Eric’s* car was damaged in an accident, which occurred when Eric and another driver reversed at the same time. The other driver said Eric reversed into the door on the driver’s side of his vehicle. Eric disputed this. The insurer accepted Eric’s claim, but didn’t believe Eric was “completely free of blame” (as required by the policy for the excess to be waived), as there were two different versions of the facts. The excess of $400 applied. The IFSO scheme case manager said there was no independent evidence available.Therefore, the insurer’s decision (that they couldn’t confirm Eric was “completely free of blame”), was reasonable in the circumstances. To show he was “completely free of blame”, so the excess could be refunded, Eric could have taken the matter to the Disputes Tribunal or provided more evidence.
2019 A PRICEY YEAR FOR INSURERS
rovisional results show that insurers spent more than $118.8 million last year responding to severe weather events, with more than 18,000 claims made. "What was looking to be a benign year for extreme events changed in the last few months when we saw some extraordinary losses emerge from unexpected quarters confirming the value of insurance to cover the unforeseen," said Tim Grafton, chief executive of the Insurance Council of New Zealand. The results make 2019 the sixth most expensive year since 2010, with insurers paying more than $1.2 billion for weather related loses during the decade. 2017 was the most expensive year for severe weather events costing $246 million. "The destructive power of hailstorms is seldom experienced, but the Timaru event on 20 November showed us the fierce effect of these storms when concentrated on urban areas. Costs are currently estimated to exceed $83 million making this the third largest event for the decade," Grafton said. As a result of this storm, motor vehicles drove the highest number of claims in 2019, with 9,771 vehicle claims resulting in $56.4 million paid to customers. Close to 9,500 of these claims were for hail damaged cars in Timaru. House and contents claims were the second largest, with 6,211 claims costing insurers $29.6 million. Looking at the top five events since 2000, Grafton said the figures reinforced the increasing frequency and severity of storms in New Zealand. With climate change we will see an increase in the frequency of extreme weather events. "Since 2014 we have seen a significant increase in events causing damage in the hundreds of millions. The need to adapt and take steps reduce risk is supported by wider climate research. "For example, one scenario the Intergovernmental Panel on Climate Change project a global mean sea-level rise from 0.43m to 0.84 metres by 2100, which means we can expect to see increased instances of damage to property as a result of extreme tide-storm events. This could affect many New Zealanders, with NIWA estimating that over 125,000 properties are vulnerable to a 1-metre rise in sea-level. "This is just one of the areas of risk that New Zealand faces. It is clear that we must adapt to the changes we are seeing and take steps to reduce risks where possible to minimise the social and economic cost and impact to us all."
ASK AN EXPERT
Pre-settlement insurance QUESTION… A client has agreed to purchase a house over which the seller holds home insurance. When the property goes unconditional the purchaser wishes to undertake some building/renovation work prior to settlement. Both parties agree to this but now there is a question over how to insure it as neither parties insurer seems overly keen. I recall some legislation in New Zealand that enables the purchaser to arrange insurance from the date the property goes unconditional (as opposed to the latter settlement date). This on the basis that the purchaser presumably has some financial interest over the property. In the event of a claim, this specific piece of legislation allows the parties to choose which policy to claim under but they can't claim under both. Our thoughts are that we can quote this legalisation to the purchaser's insurer in the hope that they agree to a home insurance offer. We recognise that we may also need to arrange some contract works insurance to cover them for the building's works.
REPLY… CROSSLEY GATES There is no legislation that applies to this situation. Rather once an agreement goes unconditional, the purchaser must purchase and so is at risk of financial loss if the building suffers an insured peril. The purchaser ought to be able to insure against this in the usual way. The legislation you are thinking of is the Insurance Law Reform Act.This says the vendor’s policy is for the benefit of the purchaser. But this insurance may not be sufficient and may not cover construction. REPLY… RICHARD WOODCOCK The reason the insurers are “not keen”, is because it is fraught with potential problems. If this were a client of mine, I'd advise them strongly to stay away until the house is theirs, settled. A problem avoided is 100 times better than a problem fixed.
How many times is levy due? A number of classic cars are held in a museum. The broker and insurer agree to insure the vehicles under a material damage policy whilst on display. The broker supplies the list of vehicles to the insurer each year and the insurer agrees to insure them on an agreed value basis of settlement. Under the material damage policy, the broker collects a FSL levy on each and every vehicle and for a full year. On occasion, some of the vehicles may be taken out of the museum and used on road and for events such as weddings, classic car shows, Santa parade etc. The insurer and broker agree to arrange a motor vehicle policy that covers this on road use and associated liability (section 2). The policy does not list all of the vehicles but simply “covers occasional use of any museum vehicle whilst on road” up to a maximum value of $400,000. The basis of settlement is the same as under the material damage policy. Neither the broker nor the insurer is certain of how to charge the FSL levy (if any) under the motor policy. Presumably we would not need to charge a FSL twice? Can you please clarify?
REPLY… CAMERON TAYLOR If there are two policies that cover the same asset, then levy is payable on each policy. I understand that there is a fairness question about it, however the Fire Service Act 1975 is very clear that levy is payable on each policy where fire is covered. This concerns the NZI Broadform Liability policy and the Contractual Liability Exclusion, in particular (a) which is being quoted to decline this claim: "You are not insured for liability that you have agreed to assume under a contract, unless: (a) you would have otherwise have been legally liable in the absence of that contract,"
ASK AN EXPERT
Who’s out of pocket?
The client is a franchise motor vehicle dealer which includes own workshop. They were contracted to carry out a factory recall repair on a tractor which required removal of the motor by the insured and the contracting out to a third-party specialist to work on the motor. Upon return of the motor it failed pre-install running in, was sent back to be fixed, second time around again failed and on the third occasion the manufacturer intervened to supervise and oversee the repair. Third time lucky you might say. The client has sustained considerable costs for their work but as they were contracted to carry out the repair and the damage has occurred whilst entrusted to them are obligated not to pass on those extra costs to their customer/manufacturer. The third-party workshop is denying liability through their insurer. The client’s insurer, NZI, seeing as the client says they were not to blame, do not consider them to be legally liable even though in this case there are likely subrogation rights, and are using this exclusion to support this decision. It is our opinion that the client would be liable to their customer under common law and that even if there was a contract it should have no effect in these circumstances. Your expert opinion would be appreciated in this matter. Thank you.
We are looking at changing general liability providers for a plumbing business. There are no known claims or circumstances likely to give rise to a claim. Due to the nature of the plumbing industry and the typical “water damage” claim. Is there a cause to be concerned around changing underwriters on an occurrencebased wording? Example 12/02/20 Insured install a new hot water cylinder for a client. 15/02/20 Existing policy expires and cover is arranged with a new underwriter 17/02/20 Allegation of water damage as a result of cylinder install arises. I appreciate the timeline is unlikely but so are many things in life. With no clear time and date of an occurrence which policy do we rely on to pay?
REPLY… CROSSLEY GATES The trigger for cover under a general liability policy with an occurrence wording is when the property damage occurs for which the insured is being held liable. As long as there is a policy on foot when the property damage occurs then potential cover is in place. This means a seamless transfer from one insurer to another should be fine.
REPLY… CROSSLEY GATES As I understand it, your client’s customer was entitled to a free manufacturer’s recall and repair. As this was provided free to the customer, it is hard to see how the customer is out of pocket, entitling it to hold your client liable for anything. If anyone is out of pocket it is your client, which has presumably incurred the extra expense of the multiple attempts by the party it contracted to carry out the necessary repairs to the engine. You client does not appear to be facing an allegation of liability from anyone and the liability assumed by agreement exclusion appears to be irrelevant.
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.
ASK AN EXPERT
What counts as ‘internal’? QUESTION… We have a situation with a leak under the driveway within a residential property. Under the home definition the driveway is included as long as it is within residential boundaries. The client has a leak coming from the pipes installed under the driveway which is within the residential boundaries. Hidden gradual damage benefit is as per policy wordings below: Hidden gradual damage Hidden rot, hidden mildew or hidden gradual deterioration, caused by water leaking from any internal: • tank that is plumbed into the water reticulation system of the home and is permanently used to store water, or • water pipe, or • waste disposal pipe, installed at the home Would the pipes installed under the driveway can be considered "internal"?
Cover for missed flight QUESTION…
REPLY… CROSSLEY GATES That is a tricky one as most people would not consider a pipe running under a driveway as “internal”. However, applying the definition of “home”, which includes structures within the boundary, the pipe in the soil under the driveway could be argued to be internal to the driveway. Note that the pipe itself will likely also be part of the home as the definition usually includes underground utilities. Please note also that the only likely alternative for the definition of hidden gradual damage is hidden gradual deterioration. Did the pipe gradually deteriorate or did it suffer sudden impact? What about the driveway? Did it suddenly crack? Is so that is not gradual damage.
We have a client insured under a corporate travel policy. One of their staff missed flights and had to get new flights due to a spelling mistake in their name on the tickets. This error cost $4500 to fix. The insurer is declining the claim as they deem it not unforeseeable. The wording for cover is "Any other unforeseen circumstances that directly impact the insured person’s travel which are outside the control of you or the insured person......" The insurer’s comment is "It is still the passenger’s responsibility to ensure that all travel document/s including flight bookings are in order and accurate prior to the departure to avoid any delays and issues with the airline.” I would appreciate some opinions as to this being reasonable.
REPLY… CROSSLEY GATES The error and the missed flight are still unforeseen by the insured. In other words, through the insured's eyes, the insured did not foresee this happening. The insurer seems to be arguing that the insured was negligent, but the policies cover negligence (short of recklessness). 39 www.covernote.co.nz
FSCL CASE STUDY
HOW MANY EXCESSES?
he insured ran an automotive glass repair company. In 2017 his company had to replace 144 windscreens that had sensors in them. The workmen who did the replacements did not recalibrate the sensors after replacing the windscreens. This resulted in the sensors being unreliable and potentially dangerous. When the problem was discovered, the company recalled and recalibrated 93 of the sensors. Each repair cost roughly between $160 - $1,000. The insured claimed on the company’s public liability insurance for the cost of all the recalibrations, a total of about $10,000. The company’s insurance policy had a $1,000 excess. However, the insurer treated each recalibration as a separate claim and found that only four of the recalibrations cost above the $1,000 excess. The insurer offered the insured $1,300 in total for the claim. The insured felt that this was unfair and complained to FSCL. DISPUTE The insured and his brokers argued that the claim should be treated as one “occurrence”, not as multiple claims. He 40
sought to have his claim paid in full. The insurer claimed that each failure to recalibrate the sensors represented a separate occurrence under the policy and therefore, the excess should be applied to each occurrence. REVIEW We looked at the evidence and the policy wording to decide whether the failure to recalibrate the sensors in 93 vehicles was one “occurrence”, or whether each failure was a separate ‘occurrence’. In our view, the cause of the claim was a failure by the workmen to understand that the software in the sensors differed in each vehicle. The defective workmanship claim arose from this same misunderstanding. We found that there was a sufficient link between the recalibrations for the claim to be treated as arising from one occurrence. The insurer, therefore, should pay the total amount claimed by the insured. RESOLUTION The insurer offered to settle the dispute for $10,500, less the $1000 excess policy. The insured accepted this settlement offer.
FSCL CASE STUDY
NOT SICK ENOUGH T
wo people had planned a safari tour to Africa. Both obtained travel insurance policies from the same insurer. A month before their trip, one man got ill and his GP declared that he was unfit to travel for the next three months. His would-be companion cancelled his trip because most of the tour costs were intended to be shared and, without his friend participating, he could not afford the additional costs of rebooking as a sole traveller. The man who fell ill submitted a claim to the travel insurer, who fully refunded the cost of his cancelled trip. However, when his friend claimed a refund for his cancelled trip, the insurer declined his claim. The insurer said that the policy only covered him cancelling his trip if the cancellation was due to the unexpected and serious sickness of his travelling companion. The insurer said that the sickness was not life-
not medically necessary for his friend to remain with him. We also noted that his policy was a business policy. It was intended to cover situations where business associates are on work trips. If one associate were to fall ill, it would not be unusual for the other to continue on with the work trip (as opposed to a personal policy where it would be more likely for you to stay in New Zealand if your travel companion could not travel). There was the ability for him to nominate people to be a named person on his policy. Had his friend been a named person on his policy, then he would only have to have been suffering from a “sickness” not a "serious sickness" for his friend’s cancellation to be covered. His problem was that he was not aware that he would have to name people on his policy, to take full advantage of its cover.
threatening, and did not necessitate the other man cancelling his trip to remain in New Zealand with him. He complained to FSCL that the insurer had incorrectly declined his claim. DISPUTE He said that the insurer should have taken into account that it was outside his control that the trip was cost prohibitive if he and his friend could not travel together. He also complained that his friend’s hospital stay of more than one day should mean he was considered to have a serious sickness. REVIEW Our preliminary view was that the complaint should be discontinued, because the policy did not cover the claim.The policy’s “serious sickness” definition meant that the man’s sickness needed to be of a severity that it was medically necessary for his friend to stay in New Zealand to be with him, because there was an immediate threat to his life. We reviewed the evidence and found that, although he was too sick to travel himself, it was
We suggested he discontinue his complaint. However, we also suggested that he consider contacting his insurance broker about the alleged failure to inform him of the need to name people on his policy. RESOLUTION The insurer accepted our view. The insured disagreed, but decided to discontinue his complaint. He did not choose to pursue a complaint against the broker. INSIGHTS FOR CONSUMERS It is important for consumers to read and to understand their policies. If a policy is unclear, or if you do not know whether it will cover a certain situation, then consumers should question their brokers and insurance companies. If a situation occurs that may necessitate the cancellation of travel, check with your broker about whether you will likely be covered, before you authorise the cancellation.
Professional Development: Professional IQ College
What are ethics? By Rod Severn
hen we talk about “ethics” we are referring to a philosophy of dealing with values relating to human conduct, with respect to the rightness and wrongness of certain actions and to the goodness and badness of the motives and ends of such actions. It’s around justice, truth-telling and promise-keeping. Where do you see yourself in the above statement? Do you have moral principles that allow you to look yourself in the mirror each morning knowing you are putting your clients’ needs first? Knowing you are keeping your promises and telling your clients the truth? People can handle the truth. Often, they can’t handle a lie! The culture of your business is a good place to look to see if there is a culture of openness, honesty and transparency. If not, you might want to have a dig a little to try and find why these valuable traits are missing. Here’s a really good test of your own ethics as a businessperson.Would you give the same advice to your parents that you would give to your clients? It is so easy to slip into the “she’ll be right” attitude “ it’s only Joe Bloggs I am dealing with”. Shift your thinking now before all your Joe Bloggs find another adviser. When was the last time or, in fact have you ever, done a client survey to determine what your clients think of you, your business and your processes? Get a third party to survey them.You might be surprised at the results, and it might be the best messaging you ever received. Good staff and good systems are critical today to ensure a smooth42
running business. With the new legislation coming at us quickly where good record-keeping and disputes registers are top of mind with the FMA, is your business ready for the new world? With a well-run business it gives you the power to know you are trying to give your clients the best experience possible. It allows confidence in financial decision-making by your clients because they have trust in your judgement. It gives them confidence around budgeting and spending decisions. It gives peace of mind and higher levels of happiness. At the recent FSC Roadshow I spoke with many advisers and brokers about where they were at with licencing, getting qualified and decisions around becoming an FAP or joining one. I estimate only around 30% -35% have made final decisions or are near to them. If the polling is true only a small percentage have actually applied for and been granted their transitional licence. Whilst you still have just under four months to go if you haven’t made your mind up yet, I suggest you start getting your house in order now. We know from the number of advisers currently undergoing their level 5 training there are many more yet to start that process. With everything else going on in adviser land it is a good time to get at least the qualification piece under way. We are here to help so give us a call. Ethics, it’s an interesting value that can set you apart from the competition. In today’s world you can get by with little on the ethics front and, for a while you might succeed, but you will be found out eventually and the price you pay may be very high indeed.
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FREASY (Free + Easy) Cloud Diamonds to Transform Your Business
Auckland & webinar
A cornucopia of wonderful, simple tips and tricks on how to use every day, free Microsoft and Google Cloud apps tools better to grow business, improve client service and free up a lot of time!!!
What does your client really need?
Auckland & webinar
How do you know what your client needs? Is it enough to simply ask? Providing good financial advice is undoubtedly a form of negotiation as the adviser needs to often balance wants, needs and resources and at the same time ensure the financial advice is in the best interests of the client. It is also vital those needs are met or reasons established why not, to avoid a dispute at a later date.
Turning Prospects into Clients
Auckland & webinar
The key to regularly converting prospects into clients is by focusing on building the relationship and providing better service than their current provider.
Recent complaints about Financial Advisers
Auckland & webinar
Recent complaints about insurance advisers help to show what went wrong, and what could have been avoided. This webinar will discuss the complaint from the client's perspective, the IFSO Scheme investigation and resolution, and the lessons to learn.
How To Ease Your Work/Life Imbalance
Auckland & webinar
You will pick up strategies, ways and tips to achieving personal and business goals while successfully balancing the 1001 pulls on your time without dropping the ball.
CONTACTS: IBANZ CORPORATE COMPANY LIST PIQ BOARD
IBANZ BOARD Roger Abel Rothbury Group Limited PO Box 1596 Shortland St, Auckland 1140 Mob: 021 952 230 email@example.com Tony Bridgman (President) Executive Director Marsh Ltd PO Box 2221 Auckland 1140 Tel: 09 928 3015 Mob: 021 873 399 firstname.lastname@example.org 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 email@example.com
Allan Daly Managing Director Avon Insurance Brokers PO Box 3923 Christchurch Mail Centre Christchurch 8140 Tel: 03 3710 301 Mob: 0275 358 128 firstname.lastname@example.org Duane Duggan (Immediate Past President) Head of Insurance Legal Crombie Lockwood (NZ) Ltd PO Box 91747 Victoria Street West Auckland Tel: 09 357 4805 Mob: 021 833 286 duane.duggan@ crombielockwood.co.nz Ramesh Mavani (Secondment) Manager Insurance People (Fire & General) Limited PO Box 47218 Ponsonby Auckland 1144 Tel: 09 360 5616 Mob: 021 078 3465 ramesh.mavani@ insurancepeople.co.nz 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 Angus McCullough General Manager Marketing & Chief Broking Officer Aon New Zealand PO Box 1184 Shortland Street Auckland 1140 Tel: 09 3629059 firstname.lastname@example.org William O’Brien Manager Montage General Insurance PO Box 8307 Symonds Street Auckland 1150 Tel: 09 373 0700 Mob: 021 737572 email@example.com Jason Smith Managing Director Property & Commercial Insurance Brokers PO Box 4 Feilding 4740 Tel: 06 323 8820 Mob: 027 293 8724 firstname.lastname@example.org
David Crawford Chair Director, New Zealand Insurance Advisernet NZ Ltd PO Box is 37670 Market Road Auckland 1151 Tel: 09 926 2062 Mob: 021 905 537 email@example.com Fred Dodds Waikanae Mob: 021 998 906 firstname.lastname@example.org Angi Mann Contract Compliance and Learning and Development Specialist Auckland Mob: 021 293 1724 email@example.com Jason Smith Managing Director, Property & Commercial Insurance Brokers PO Box 4, Feilding 4740 Tel: 06 323 8820 Mob: 027 293 8724 firstname.lastname@example.org Gary Young Chief Executive, IBANZ Auckland DDI: 09 306 1734 email@example.com
Zeeshan Ahmad Student Liaison DDI: 09 306 1739 firstname.lastname@example.org
Lisa Herbison Student Liaison DDI: 09 600 5712 email@example.com
Michael Collins Student Support Assistant firstname.lastname@example.org
Sylvia Heywood Academic Manager Professional IQ College DDI: 09 306 1737 email@example.com
Robyn Gosden Finance & Office Manager DDI: 09 306 1733 Mob: 027 275 2477 firstname.lastname@example.org
Karen Scard Administration Manager DDI: 09 306 1738 email@example.com
Rod Severn CEO Professional IQ College DDI: 09 306 1736 Mob: 021 749 202 firstname.lastname@example.org June Wang Student Liaison DDI: 09 306 1735 email@example.com Gary Young Chief Executive IBANZ DDI: 09 306 1734 Mob: 027 543 0650 firstname.lastname@example.org
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RISE OF THE
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CoverNote is published quarterly by IBANZ, the Insurance Brokers Association of New Zealand. All correspondence should be addressed to: CoverNote, PO Box 33-1630, Takapuna, Auckland.
Expect chatbo ts to pick but there’ll still up more of the grunt work, be a need for human advice .
Each issue of CoverNote is packed with vital information, news, commentry and advise for the insurance industry from experts within the industry. To keep abreast with all the issues affecting New Zealand’s insurance broking industry just email firstname.lastname@example.org
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InsurTech traditional insur can give ance a lift
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CONTACTS: IBANZ CORPORATE COMPANY LIST IBANZ CORPORATE COMPANY LIST Abbott Group
Insurance Advisernet NZ Ltd
Adams Trimmer Insurance 1992 Ltd
Insurance Brokers Alliance Ltd
Insurance Design Limited
Advance Insurance Services Ltd
Insurance People (Fire & General) Limited
Advice First Limited
Malcolm Wrigley Insurance Services
Affiliated Insurance Brokers Ltd
AIB Group Insurance Ltd
Luxor Insurance Brokers Ltd
AIM Associates Ltd
Malcolm Flowers Insurances Ltd
Albany Insurance Services Ltd
Amicus Brokers Ltd
Matt Jensen Insurance Brokers Ltd
Andrew Scragg & Associates
McDonald Everest Insurance Brokers Ltd
Aon New Zealand
Montage General Insurance Ltd
Apex General Ltd
Atlas Insurance Brokers Ltd
National Credit Insurance (Brokers) NZ Ltd
North Shore City
Nelson Marlborough Insurance Brokers Ltd (NIB)
Avon Insurance Brokers
Neville Newcomb Insurance Brokers Ltd
Baileys Insurance Brokers Ltd
Northco Insurance Brokers Ltd
Bay Insurance Brokers Ltd
Northcrest Insurance Brokers Ltd
Brave Day General Ltd
O'Connor Warren Insurance Brokers
Bridges Insurance Services Limited
OFS Insurance Brokers Ltd
Broker Direct Services Ltd
Omni Fire & General Ltd
BrokerWeb Risk Services Limited
Paramount Insurance Agencies Ltd
Builtin New Zealand Ltd
Partridge Advisory Limited
Cambridge Insurance Brokers Ltd
Paterson & Co NZ Ltd
Capital Risk Solutions Limited
Penberthy Insurance Ltd
Card Marketing International Ltd
Peter C Cranshaw Insurance Broker Ltd
Cartwright General Insurance Limited
PIC Insurance Brokers Ltd
CBA Insurances Limited
Primesure Brokers Ltd
Certus Insurance Brokers NZ Ltd
Property and Commercial Insurance Brokers
Protekt Insurance Brokers 2008 Ltd
Coastal Insurance Brokers Ltd
Provincial Insurance Brokers Limited
Commercial & Rural Insurance Brokers Ltd
PSC Connect NZ Limited
Crombie Lockwood (NZ) Ltd
River City Insurance Brokers 2000 Ltd
Dawson Ins. Brokers (Whakatane) Ltd
RMA General Ltd
Dawson Insurance Brokers (Rotorua) Ltd
Rothbury Group Ltd
Edward Ruys & Co Ltd
Runacres Insurance Ltd
Emerre & Hathaway Insurances Limited
Seneca Insurance Brokers Ltd
Frank Risk Management
Sit & Blake Limited
FundAGroup Insurance Brokers Limited
South Pacific Insurance Brokers Ltd
Glenn Stone Insurance Limited
Sweeney Townsend & Associates Ltd
Grayson & Associates Ltd
Thames Valley Insurance Ltd
Gregan & Company Ltd
The Advisers 1 Limited
GYB Insurance Brokers Ltd
Thorner General Insurances Ltd
Harden & Hart Insurances Ltd
Towes Insurance Brokers Ltd
Hazlett Insurance Brokers Ltd
Trevor Strong Ins Ltd
Honan Insurance Group (NZ) Ltd
Vercoe Insurance Brokers Ltd
Hood Insurance Brokers NZ Ltd
Vision Insurance (S.I.) Ltd
Hurford Parker Insurance Brokers Ltd
Waikato Insurance Brokers Limited
Hutchison Rodway Ltd
Wallace McLean Ltd
Wanganui Insurance Brokers Ltd
ILG Insurance Brokers
North Shore City
Willis Towers Watson
Ingerson Insurances Ltd
Help your clients avoid an unexpected insurance problem when they are met by an unexpected legal one.
With over 45 liability insurance specialists all working together under one roof, you can expect VL to provide an end to end solution to help your customers weather their particular storm. Get in touch on 09 306 0350 or visit our website.
New Zealandâ€™s leading liability insurer