CoverNote - December 2021 issue

December 2021

How Covid-19 will change the broker market

www.ibanz.co.nz

Here’s to 20 years of helping kiwi businesses find their feet again.

Back in 2001, we opened our doors with a vision to become New Zealand’s leading liability insurance provider. We achieved that goal, and two decades on, we’re still proud and privileged to help protect New Zealand businesses from the unexpected. Cheers to that!

Get in touch at our website below, or talk to your broker.

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New Zealand’s leading liability insurer

Welcome

Welcome to the Christmas edition A

s we near the end of another year, many of us are reflecting on the unwelcome reality of what has been the most controlled period of our adult lives.

Few have been untouched by the removal of freedoms, division of views or significant uncertainty that have come to define 2021 in New Zealand.

Like everyone, Covid-19 has affected the insurance industry. We are, however, fortunate that most of us have been able to continue operating through whichever alert level we have found ourselves in. That said, working with clients does bring home the reality of the challenges many continue to face. In this edition, our lead article focuses on the issues that have arisen and adjustments being made to help manage the ongoing impacts of this pandemic.

With a huge catalogue of governmental reviews across our sector, a large amount of IBANZ time has once again been spent engaging with government and responding to consultations. This year’s calendar included the introduction of the new financial advice regime, the ongoing Insurance Prudential Supervision Act review, the Fire and Emergency Funding Review and the Conduct of Financial Institutions Bill.

The next step in the long delayed Insurance Contract Law Review is promised to resurface next year, as will the EQC review with the recently announced doubling of the insurance cap.

As many of you will be aware, EQC covers domestic dwellings, responding to claims arising from Natural Disasters such as earthquake, tsunami, volcanic eruptions, natural landslip and hydrothermal activity.

If you buy insurance on a domestic dwelling (which includes private residences within commercial property), EQC cover is automatically included, and the levy is collected and passed onto the EQC. The Minister recently announced that EQC cover will increase to a $300,000 maximum cap from October 2022 for all such dwellings in New Zealand. The announcement also highlighted a clear divergence of views between the EQC Minister and the Industry when it comes to pricing cover for Natural Disasters.

The EQC is continuing with a flat levy or “communityrating” approach which sees everyone, regardless of the property’s perceived exposure to Natural Disaster, paying the same levy rate.

In addition to the ground-up cover they provide for other non-natural disaster claims, the Industry offers Natural Disaster cover for dwellings in excess of that provided by the EQC. While insurance is a pool, the Industry prices risks with some differentiation of rates and premiums depending on the profile the risk or dwelling presents.

The Industry approach is the opposite of the EQC community-rating approach. The latter means that those in regions rated by the Industry as having a lower risk of a Natural Disaster are subsidising properties insured in regions the Industry rates as having a higher risk of Natural Disaster.

A proactively released government document regarding the cap increase notes “Greater community-rating of insurance prices is justified because insurers have models for seismic risk but rely on estimates for other risks such as volcanoes and tsunamis. For this reason, it makes sense to share the costs of these risks through the EQC scheme.” The same document accepts that community-rating will make home insurance more expensive for those in Northland, Auckland, Waikato, Christchurch and Otago.

The Minister has made it clear that if insurer pricing doesn’t behave as expected, the government is open to considering options such as a competition study to give customers assurance that the market is competitive. Competitive for who?

The Industry uses local and global data taken from claims experiences, proximity to risk and other modelling to set rates, premiums and conditions. In New Zealand, insurers are governed by increasingly robust obligations and rules set by the Reserve Bank (which the EQC is not subject to) in an effort to help them remain a sustainable insurer for the policyholders who rely on them. Hopefully, all differences will be taken into account by the Minister when considering whether insurer pricing behaves as expected, but only time will tell.

In closing, my thanks to our IBANZ members for your openness and the continued support you have provided our association again this year. It has been great to speak to so many of you throughout 2021 to keep us informed and help guide our responses and the representations we make.

I hope everyone enjoys a much-needed break to recharge and reconnect with family and friends over the upcoming festive season. All the very best for 2022!

Melanie Gorham CEO, IBANZ

Cover 4. COVER STORY

How Covid-19 will change

the broker market

Features 3. Climate disclosure law introduced

8. Q&A: Switching on to cyber risk

10. More extreme weather likely in summer months ahead

12. Vero removes gender ratings from car insurance products

14. Reserve Bank invites views on its proposed new enforcement principles

20. Allianz Partners teams up with travel agent

22. LGBTQ workplace

diversity &

inclusion: a matter

of pride

26. Opinion:

Statutory Liability

Policies and Pecuniary Penalties

30. Delta starts automated

renewal pilot

with brokers

33. IAG introduces

vaccine mandate

34. Innovating for better health and

safety and mental health Decembe r 2021

How Covid the brok -19 will change er marke t

Regulars 1. Welcome to CoverNote 20. Humans of NZI 38. Ask an Expert

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41. Professional Development: Professional IQ College 44. IBANZ Contacts

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CoverNote is the official publication of IBANZ and is distributed FREE on a quarterly basis (March, June, September, December) to members throughout New Zealand and associated companies. Additional copies are available at a cost of $7.50 per copy, or 12 month (4 issues) subscriptions at $30.00, inclusive of postage and packaging. The articles or opinions featured within this magazine are not necessarily the opinions of the publishers or IBANZ, and they do not accept responsibility for the content of articles featured within the publication. No part of this publication may be reproduced without the written permission of the publisher. The publishers do not accept responsibility for loss or damage to unsolicited photographs or manuscripts.

IBANZ enquiries should be made to: Melanie Gorham, Chief Executive, IBANZ. Email: mel@ibanz.co.nz IBANZ National Office located at: Unit 4D, 2B William Pickering Drive, Rosedale, Auckland 0632 PO Box 302504, North Harbour, Auckland 0751 Telephone 09-306-1732.

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Feature

Climate disclosure law introduced N

ew Zealand has introduced a law forcing financial institutions, including insurers, to disclose their climate-related risks.

Climate change minister and Green MP James Shaw said the disclosure regime would make New Zealand a “world leader”, and “the first country in the world to introduce mandatory climate-related reporting for the financial sector” Banks, insurers, and publicly-listed financial companies will fall under the new regime.

The law has been designed to force companies to disclose more information about the climate effects of their operations. Ministers want insurers and other financial firms to take climate change issues into account as they make strategic decisions.

“Climate-related disclosures will bring climate risks and resilience into the heart of financial and business decision making,” Shaw said. “It will encourage entities to become more sustainable by factoring the short, medium, and long-term effects of climate change into their business decisions.”

“This bill will require around 200 of the largest financial market participants in New Zealand to disclose clear, comparable and consistent information about the risks, and opportunities, climate change

presents to their business. In doing so, it will promote business certainty, raise expectations, accelerate progress and create a level playing field,” commerce and consumer affairs minister David Clark said after the bill passed its third reading on October 21.

BE YOUR OWN BOSS

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3

Cover Story

How Covid-19 will change the broker market

The Covid-19 pandemic will lead to significant changes for insurance brokers, with the introduction of vaccine mandates, acceleration of tech solutions, and new complexities in the travel insurance space, writes Angela Cuming.

E

ver since the Covid-19 pandemic hit, brokers and insurers have adapted to constant changes.

The crisis has altered the way we live, work and travel, and the insurance industry has moved swiftly to adjust to those changes as we try to continue in this “new normal”.

The world doesn’t look like it is going back to pre-Covid settings any time soon. From vaccine mandates to travel insurance, we look at what changes brokers will experience in a post-pandemic world.

VACCINE MANDATES

Vaccine mandates are part of the new normal across many sectors, and the insurance industry is no exception.

Already IAG, the country’s largest general insurer, has announced a compulsory COVID 19 vaccination 4

December 2021

measure for employees who work from IAG offices and other work sites.

The IAG mandate also covers locations outside of IAG where employees interact with customers, partners, suppliers, and other people as part of their roles.

The insurer will also require that its business partners, including bank and broker partners, be vaccinated before entering its premises.

Amanda Whiting, IAG chief executive officer for New Zealand, said in October that the compulsory vaccination policy was “the right thing to do”, and that the decision was made following a consultation with employees.

“Since the start of the pandemic, our decision making has been guided by government advice and the priority of keeping people safe,” she said.

“We have always adhered to

government restrictions and, in many cases, gone above and beyond those to provide our people, partners and customers with additional protections.

“As the pandemic continues to evolve and there is no question that vaccination is the best way to keep everyone safe in the short and long term.”

Mel Gorham, chief executive of the Insurance Brokers Association of New Zealand, says IBANZ supports the “physical and mental wellbeing of our people”.

Brokers are expected to work from home and turn to digital processes during severe outbreaks.

Gorham adds: “We are fortunate, as demonstrated during all lockdowns affecting Auckland, that our work can be undertaken remotely, which allows for personal choice about the vaccine where no mandate applies,” she says.

THE DIGITAL REVOLUTION

The pandemic has accelerated the insurance industry’s adoption of new technologies, with the ‘digital revolution’ making the sector more efficient, more profitable, and more accessible to customers.

A recent example is Delta Insurance, which has rolled out a new, digitised renewal process for various policies.

Delta chief operating officer Kent Chaplin says the innovation is “a significant step forward in the digital revolution happening in our business”.

“Automating a number of otherwise time-consuming insurance processes is no longer the way of the future, says Chaplin.

“It’s the way of the present – particularly in the Covid-19 environment. The best performing insurance companies globally are changing their operations to

automate significantly and simplify their processes in the face of strong consumer expectation, particularly in how they respond to COVID-19.”

Previously, Delta’s underwriters had to manually follow up every policy coming up for renewal with the broker involved.

Delta Insurance New Zealand Managing Director Dinesh Murali says the main driver of the change was to make the process easier and more efficient for the end-user, the customer, and the broker.

“This is something our end-users have been seeking – a simpler process and better experience.”

Rodney Knight, general manager - risk & compliance at Rothbury Insurance Brokers, says the acceleration towards digital will suit large broker groups the most.

“When technology works well, it works well,” he says.

It was “really important” to think www.covernote.co.nz

5

Cover Story

about scale, he adds.

epidemics and pandemics.

“You need to have enough of a client base to make it worthwhile to take up opportunities for more integration with insurance systems.

The insurance applies to domestic, leisure and business travel. The cover will allow travellers to claim for cancellation and medical expenses, should they contract COVID-19 or similar diseases after purchasing the policy.

“So, if I'm looking at a small one-office broker, I don't know how they would cope if it became a requirement, and they really might not be able to access it as well.

“Whereas for Rothbury, it's quite a good position to be in at the moment.”

Knight says he can work remotely and says its brokers are set up to access all of the information they need from home.

“That's been a big advantage for us during lockdown, and it means we've got the same access to any integration with outside party systems too.”

Tim Grafton, chief executive of the Insurance Council of New Zealand, says the pandemic has accelerated the adoption of digital and remote working arrangements, which have enabled insurers to meet their customers’ needs under Covid restrictions.

“Some of these new working arrangements will become features of the new normal,” he says.

“Having said that, personal interaction, such as that between underwriter and broker, will remain important aspects of doing business too.

“If brokers feel that insurers should be doing more, then that is something they need to raise with insurers directly. There is always scope for brokers and insurers to do better in the interests of the end customer.”

TRAVEL

The pandemic is expected to lead to major changes in the travel insurance sector.

Travel insurance providers are changing their products in the wake of the pandemic, with Tower and Allianz Partners already agreeing to provide travel insurance to Kiwi travellers with selected cover for 6

December 2021

Allianz Partners was one of the first companies to offer this type of travel cover.

Tower CEO Blair Turnbull said the current downturn in global travel had provided an opportunity for the company to re-examine its product

the event of an outbreak (whether travelling to a covid hotspot or not), being stranded, prevented from travelling or being infected with Covid.”

Clients would need to speak to their broker about what they should consider and disclose, she says.

“A key thing I did when booking my November travel back in May (which, as an Aucklander, I had to cancel) was to ensure that full refunds applied in the event of cancellation and being aware of and adhering to any cancellation time limits or other conditions,” says Gorham.

We are fortunate, as demonstrated during all lockdowns affecting Auckland, that our work can be undertaken remotely, which allows for personal choice about the vaccine where no mandate applies.

IBANZ Mel Gorham

offerings as international borders reopen.

“With New Zealanders spending more time at home, it’s been an ideal time to consider how best to support our customers when they embark on overseas travel again,” said Turnbull.

“As a post-pandemic world feels within arm’s reach, we know many Kiwis are thinking about how to travel responsibly and how to get appropriate cover. We’re going to work with Allianz Partners to offer cover in the footsteps of Covid-19.”

Brokers and clients will need to have a thorough discussion about the nature of travel and the expected level of risk on each trip, Gorham says.

“This will include whether they are vaccinated or not, where they are travelling to, their health and any expectations they have about a travel policy covering them in

Travel remains an area where “considerable uncertainty” remains, but being fully vaccinated and delivering a negative test will be standard mandates for governments and airlines, Grafton adds.

“This would obviously have a direct impact on a non-vaccinated person’s ability to travel,” he says.

“The implications for insurance brokers are that, while cover is available, they will likely have to be more diligent in understanding the risks they present to insurers to ensure compliance with airline or government-mandated restrictions.

“Brokers should also be aware of the New Zealand Government’s ‘do not travel’ advisories as some insurers will not offer any cover for these countries, whereas others will provide cover for stolen luggage, medical events but not claims relating to Covid.”

Cyber-Risk Oversight: Key Principles and Practical Guidance for Corporate Boards in APAC

Cyber-Risk Oversight 2021 l Guidance for Corporate

Key Principles and Practica

Boards in Asia Pacific

Cybersecurity is the fastest growing, and perhaps most dangerous, threat facing organisations today.

Boards are increasingly focused on addressing these threats.

AIG’s cyber-risk handbook includes a range of key principles and toolkits along with a series of questions to ask to ensure your organisation is addressing its unique cyber-risks strategically.

It’s a simple and coherent framework that can improve cyber-risk management and help create a culture of security.

Go to AIG.co.nz to download your copy.

Insurance products and services are provided by AIG Insurance New Zealand Limited, a subsidiary of American International Group, Inc. For additional information, please visit our website at www.aig.co.nz.

Switching on to cyber risk Liam Pomfret, AIG's Head of Cyber & Professional Indemnity, Asia Pacific, talks to Covernote about the growing cyber threat in New Zealand, and the role brokers can play in protecting companies.

Are cyber attacks on the increase in New Zealand?

What kind of vulnerability leads to cyber-attacks?

If you read the media, it points towards that. From AIG’s perspective, our cyber claim count in New Zealand has been increasing each year, as it has in other regions where we operate. Importantly, our claims data shows that the severity of attacks is also increasing, with many claims coming from ransomware attacks.

AIG has managed cyber claims around the world for more than 20 years. Regardless of location, we have observed common vulnerabilities when conducting root cause analysis. This currently includes:

Who are the perpetrators of these attacks?

Attribution of an attack is often difficult given the anonymity available across the internet. Indicators of compromise can be investigated but attackers can obfuscate their real identity by spoofing IP addresses or domains. Given the cross-border nature of cyberattacks, it is difficult for law enforcement to hunt down attackers if they are based outside local jurisdictions.

8

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•

Lack of MFA (Multi-Factor Authentication) and RDP ports exposed to the internet (Remote Desktop Protocol). MFA requires users to provide two or more verification factors to gain access to various systems, thus making it harder for attackers to gain entry. RDP enables remote connection to corporate networks. Much of the world would have enabled employees to access company data work while working from home. Attackers can gain a foothold into company networks if the connection between the

remote worker and the corporate network is not secure.

businesses are prepared to act quickly if they are taken down by an attack.

• Not keeping software up to date, in particular missing high-severity patches for software with known vulnerabilities.

Some of the things that can be considered in preparation for an incident:

•

Employees falling prey to phishing emails.

This can result in delivery of a malware payload or obtaining critical information about the employee or business. This information can then be used by the attacker for “social engineering”, i.e. tricking or manipulating people to make payments or give up confidential information that could be used to gain access to a system.

What role can brokers play in guiding their clients on cyber risks?

Cyber risk has become the top risk faced by most organisations. Brokers can play an important role in helping a business to understand the risk in the context of their own operations and quantify their potential exposure. The cyber insurance market has hardened considerably in the past 18 months, with insurers focusing even more on quality risk controls. It is pivotal that brokers share the experience learnt from claims to help businesses strengthen their cyber posture and present the positive risk features to secure favourable terms from insurers.

How can companies/organisations improve/increase cyber resilience?

Cyber resilience should take a top-down approach and cannot just be left to the IT department. Every single employee should know how they contribute to cyber safety and what is at risk. There will be a combination of technical security controls: MFA, patching etc, along with employee awareness training and testing. If an employee can spot a scam or suspect email it will greatly reduce the chances of attackers gaining entry into the network.

What kind of response plan should companies have in case they are ever hit by a cyber attack?

Companies should anticipate cyber-attacks and be prepared with a mindset of not if, but when.

Many companies have business continuity plans/ incident response plans, but often they do not include a playbook for the wide range of scenarios posed by cyber events. They will often underestimate the cost and time it takes to recover software and data, especially when there are many servers/workstations across large geographies, or the software is bespoke.

Plans will be unique to any given operation but could include responding to the public disclosure of sensitive information like customer records or employee payroll all the way through to a complete destruction or disablement of critical systems and data.

Given the vast digitalisation of many businesses, it is becoming ever more difficult to serve customers without access to systems, so it’s crucial that

1. A documented and well practiced incident response plan.

2.

A backup regime in line with criticality of systems, including periodic backup and restore drills which involves restoring systems from backup media which are tested by business teams.

3. Senior management that is familiar and trained on dealing with cyber-attacks.

4. A pre-identified cyber response team comprising breach counsel and forensic and crisis communications partners to assist during cyber attack.

What insurance products can help and are there any new products being developed to provide coverage in this area?

Cyber insurance is available to help with the first party expenses and third-party liability that can arise from a cyber event.

For example, cyber incidents can impair business operations and cause a loss of profit which can be indemnified, along with the forensic accountant costs to calculate the loss.

Ransomware is now a common attack vector, so companies are increasingly faced with the complexities of ransom demands that require support from their insurer to validate and end the threat.

Additionally, as privacy legislation ramps up, the need to notify affected parties and regulators is more likely and usually requires legal assistance. In many jurisdictions, regulatory investigation, fines and penalties are possible, as are civil actions from third parties affected by the company who has suffered the attack.

A critical part of our coverage goes beyond covering these costs. Policyholders have access to our panel of incident response experts that can assist organisations through an event, mitigating further losses and speeding up recovery times. This includes legal counsel to advise on various legal considerations including notification obligations, as most attacks involve confidential or private information; incident response vendors to triage the attack, and to secure and recover critical systems and data; and crisis communications consultants to manage messaging to the public and other stakeholders.

In addition to sharing the learnings from our claims, AIG also offers policyholders access to other tools and resources to help educate businesses or mitigate their cyber risk such as an eLearning platform and phishing simulator, threat alerting, vulnerability scanning and more. www.covernote.co.nz

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Feature

More extreme weather likely in summer months ahead Garry Taylor, executive general manager for NZI, on New Zealand’s weather analysis for the coming seasons, and how businesses can prepare.

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A

ccording to research published in the journal of Nature Climate Change, at least 85 percent of the world’s population has felt the effects of our changing climate.

As countries around the world report another year of extreme rainfall, rampant wildfires, and deadly heat waves, I met with IAG’s Principal Specialist in Meteorology, Dr Bruce Buckley, to discuss New Zealand’s predicted weather and what this could mean for increased risk for commercial businesses.

What the seasonal outlook tells us

With more than 40 years’ experience in forecasting and studying weather patterns, Bruce is IAG’s bona fide weatherman. Bruce explained that we’re already seeing considerable anomalies in Pacific-Ocean Sea surface temperatures, which are the driving force behind New Zealand’s weather patterns.

In some places, sea temperatures are already around three degrees higher than usual, which strongly suggests spring and summer weather conditions are going to be far from normal. And in case you’re wondering, Bruce has absolutely zero doubt that these irregularities are linked to our changing climate.

Heightened risk of heavy rain and wildfire

Our weather analysis predicts that warmer waters will make it easier for tropical lows to sweep southward and affect New Zealand, exposing northern parts of the North Island to increased flash and river flood risk in summer, especially in 2022 and into autumn.

It’s also predicted the east coast of the South Island will have an increased risk of late season heavy rain, with hotter than normal temperatures also expected in the Canterbury and Otago regions. Hail events, although rare, look to have slightly elevated risks as well.

An increased wildfire risk is also predicted in areas to the east of the Alps, predominantly due to warmer than usual temperatures creating excellent conditions for wildfires – including producing plenty of fuel in the form of dried-up vegetation.

How businesses can prepare

The good news is that with enough warning there are several things businesses can do to reduce loss from flooding and fire.

Reducing loss from surface flooding • Know the risk - it’s unlikely your stormwater infrastructure has been designed to carry away the amount of water that drops during an unprecedented heavy rain event. Water will flow downhill, and even shallow flooding can cause significant damage and interruption to your business. So find out where your site’s overland flow paths are (the tracks that water would take if the stormwater system gets overwhelmed) to see where the water is likely to collect.

Auckland council has a handy guide on their

website on how to recognise these and other local authorities should have similar resources.

• Once you know your risk, control it – reduce the impact of surface flooding and protect your assets.

You can do this by: 1. Cleaning and clearing stormwater grates, gutters, culverts and drains.

2. Keeping overland flow paths free of obstructions. This allows the system to move water away from your site.

3. Making sure critical plant and machinery, stock and inventory is away from flood prone areas or elevated off the ground. It’s also worth considering whether you’d be able to access these things during a flood, or whether it’s worth relocating them.

Reducing loss from fire • Create a clear zone around your buildings and assets, clear it of trees, grass and shrubs.

This will slow the spread of fire and gives Fire Emergency New Zealand (FENZ) a safe area to work in, giving them a better chance of protecting your site.

• Keep an eye on ignition sources – fires need fuel to grow. Three of the main reasons for a fire starting is from hot working, contact with hot surfaces and electrical malfunction so carry out a survey of your site to identify any potential ignition sources:

1.

Hot working: visit the Risk solutions area on our NZI website for a hot work Risk Management Guide which shares how to help control the risk of fire as a result of welding, cutting, and grinding works.

2. Contact with hot surfaces: keep hot surfaces well clear of combustibles. This includes all flues and ducting, and vehicle exhausts.

3. Electrical malfunction: as we head into a period of heightened wildfire risk, we suggest calling a registered electrician to inspect your site’s electrical infrastructure and repair any defective parts.

• Have a plan and be prepared: seconds count when it comes to fire and being prepared can help reduce the severity of any fire loss.

1. Build fire safety into your contractor and staff induction programme.

2. Go through your fire safety plan at the beginning of each week, and display posters educating on fire risk and what to do if a fire develops around your site.

3. Make sure your site has adequate Hand Operated Fire Fighting Equipment and that everyone knows how to use it.

If you take one thing away from our seasonal outlook, it’s to plan, plan and then plan again. www.covernote.co.nz

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Feature

Vero removes gender ratings from car insurance products

V

ero Insurance is set to remove gender-based factors from its pricing and underwriting factors, as it feels “that binary gender distinctions are not a true reflection of the gender spectrum of its customers”.

The NZ insurer said that while claims data supported the insurance market’s approach to gender, it felt the right fit for a modern society.

Sacha Cowlrick, executive manager consumer insurance at Vero, said: “Historically insurers have compared data for ‘male’ and ‘female’ customers, but New Zealanders identify with a much broader range of gender identities.

“As a business we had the option to try and rate or price a more diverse gender spectrum, but we have made the decision that it is simpler 12

December 2021

and more inclusive to begin the process of removing gender from our underwriting.”

Cowlrick said the process of removing gender distinctions will take between 12 and 18 months.

“There is strong evidence that gender and age together are factors that can help to determine the likelihood that customers will make a claim, and gender can have a significant impact on price for some age ranges,” she says.

“If we were to remove the gender rating on premiums suddenly, it would mean big changes to some customers’ premiums at renewal.

We need to do some work in the background to essentially ‘smooth’ the pricing differences to ensure that when we remove gender as a factor altogether it won’t create any sudden premium changes that customers aren’t prepared for.”

Cowlrick said Vero’s product team consulted with Amplify, the company’s employee resource group for LGBTIQ+ employees, “to understand the impacts of different approaches to changing its products, and has also identified other changes it can make to create a more inclusive experience”.

Cowlrick said: “For example, we are looking at how customers are named in letters and policy documents, and our Amplify group is working on a guide for customerfacing employees around nonbinary customers.

“While this is a journey and it may take time for our business, I’m proud that Vero is taking steps towards providing more inclusive products and services to gender diverse New Zealanders,” she added.

Feature

www.covernote.co.nz

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Feature

Reserve Bank invites views on its proposed new enforcement principles Andrew Horne - partner, Minter Ellison Rudd Watts

T

he Reserve Bank of New Zealand – Te Pūtea Matua is seeking views on its proposed enforcement principles and criteria.

The proposed enforcement principles will guide the activities of the Reserve Bank’s new Enforcement Department. They are intended to assist in the development of an enforcement framework to achieve its compliance goals, increase the effectiveness of its enforcement actions and promote confidence and consistency in its enforcement decision making.

Who needs to read it and consider making a submission?

The consultation is a must read for registered banks, licensed nonbank deposit takers and insurers, which are subject to the Reserve Bank’s enforcement powers. But other financial sector participants should also take an interest in the Reserve Bank’s intended exercise of its regulatory powers, as it may influence the other regulators.

The Reserve Bank exercises its enforcement powers under a number of statutes that govern the financial sector. They are the Anti-Money Laundering and 14

December 2021

Countering Financing of Terrorism Act 2009, Reserve Bank of New Zealand Act 1989 (to be replaced in July 2022, when the 2021 Act of the same name and a new Deposit Takers Act come into force), Insurance (Prudential Supervision) Act 2010, Non-bank Deposit Takers Act 2013 and Financial Markets Infrastructures Act 2021.

What are the proposals?

The Reserve Bank says that its enforcement framework will be tied to three compliance goals:

• incentivise and monitor prudent behaviour;

• promote confidence in compliance; and

• enforce compliance by holding institutions to account for non-compliance.

In addition, the Reserve Bank has formulated three enforcement principles and four criteria. These are all high-level, as they are intended to apply across all the areas that the Reserve Bank regulates.

• The three enforcement principles are high-level ideals that guide its enforcement strategy: they are to be risk-based,

proportionate and transparent.

• The four criteria are specific considerations for use when deciding on the appropriate enforcement response in each case. They are seriousness of conduct, responsiveness, public trust and confidence and efficacy.

The Reserve Bank says that it has considered similar approaches taken by other regulators, both in New Zealand and overseas.

Unsurprisingly, these include the Financial Markets Authority and the Commerce Commission together with the Australian and English prudential regulators. The Singaporean regulatory approach has also been considered.

What do these enforcement principles mean in practice?

The Reserve Bank offers the following examples of how these high-level ideas are intended to guide the way in which it approaches enforcement in particular cases: Risk-based principle: The Reserve Bank will focus its efforts and its enforcement resources to address conduct in relation to issues that could

have the potential to damage the financial system or the New Zealand economy significantly.

Perhaps surprisingly, however, the example given is AML/CFT regulation, which is not obviously an issue that poses the greatest threat to the financial system or the economy (compared, for instance, to the need to ensure that deposit takers and insurers are undertaking only prudent exposures and have sufficient financial reserves).

Proportionality: The Reserve Bank will determine its enforcement response in a case after considering aggravating and mitigating factors, the broader compliance context and internal and external (i.e. other regulators) precedent. It will seek to apply the regulatory tool that is appropriate for the nature and magnitude of the non-compliance, the particular entity and its general attitude to compliance, the risk posed by the non-compliant activity and the public interest.

Transparency: Means publishing key guidance and publishing enforcement outcomes unless there are exceptional circumstances that make it inappropriate to do so.

It also means engaging openly

and honestly with regulated entities during investigations and not publishing them during the investigation phase unless it is appropriate to do so.

What do the criteria tell us?

The Reserve Bank has broken each of its four criteria down into factors, which it will consider when making decisions. These are the following: SERIOUSNESS OF CONDUCT. The Reserve Bank will consider:

• prevalence of non

compliance (i.e. whether the

entity has a history of breaches);

• magnitude and impact (including whether a breach is technical or whether it has an impact and whether it presents systemic risk or shows up failings in a compliance programme – again AML/CFT is given as an example, which appears to signal a particular focus on that aspect of regulated entities’ conduct); and

• executive or operational knowledge (including whether it was known at a senior level, how long it persisted, and whether there was

negligence or recklessness).

• cooperation with the Reserve Bank in reacting to the breach, including whether it was promptly admitted and fully and willingly disclosed;

• the entity’s compliance history (which seems to duplicate the same point under the seriousness factor and could in our view be omitted from this one); and

• the entity’s conduct in resolving the breach, including any proactive and voluntary remedial action.

• public confidence – whether enforcement action will promote public confidence in the financial system. Interestingly, the Reserve Bank seems to be willing to acknowledge that some enforcement action may risk financial instability, such as a ‘run on the bank’ – a very welcome indication of necessary pragmatism;

RESPONSIVENESS. This includes:

PUBLIC TRUST AND CONFIDENCE. This includes:

www.covernote.co.nz

15

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• deterrence value – whether

enforcement action is likely

to modify the behaviour of

the entity and others. It is not

clear why the Reserve Bank

sees this as a factor relevant

to public trust and confidence

rather than efficacy, which

is discussed below – possibly

this reflects an expectation

that the public may expect a

regulatory response in some cases; • consistency and fairness –

whether the enforcement

response is consistent with

previous action by the Reserve

Bank and other regulators; and

• promoting maintenance of the law – whether enforcement will promote regulatory objectives and policy objectives, as well as whether there is a need to clarify the law.

EFFICACY. This includes:

Strength of evidence – the Reserve Bank will be pragmatic about its prospects of success on the evidence, which is practically necessary, but in some cases there may be a tension as a regulated entity may cooperate in the hope of resolving an issue, but in doing so provide the Reserve Bank with the evidence it requires; Available legal defences – a fundamental and necessary consideration, because if a credible defence is available, no wrong has been committed, in which case the Reserve Bank has no business bringing enforcement proceedings; Supporting other regulators and working with them when regulatory areas overlap; and

Potential outcomes – the effect upon overall financial system stability (also a consideration under the public trust and confidence factor) and whether the proceeding is likely to result in a conviction, compensation or penalty – and also whether a warning or another lesser response is appropriate.

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December 2021

Our view

There is nothing particularly unusual or remarkable about the three proposed principles, which are broadly consistent with the approaches that other New Zealand financial markets regulators espouse. However, other regulators are more specific about their regulatory priorities.

While we acknowledge that the Reserve Bank says that its principles are intended to be high-level, it offers only one indication of a priority area, AML/CFT regulation.

The FMA, by comparison, is much more specific and recently issued a revised set of priorities in response to the effects of the COVID-19 pandemic, including supporting investors to make good decisions, responding to scams, monitoring treatment of customers in vulnerable circumstances and responding swiftly to market disruptions and significant events.

We think it would benefit financial markets for the Reserve Bank to be more specific about its particular areas of focus so that regulated entities may respond more effectively.

We view the Reserve Bank’s four criteria and the factors underpinning each as largely consistent with the approach taken by the FMA and other regulators.

Where they appear to differ is in the Reserve Bank’s acknowledgement that it must consider the effect that enforcement action may have upon trust and confidence in the financial system generally. The Reserve Bank will be cautious of taking action that may trigger a collapse in public confidence in a systemically important financial institution or in the financial markets generally, possibly resulting in a calamitous outcome.

This is not a factor that the FMA or the Commerce Commission are normally expected to take into account when regulating conduct.

The inherent conflict between enforcing conduct rules and preserving confidence in the

financial system is one of the key reasons for the separation of conduct and prudential regulation under the “Twin Peaks” model as originally developed in Australia in the Wallis Report, and partially applied in New Zealand. This is reflected in the conflict between the Reserve Bank’s proposed principle of transparency (expressed in its intention to publish the outcomes of its investigations) and its criteria of public trust and confidence (which may be damaged by the same publication).

While we view the emphasis on public trust and confidence as important and consistent with the financial stability goals of the Reserve Bank, it will raise issues because of the inherent conflict referred to above and potential conflicts between the Reserve Bank’s response in particular cases and the responses of other financial services regulators. In our view, this issue should be considered and addressed by all of New Zealand’s financial services regulators, particularly if a rise in class actions notwithstanding the completion of regulatory action is on the horizon.

The emphasis upon AML/CFT regulation is consistent with the focus placed upon it by the FMA and should be taken as a warning that the Reserve Bank will be looking at regulated entities’ conduct in this area carefully.

We welcome the evident pragmatism that is evident from the proposals as a whole.

What’s next?

The Reserve Bank will consider submissions and intends to produce further guidance over the next six months, informed by the principles and criteria outlined above. Submissions will be published unless confidentiality is requested.

If you have any questions in relation to the Reserve Bank’s enforcement approach or about prudential regulation and financial system enforcement in New Zealand generally, please contact one of our experts.

Have the

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Despite the changes, one thing remains true: having the right team behind you matters.

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From Corporal to corporate Meet NZI’s Corporate Liability Manager, Martin Stroud, who brings life lessons learned through the army to liability’s ever-changing environment

M

artin Stroud began his insurance career in South Africa 40 years ago. After serving in South Africa’s army for two years, Martin was surprised to learn there were a few skills he’d picked up which he’s been able to use throughout his insurance journey.

For Martin, NZI’s corporate liability manager, it’s simple. Adapt, think outside the box, and be agile, which is how he’s planning on transforming NZI’s liability offering in the market.

Lessons learned from the army Martin’s time in the army has shaped who he is today.

“I was a corporal in the middle of a war. It was a really difficult time but what I did like about the army was how we supported each other and the importance of teamwork.

This experience really helped me understand how to go about things, how to look after the troops and keep them motivated, even in the tough times.

“The army teaches you to think about things differently, that every situation is different, and that you have to adapt to the circumstances. It’s about lateral thinking and problem solving. You can’t be a regimented thinker and that’s the same in the liability space, you have to be able to change and adapt.”

From six months to four years

Martin left the army when he was 21 and started his first insurance role straight away as a property 18

December 2021

underwriter in petrol chemical accounts. He then moved to Auckland in 1988, where he got married and his two daughters were born.

“My wife and I were together for about five years before coming to New Zealand and getting married. As we didn’t know many people in NZ back then, I told my colleagues at work that I was getting married that day and I needed two witnesses. They thought I was joking! My boss and another colleague ended up being our witnesses at the Auckland Registry Office, which was a good icebreaker to get to know my team!”

Throughout his time in NZ, and on occasions in Australia, Martin’s worked in the reinsurance and liability space, and has also spent time as an underwriting director at an agency.

In 2017, he joined NZI on a sixmonth secondment. “I was 57 and I didn’t want to retire, but I wanted some time to work out what I was going to do and perhaps start on something new. Those six months has turned into four years, and I’m now leading the Corporate Liability team. I’m back to doing what I was doing ten years ago, and I’m enjoying every minute of it.”

The horizon for liability

“Liability insurance is all about protecting client’s business from any lawsuits it may face if either they, their employees or their products cause third-party damage. The statistics tell us that a

HUMANS of

Feature

Taking the reins

Martin is not only passionate about his liability team and insurance journey, but also another surprising hobby: motorcycling.

“My self-confessed mid-life crisis was buying a motorbike and it’s something that really makes me happy. I love the acceleration of the speed, that’s why I do track days at Hampton Downs and Pukekohe when I really want to push my limits - I’ve also raced cars and Go Karts in South Africa, Australia and New Zealand.

“When I go on road trips, I see some beautiful roads and I just get into the zone. The wind and the smells are amazing. You can go through a little town and smell people baking bread or pies, and you don’t get any of that when you are in the car. My main tip? Don’t travel behind cattle trucks, pass them as soon as it’s safe to do so!” concerning amount of New Zealand businesses aren’t insured against this risk especially Cyber, so I’m passionate about doing my part to turn that around.

Martin has been running the corporate liability team for three months now and says they’ve already started making changes to the way they work, with a strong emphasis on tailored solutions and embracing agility.

“Liability is a dynamic environment - it’s constantly moving. If you look at the changes even COVID has brought to the liability space, like supply chain constraints and rising cyber risks, it has impacted almost every line of business.

“When a broker comes to us, we look into their clients’ unique set of needs to offer the right solution.

It sounds simple, but listening, investigating and having the ability to think outside the box is key. We’re seeing all kinds of new businesses

we need to tailor cover for, such as 3D printers, so we have to be agile enough to look at them and see what the risks are around it and what our offering should be.

“It’s fascinating also how the responsibility of directors is changing, and how the Health and Safety at Work Act changes can impact various businesses. All these things are moving fast.”

For Martin, insurance price is important, but it’s not everything; it’s all about the moment of truth.

“We have a specialised liability claims team, which is something unique to NZI. A superior insurance offering is the combination of underwriting, policy, tailored solutions and a great claims experience.

“People are seeing more and more the value of liability and it should no longer be seen as an ‘add on’, but an integral part of any insurance offering.”

Martin Stroud at the Pukekohe racetrack

Martin has a group of friends who he goes on long trips with, and he’s been around most of the North Island. Wellington is still on his bucket list.

“All your senses are used when you’re on the bike - both hands and both feet, you’re listening, looking, and smelling. It’s the way I unwind and have that moment for myself - me on the bike on the open road.” www.covernote.co.nz

19

Feature

Allianz Partners teams up with travel agent T

ravel insurer Allianz Partners has formed a strategic partnership with Jettzy, the first with an online travel agent operating out of New Zealand.

“We’re optimistic about the rebound of travel on the horizon and taking the time now to continue to expand our presence is an important part of our strategy.

Travel insurance issued and managed by Allianz Partners will be integrated into Jettzy’s online booking pathway, “making it easy for customers to add cover to their journey”.

Research shows that more travellers, especially those in the younger demographic, have an increased appetite for travel insurance in the post-Covid-19 world.

This view is shared among our existing retail travel agent partners who we continue to support as well as our new partner Jettzy,” he said.

Jettzy is a flight booking engine that canvasses all major airlines to help customers search, compare and book airline deals.

The Kiwi company was founded by travel industry veteran Peter Li, who spent more than a decade at Air New Zealand, with backing from Kiwi investment network Ice Angels.

Chief sales officer David Wallace says establishing more strategic partnerships within the travel industry is an important part of Allianz Partners’ future.

20

December 2021

Jettzy’s Peter Li added: “It’s important for Jettzy to collaborate with the world’s leading travel suppliers but also ensure our revenue stays in New Zealand. We’re pleased to be keeping things local by collaborating with the Auckland-based team at Allianz Partners.”

Following the launch of Jettzy in New Zealand, the platform will be launched across the Asia Pacific region.

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Feature

workplace diversity & inclusion:

A matter of PRIDE L

GBTQ is the acronym commonly used to address the lesbian, gay, bisexual, and transgender and queer/questioning community.

Workplace diversity has been en-vogue for some time but many companies are still grappling with defining what it implies for their organization, why communicating diversity is important and how to consistently and meaningfully include it as a priority in their talent management strategy.

Claims expert Dr Dexter Morse looks at the challenges faced by LGBTQ employees, the benefits of an inclusive workplace, and the key to creating an inclusive environment.

Better not tell?

Although substantial strides have been made in recognising LGBTQ issues more than 53% of LGBT workers hide their identity at the workplace. This identity struggle has detrimental impacts on their health, happiness and productivity as well as business talent retention and leadership development.

Research in the US suggests that openly gay job applicants are 40% less likely to receive job interviews.

22

December 2021

Transgender individuals have an unemployment rate three times higher than the national average.

LGBTQ employees often face hostility in the workplace. According to research by the Robert Wood Johnson Foundation 20% of LGBTQ Americans have experienced discrimination based on sexual orientation or gender identity when applying for jobs. LGBTQ people of color are even more likely to experience this type of discrimination (32%) as opposed to white LGBTQ people (13%).

LGBT Americans do not earn as much or progress in their career as quickly as their straight counterparts – 22% have not been paid equally or promoted at the same rate as their straight peers.

This was echoed in 2019 research

by LinkedIn in the UK which suggests that the income of average UK LGBT employees is 16% less than their straight counterparts. 57% of respondents to the survey wanted to see greater transparency around their employers’ stance on diversity and inclusion while 55% wanted more supportive environments for coming out at work.

Transgender workers are

especially vulnerable to discrimination. A 2015 US Transgender Survey revealed that 27% of the transgender population said they were not hired, were fired or were not promoted due to their gender identity or expression. 80% of the transgender population who were employed experienced harassment or mistreatment on the job or took steps to avoid it.

Straight colleagues often have a double standard approach to LGBTQ issues in the workplace – a US Human Rights Campaign Foundation report found that 81% of non-LGBTQ respondents indicated that their co-workers “should not have to hide their identity” yet 70% of the same respondents indicated that talking about sexual orientation in the workplace is “unprofessional.”

There is a social pressure on all employees to reveal their identity through day-to-day casual conversations with co-workers.

Fear prevents most LGBTQ workers from being open forcing them to downplay or hide aspects of their true selves such as the nature of their personal relationships (i.e. referring to boyfriend as girlfriend) or changing

the way they dress or speak.

46% of LGBTQ workers in the US are closeted in the workplace.

Employees report feeling exhausted from spending time and energy concealing their sexual orientation and gender identity.

A New Zealand Workplace Equality Study conducted in 2019 by the Rainbow Tick a non-forprofit LGBTQ workplace support program revealed that 83% of LGB employees felt they can be themselves at work, 73% are out to their managers and 78% are out at work. A third of LGB employees commented that being out has made them more productive and a quarter believed that being out made a positive contribution to their career progression.

22% of LGBTQ are confident that their managers would address bullying/harassment of an LGBTQ employee. Among all employees 94% believe in and support LGBTQ inclusion initiatives in the workplace.

41% feel that their organisations should do more to support LGBTQ inclusion in the workplace and 58% of employees feel that their organisations should do more to promote LGBTQ champions/allies.

The Benefits of an Inclusive workplace An organisation with a diverse workforce can draw on the variety of talent and different perspectives employees bring to their jobs. It can improve the company’s adaptability, enhance its ability to provide services to diverse audiences and inspire employees to think beyond their own experiences and push their boundaries.

Speaking in 2019, Chris Cummings, Chief Executive of the Investment Association in the UK said “Lesbian, gay, bisexual and transgender people make an immeasurable contribution to society, the City and Investment Management.”

Companies with inclusive, supportive environments have better reputations and branding, they draw better candidates for open positions and retain top talent longer. People who feel secure in their workplace, supported by policies which promote acceptance and positivity will be more loyal, more focused on their jobs and less distracted and stressed. This ultimately means that

the organisation will function better across the board, with greater efficiency and increased profits.

In New Zealand Rainbow tick provides a certification process to test whether an organisation understands and welcomes sexual and gender diversity. The process involves an on-going quality improvement process. They evaluate the company’s level of LGBTTQIA+ inclusion in five areas:

-

Policies Staff Training Staff Engagement & support External engagement Monitoring

Current certified organisations include, Cigna Life Insurance NZ, Sovereign Insurance, Partners Life, Tower Insurance Creating an Inclusive environment A diverse and inclusive workplace is a happy, healthy, safe and productive one – it’s a matter of P.R.I.D.E. Here is how you go about it ….

P romote a zero-tolerance harassment policy and make it clear that employees will be disciplined or fired for www.covernote.co.nz

23

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wrongdoing. Encourage victims and those who have witnessed inappropriate behaviour to come forward and report it.

R ecruit LGBTQ candidates. Job adverts should be clear about welcoming LGBTQ applicants and recruiters should discuss diversity and inclusion at interviews. All new staff should be invited to inclusion and diversity networking talks.

Spread information and news about LGBTQ issues on social media and the internet as well as through adverts and public displays to show how welcoming the workplace can be. Pharmaceutical giant GSK adorned their UK HQ with massive rainbow flags and organised several Pride-focused events at their London office. This included pride stickers on cakes, coffee cups and uniforms, which they shared on social media. They won Stonewall’s Employee Network Group of the Year 2019 for Spectrum – a group with more than 1,000 members incorporating LGBTQ people across GSK’s UK sites. This year they ran a selfie day to mark International day against Homophobia, Biphobia and Transphobia as well as mentoring senior leaders across the business.

Around the Pride Celebrations

many companies display rainbow flags and change their logos to rainbow colours as a sign of solidarity. This is a great way to raise awareness but unfortunately some companies doing so have no diversity and inclusion policies in place so it’s merely window dressing or tokenism rather like putting out carved pumpkins for Halloween.

I dentify priorities for action and highlight where strengths and weaknesses within the organization lie. Review the appropriateness and language of internal policies.

Focus on inclusivity to explicitly include non-traditional families, create an inclusive dress code which avoids gender stereotypes and review internal communication for language and imagery which tacitly assumes heterosexual families and relationships as the “norm”.

D evelop LGBTQ networks and allies at all levels of the organization. Establish mentoring programs which match participants across genders, races, ages and sexual identities. To be effective there must be “Buy-in” from the top of the organisation – CEO and Senior Management

which will be parroted by the rest of the organisation. Some are onboard such as CEO of mobile communication giant Vodafone UK who commented at the launch of its new program to help recruit and retain LGBTQ candidates ”We are encouraging all employees to educate themselves and support LGBTQ colleagues to help create a truly inclusive workplace”. However, not all are as enlightened, research

by Boston Consulting Group revealed that less than four in ten LGBTQ employees consider their organisation’s senior leadership team to be committed to diversity and inclusion.

E ncourage discussions on diversity by establishing proactive diversity programs involving the entire organization, including diversity and inclusion training and advocate more inclusive language.

Discuss with employees of various genders, sexualities and gender expressions about what would help them to feel more included.

Whether it is goals or milestones which have been met, LGBTQ meetings which have taken place or the promotion of LGBTQ business leaders – don’t forget to celebrate your successes!

Dr. Dexter Morse is a Global Risk, Insurance and Legal Consultant (www.dextermorse.com). He has arbitrated numerous employment disputes and advised companies on intercultural issues and building inclusive workplaces.

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December 2021

Medical Malpractice & Legal Expenses Defence & Pursuit Cover

ANZIIF

Awards Insurance Advisernet New Zealand

Proud to be named Large Broker of the Year at the 2021 ANZIIF Awards.

We’d like to say a big thank you to every single person in the network who make up the IANZ family – 65 businesses that have continued to provide exceptional service and trusted advice to customers through a challenging year Cheers to you all.

Look forward to doing it all again in 2022.

Opinion

Statutory Liability Policies and Pecuniary Penalties Crossley Gates and Frank Rose, Keegan Alexander

O

ne of the insurance industry’s best innovations in New Zealand has been the introduction of the Statutory Liability Policy in the 1990s. Even today, more than 20 years later, there is no insurance policy quite like it elsewhere in the world, as far as we are aware.

The policy started life insuring criminal fines and defence costs under three statutes only: • Health and Safety in Employment Act 1992 (now the Health and Safety at Work Act 2015) • Resource Management Act 1991 • Fair Trading Act 1986

These three statutes shared the following in common: 1. They are all business focused, and at least two of them apply to nearly every business.

2. Two of them don’t specifically address criminal behaviour but contain criminal offences within them. The third (Health and Safety at Work Act 2015) is poorly recognised for what it actually is: a criminal law statute to reduce workplace injuries/deaths (and reduce ACC’s exposure accordingly).

3. The criminal offences are all strict liability offences. This means the offence is committed by merely conducting the elements of the offence; it doesn’t matter that the offender didn’t intend to do so. For example, an offence is committed under the Health and Safety at Work Act 2015 when an employer fails to take all reasonable steps to protect employees from injury at work, and an injury occurs. It doesn’t matter that the employer didn’t intend to fail to take all reasonable steps.

4. A consequence of this is that the offending can be genuinely accidental from the insured’s point of view (an essential ingredient of all insurance).

5. The offenders are likely to be ‘white collar’ business owners or operators who are usually otherwise law abiding. The news that they are facing a criminal prosecution will often come to them as quite a shock.

These factors make the insurance policy attractive to businesses. It is not surprising that the product is now a core feature of most business’ liability insurance suites.

Competitive pressures inevitably led to the cover widening beyond the initial three statutes.

Civil law versus criminal law Traditional liability policies insure civil legal liability, i.e., the laws that require a person to pay compensation to another person who has suffered loss because of a breach of contract or tort by the first person.

26

December 2021

Contrast this with the criminal law, which prohibits stated conduct by creating offences that punish those who ignore the prohibition as a way of incentivising compliance. Any fine payable does not compensate anyone; the offender forfeits the money to the Crown.

Different processes and procedures apply to these two different areas of the law. For example, the standard of proof to obtain judgment in a civil trial is: on the balance of probabilities, i.e., more likely than not, whereas the standard of proof to obtain a conviction in a criminal trial is: beyond reasonable doubt. A court usually sits as either a civil court or a criminal court.

As a Statutory Liability Policy is insuring against the consequences of a criminal trial not a civil one, its name is a misnomer as liability is a civil law concept.

The industry should call it something like: Statutory Offences Policy. This would lead to a clearer signal of what it insures.

Pecuniary penalties One of the difficulties with applying the criminal law to business misconduct is the very high bar required to obtain a conviction - any reasonable doubt means the accused must be acquitted. This makes the prosecution of ‘white collar’ crimes such as insider trading difficult, particularly when businesspeople often have the means to defend themselves using top lawyers.

Increasingly, Parliament is requiring the payment of a pecuniary penalty to the Crown, instead of a fine, as a way of punishing misconduct in business orientated statutes. The statute no longer calls the misconduct an offence, and the standard of proof is the lesser civil standard of: on the balance of probabilities.

This has caused some consternation in the legal profession because this concept mashes together parts of the civil and criminal law - a pecuniary penalty is a punishment in the same way a fine is under the criminal law, but the standard of proof is to the civil law standard only. The statutes that provide for the payment of pecuniary penalties are on the increase.

They include: • Anti-Money Laundering & Countering Financing of Terrorism Act 2009 • Biosecurity Act 1993 • Commerce Act 1986 • Hazardous Substances and New Organisms Act 1996 • Unsolicited Electronic Messages Act 2007 • Financial Markets Conduct Act 2013 Law Commission In August 2014, the Law Commission (a government body charged with considering the reform of areas of the law) studied the concept of pecuniary penalties

and provided guidelines to the government about their use.

The Law Commission’s Report contains the following summary: The Report concludes that pecuniary penalties are punitive measures. They are not intended or designed to compensate people affected by a breach, but to punish the contravention and deter future contraventions. However, they are imposed on a lower standard of proof than criminal offences, and in civil proceedings that lack many of the procedural protections offered by the criminal law.

There has been concern that pecuniary penalties illegitimately challenge the traditional distinction between the criminal and civil law. This is one of the factors that prompted the Commission’s review.

Pecuniary penalties are also a relatively novel form of penalty. They have been adopted into statutes in an ad hoc manner, especially since 2000. Apparent inconsistencies among existing pecuniary penalty provisions suggest a lack of clear principles guiding their use. These were other factors driving the Law Commission’s review. …

We have reached the view that pecuniary penalties can be a valid tool of enforcement and may be desirable in some circumstances. In this Report we identify what those circumstances are. We have concluded that, for the most part, the rules of evidence and procedure that accompany pecuniary penalties are appropriate.

The Law Commission considered the issue of insurability of pecuniary penalties. When looking at the position in Australia, it said: The increasing use of pecuniary penalties to regulate behaviour in Australia has given rise to questions about the applicability of the conventional doctrine that insurance against the imposition of penalties is contrary to public policy.

Conceptual differences between conventional criminal offending and pecuniary penalties (and strict liability offences) have led to the gradual retreat from the position that the creation of a statutory contravention punishable by a monetary penalty is always a reason to invalidate an indemnity.

The Law Commission left it to Parliament to consider on a case-by-case basis whether to prohibit insurance against the payment of a pecuniary penalty in a particular statute. It recommended that each statute expressly addresses the question of insurance In summary, the Law Commission: 1.

Concluded that pecuniary penalties are a valid tool of enforcement in certain circumstances. www.covernote.co.nz

27

Opinion

2. Set out guidelines for when those circumstances apply.

pecuniary penalties. Contrast this with the recent amendment to the following Act.

3.

Credit Contracts and Consumer Finance Act 2003.

Said the law should not place a blanket prohibition on insuring against an order to pay pecuniary penalties. Rather, Parliament should decide whether to prohibit it or not on a case-by case basis in each statute.

Financial Markets Conduct Act 2013 We quote the relevant provisions in this Act about pecuniary penalties as an example of their application: 484 Overview of civil liability (1) The following orders (civil liability orders) are available for a contravention, or involvement in a contravention, of a civil liability provision (except if otherwise provided) under this subpart: (a) a declaration of contravention: (b) a pecuniary penalty order (on application by the FMA only): (c) a compensatory order: (d) other civil liability orders under section 497.

489 When court may make pecuniary penalty orders (1) The FMA may apply for a pecuniary penalty order against a person under this Act. (2) If the FMA applies for a pecuniary penalty order against a person under this Act, the court— (a) must determine whether the person has contravened, or been involved in a contravention of, a civil liability provision; and (b) must make a declaration of contravention if it is satisfied that the person has contravened, or been involved in a contravention of, a civil liability provision; and (c) may order the person to pay to the Crown a pecuniary penalty that the court considers appropriate if it is satisfied that the person has contravened, or been involved in a contravention of, a civil liability provision.

1.

The Act puts the fact that this is a civil proceeding and not a criminal proceeding beyond doubt by section 509:

Section 107E says: 107E Restriction on insurance (1) No person may enter into a contract of insurance that indemnifies or purports to indemnify a person (person A) in respect of— (a) any pecuniary penalty imposed on person A under this Act; or (b) any costs incurred by person A in defending any civil proceedings in which the pecuniary penalty referred to in paragraph (a) is imposed.

(2) Any contract that does so is void.

This section follows the Law Commission’s recommendations by addressing expressly whether insurance against payment of the pecuniary penalty is legal - it is not.

Statutory Liability Policy changes required?

The Statutory Liability Policy started life by insuring fines payable for certain criminal offences. Most policies use the correct criminal language consistent with this such as: ‘offences’, ‘convictions’, and ‘fines’. This language is not apt for insuring pecuniary penalties payable under the civil law using the civil standard of proof.

As Parliament is resorting to the use of pecuniary penalties in business related statutes more and more, we recommend Statutory Liability underwriters address whether they intend to insure them or not as soon as possible. We are aware of a number of recent disputes about claims for pecuniary penalties under a standard Statutory Liability Policy. This is not surprising given the existing language does not fit the pecuniary penalty legal regime.

Just as the Law Commission recommended that statutes creating pecuniary penalties expressly state whether they can be insured or not, we recommend Statutory Liability Policies either expressly exclude them or expressly cover them.

We believe cover for them will require different language that is in harmony with their civil law nature.

509 Rules of civil procedure and civil standard of proof apply to civil liability The proceedings under this subpart are civil proceedings and the usual rules of court and rules of evidence and procedure for civil proceedings apply (including the standard of proof).

Parliament passed this Act before the Law Commission’s report, and it is silent about any prohibition against insuring against payment of 28

December 2021

Please contact us if you require any further information.

Crossley Gates cgates@keegan.co.nz

Frank Rose frose@keegan.co.nz

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iaComply provides the ability for you to manage your FAP duties and obligations, including onboarding new Financial Advisers, fit and Onboarding / Offboarding proper person checks, Auditing, templated BCP, Agreements, Compliance Manuals, Registers and Compliance management tools Documents / Manuals Reporting for Breaches, COIs, (extensive Continued Professional templates) Development and more!

Auditing

Risk Item

Training Registers

Contracts & 3rd Party Agreements Management

HR Toolbox

Cloud Based Document Management

FAP Licensee Audits Support

FMA Reportable Breaches Support

If you would like to know more about iaComply, contact Insurance Advisernet today. insuranceadvisernet.co.nz

www.covernote.co.nz

29

Feature

Delta starts automated renewal pilot with brokers D

elta Insurance unveiled a new, digitised renewal process that it hopes will make policies “significantly simpler” for clients.

According to chief operating officer Kent Chaplin, automation will allow the company to take “a significant step forward” in “the digital revolution happening in our business”.

Chaplin said automating otherwise time-consuming insurance processes is no longer the way of the future.

“It’s the way of the present – particularly in the Covid-19 environment,” he said. “The best performing insurance companies globally are changing their operations to automate significantly and simplify their processes in the face of strong consumer expectation, particularly in how they respond to Covid-19.”

Delta has teamed up with Auckland software firm FormsByAir to make its transformation.

The new process will deliver streamlined renewals for less 30

December 2021

complex forms of insurance offered

by Delta. Previously, underwriters had to follow up policies manually with brokers for each client, demanding time from the intermediary, insurer, and client.

Delta Insurance New Zealand managing director Dinesh Murali said the changes would make the experience more “efficient” for all parties, particularly brokers, “a vital” partner.

“This is something our end-users have been seeking – a simpler process and better experience.”

Under Delta’s new system, a looming renewal expiry date automatically triggers an online questionnaire to the client via their broker.

less than five minutes,” Murali said.

The insurer had been working on the process for roughly a year. It will be rolled out over the next 6-12 months, starting with a pilot group of brokers.

Delta will make the system available to all brokers who wish to take it up, though intermediaries can opt-out.

Murali said Delta’s ultimate goal was to adapt the questionnaire to enable more complex policies to be renewed digitally. The software leaves the underwriter room to develop new features in the future.

Submission of the completed questionnaire, which is prepopulated with the client’s data, triggers the approval and renewals process.

“The future is about automation and simplification – using smart technology to reduce manual intervention and re-keying, allowing underwriters to concentrate on value-added tasks, such as product development and enhancing customer service.

“If any major changes are required, the process takes a little longer, but if there are no major changes, the actual renewal takes

“Digital modernisation is a journey, and we’re off to a great start with this renewal process – watch this space.”

Advertorial

Do you want to create better experiences for your clients?

New windscreen book online solution available for broker partners now

A

longside our broker partners, we’re committed to delivering exceptional customer service that is quick, easy, and convenient.

We know how frustrating it can be for clients when they get a windscreen chip, and that’s why we are continuously finding ways to improve and innovate so that we can get your clients back on the road as quickly and safely as possible.

A better way to manage your clients’ claims Hot off the press is our new online claims solution available to you as our broker partner. It allows your business to leverage off the Smith&Smith® book online platform but instead will be branded with your own business name and logo. It’s an easy way to introduce a hassle free and user-friendly experience while also enhancing your brand in the eyes of your clients.

Not only does this new solution make it easier for your team to handle claims, it also creates a quick and seamless experience for your clients. It’s available 24/7 on either a mobile phone, tablet or desktop and gives your clients the capability to manage their appointment online.

How will this help your clients?

We’re proud of how simple and speedy it is for your clients to use. They can get their vehicle glass booked in for a repair or replacement in less than three minutes. And it doesn’t just stop at

windscreens, we’ve also expanded our online booking capabilities to include side and rear vehicle glass.

Scan this QR code to get started.

Booking an appointment is easy.

All your client needs to do is enter their vehicle registration, select their preferred branch, date, and time, tell us cause of damage and submit their insurance policy details.

Our system will confirm their booking with their preferred branch.

We then validate their details and let them know if there is an excess.

The job will then be completed at their preferred branch location, at a date and time convenient for them and they’ll be one step closer to getting back on the road.

With just a few easy steps we can get your book online solution up and running.

So, are you ready to say yes to a seamless booking experience for your clients that’s available any time, any place?

Alternatively, please contact: Doug Waters

Business Development Manager commercial.team@smithandsmith.co.nz

smithandsmith.co.nz

FSCL Case Study

Service or repair claim contested P

erson A runs a small business importing farm machinery and selling it to New Zealand farmers. The machinery is complex so as part of the sale, the insured’s business also installs the machinery and sets it up to the farmers’ requirements. The setting-up of the machinery is commonly called ‘commissioning’, and it requires expert knowledge.

Dispute

A step was missed by the insured’s employee during the commissioning of one particular piece of farm machinery. Because of the mistake, the machinery got damaged once the farmer started using it, and Person A’s business was responsible for repairing it.

By the time the insured brought the complaint to FSCL, the dispute was whether the commissioning of the machinery should be considered a ‘service or repair’.

The costs to repair the damaged machinery was over $20,000, so the insured made a claim under his two business insurance policies. The insurer considered his claim under both his general liability policy and his professional indemnity policy.

After reviewing both policies and all of the claim information, the insurer declined the claim.

The insured was unhappy that his claim had been declined because he believed the repair costs should be covered under at least one of the policies. They asked the insurer to review their decision, but their decision didn’t change.

The insured then complained to FSCL.

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December 2021

The insured did not agree with the insurer’s decision to decline his claim and he wanted the claim to be accepted.

The insured had asked his insurer to consider the claim under a few different clauses in the policies, and they declined cover under each clause.

The insured argued that it was a service or repair and so the claim should be covered, whereas his insurer argued that the commissioning was different to a service or repair – so the claim shouldn’t be covered.

Review Whilst the insured had focused on the ‘service or repair’ issue, FSCL needed to look at the claim in its entirety in order to understand what had happened. It was quite complicated, because there were two policies and both of them had been altered from the standard wording.

When the insurer first looked at the claim under the general liability policy, they advised him that, while there could have ordinarily been

some cover under the ‘defective workmanship’ clause, that clause had been deleted from the insured’s policy, so it didn’t apply.

This deletion was clear in the policy schedule, and FSCL was satisfied that the insured had accepted this.

In relation to the professional indemnity policy, the insurer explained that there was an endorsement that had been added to the policy that amended the clause the insured was relying on.

The amendment removed cover for any product or good (the damaged machinery was a product). The costs claimed were for the damaged product only, so FSCL was satisfied that the insured understood the claim wouldn’t be covered under this policy because of the endorsement.

The insured’s main argument was that his claim should be accepted under the general liability policy because the commissioning of the machinery was a ‘service or repair’.

In order to determine the meaning of the words ‘’service or repair’’, FSCL looked at the dictionary definitions of the words, the context of the clause in the policy as a whole and considered the purpose and timing of the commissioning work.

FSCL decided that the commissioning work was related to the installation of the machinery, so

Feature

didn’t think it was correct to say the commissioning work was a service or a repair. In the context of the insured’s policy, FSCL thought service meant ‘routine maintenance’ (of a machine) and repair meant ‘fixing something that was broken’.

Resolution FSCL issued a decision explaining to the insured that it didn’t think the commissioning of the farm machinery was a service or a repair, and so the insurer was correct to decline the claim. We recommended that the insured discontinue their complaint.

INSIGHTS FOR CONSUMERS This case highlighted the importance of negotiating the correct terms when taking out an insurance policy for your business.

Both policies that the insured had for his business had amendments to them which limited the scope of cover.

It is important to consider the type of risk you want insured when you are negotiating with an insurer.

The insurer might want to limit cover or they could charge you higher premiums for a policy with the standard terms and conditions.

As a business consumer you really need to think about what possible things could go wrong when you’re doing business so you can make sure you have the right type and amount of cover. If in doubt about what to do, you may wish to seek advice from an insurance adviser.

IAG introduces vaccine mandate I

AG, the owner of AMI, State, NZI, NAC, Lumley and Lantern, has introduced a vaccine mandate for employees working in its offices, and locations where staff interact with the public.

The range of Covid-19 health and safety measures has been enforced to “protect its people, customers and the wider community”, the insurance group said.

IAG will also require that its business partners, including brokers, must be vaccinated before entering IAG premises.

Amanda Whiting, chief executive of IAG New Zealand, said the compulsory vaccination policy was introduced following a consultation with employees.

“We have made this decision because we strongly believe it is the right thing to do.

“Since the start of the pandemic our decision making has been guided by government advice and the priority of keeping people safe. We have always adhered to government restrictions, and in many cases, gone above and beyond those to provide our people, partners and customers with additional protections.

“As the pandemic continues to evolve, there is no question that vaccination is the best way to keep everyone safe in the short and long-term.

“We want to do our bit for New Zealand.”

The mandate comes as IAG makes it easier for staff to work from home.

The insurer has also increased the amount of paid leave employees can access during this time.

In addition, IAG has offered all staff are paid ‘wellness day’ this year, as well as two additional paid half-days of leave to receive their COVID-19 vaccinations.

IAG has also introduced additional provisions for paid ‘special leave’ should an employee or family member contract COVID-19.

“We have more than 3500 employees across the country and our approach has been to ensure they have the time and space needed to get vaccinated and prioritise their mental and physical health.

“We have been delighted with the positive response we have received from our people so far and will continue to work with them to adjust and adapt our approach to protect all people into the future,” Whiting said. www.covernote.co.nz

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Feature

Innovating for better health and safety and mental health

Employers need to focus on mental health risks and health communications in the workplace, writes Steven Walsh of Gallagher Bassett.

W

orkplace harm extends beyond injuries at work.

It’s estimated that about 100 people die from workplace accidents every year in New Zealand while the economic and social cost of work-related injuries is $3.5 billion. One in five New Zealanders experiences mental health issues every year, and the annual cost of serious mental health is estimated at 5% of gross domestic expenditure. Add to these issues has been the impact of Covid-19 on employees and their families.

These work-related injuries and illnesses represent a huge cost to workers, their families, employers and society as a whole. However, many workplace injuries and improved mental wellness can be avoided through improved employee education and communication.

As a global multi-line Third Party

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December 2021

Administrator (TPA), Gallagher Bassett is focused on delivering custom claims management solutions that suit the requirements of our individual clients, rather than taking a one-size-fits-all approach.

This extends through to our free online service, Poster Designer, designed to help employers around the globe run targeted health and safety campaigns in their workplace.

In most organisations and businesses around New Zealand, health and safety staff (or management) develop in-house campaigns for their workplace that address the key risks their workers face – in order to educate their workers about prevention strategies.

Not only can this be a timeconsuming process, but also an expensive one that may sometimes require input from graphic designers to create

professional looking materials. The process is further complicated for organisations with a geographically dispersed workforce who may want to customise their health and safety materials (such as posters) for their individual worksites (e.g., local OHS contact information or details of a site-specific OHS event).

Quite often for small to medium businesses, there is no resource available to have dedicated health and safety staff in-house.

When campaigns are both time consuming and expensive, employers are limited in the number they can carry out each year; impacting on the amount of information that is communicated to workers about risks and common workplace injuries.

The main objectives of Poster Designer are to help employers communicate health and safety effectively with their people and promote safer workplaces around

New Zealand, supporting the mental and physical health of employees. The purpose of the online tool is to ensure companies are engaged and kept up-todate with best practice workers’ compensation and personal injury knowledge.

Helping employers by providing core resources to run health and safety campaigns, Gallagher Bassett’s Poster Designer is continuously updated to meet the evolving needs of the industry and challenges in real-time.

Most recently, we added to our collection a series of mental health posters which was in addition to the COVID-19 collection of posters to assist businesses with keeping their employees safe during the pandemic. Hundreds of organisations in New Zealand and globally have used these posters to promote safer practices during the pandemic.

Businesses are also able to request a new poster design using an inbuilt form, which is created and uploaded to the portal. Dozens of new posters have been created in this way.

As such, the online tool provides employers access to dozens of customisable health and safety posters for use in their workplace. Poster Designer allows users to create bespoke health and safety campaigns to suit particular industries and individual companies. It allows anyone to create their own custom health and safety posters, choosing from over a hundred different predesigned templates that have been developed with support from GB’s inhouse health and safety consultants.

The online tool is free for anyone to use, regardless of whether they are a current client.

www.covernote.co.nz

35

New Zealand Insurance Industry Awards 2021

IAG NZ’s Blair Williams named ‘Insurance Leader of the Year’

I

AG NZ’s General Counsel and Executive General Manager External Relations, Blair Williams, has been jointly awarded the Insurance Leader of the Year Award at the New Zealand Insurance Awards, hosted by ANZIFF, the Australian and New Zealand Institute of Insurance and Finance.

Mr Williams has been recognised for his leadership role in driving the Natural Disaster Response Model (NDRM) to fruition.

The NDRM has improved outcomes for Kiwis affected by

natural disasters, giving customers a single point of contact and a more seamless experience. Under the NDRM, anyone with home insurance, whose home or land is damaged in a natural disaster, now only needs to lodge one claim with their insurer. They no longer need to lodge a claim with the Earthquake Commission (EQC). Insurers are responsible for managing all such claims to completion, including any portion which is the responsibility of EQC. Mr Williams says, “It is an honour to accept this award on behalf of the broader IAG team, who have worked tirelessly to drive these changes and transition our business and industry to the new natural disaster response model.

“IAG has been helping Kiwis recover from natural disasters for many decades. We know all too well that when disaster strikes, our customers simply want the information and

support they need to put their lives back together as quickly as possible.

“Our team has worked closely with EQC, Insurance Council of New Zealand and the broader insurance industry to drive these changes because our people and customers have told us, time and again, that dealing with multiple agencies to settle insurance claims adds complexity and pain points to the total recovery process.

“While we hope most New Zealanders will never need to experience the new model first-hand, we know that if they do, this successful industry-wide effort has delivered a system that will help make their recovery experience as seamless as possible.”

Mr Williams was jointly awarded Insurance Leader of the Year alongside Sid Miller (CEO, EQC); Jimmy Higgins (CEO, Vero) and Campbell Stewart (Vero).

CONGRATULATIONS! BROKING PROFESSIONAL OF THE YEAR

Faith Owens, Bridges Insurance 36

December 2021

Gallagher Bassett’s innovative communication tool scoops award at ANZIIF A

t the recent Australian and New Zealand Institute of Insurance and Finance (ANZIIF) awards, held for the first time since the pandemic struck, leading claims management solution provider Gallagher Bassett was recognised as providing the Insurance Industry Innovation of the Year through its interactive Poster Designer tool.

The free online tool was designed to ensure companies of all shapes and sizes could effectively communicate health and wellbeing messages with their employees by providing access to a range of customisable poster templates.

Craig Furness, CEO – Gallagher Bassett, said the award recognised how the company treats innovation as a core function.

“We really pride ourselves on delivering claims solutions that are bespoke and fully customisable, so when it became clear that our clients were struggling to gain cut through on important health and wellbeing messages to their teams, we knew we had to find a

solution,” Mr Furness said.

“The timing of the launch was really important – we made Poster Designer available for free as the global pandemic was beginning and loaded it up with a great collection of posters designed to communicate around sanitation, social distancing and checking in, helping to familiarise New Zealand employees with those concepts."

“Innovation is more than a buzzword at GB, we really pride ourselves on thinking outside the box and finding new opportunities for our clients to succeed each and every day, and this award is something each member of our team should be proud of.”

Drew Spilsbury, Global Vice President – Brand Strategy, Management & Growth at Gallagher Bassett, who lead the development of Poster Designer, said the team utilised data to identify what core messages employers were struggling to communicate.

“Basing our decisions on data, we built a user-friendly,

accessible platform with a host of themed posters that employers could easily edit and replicate in their own businesses.

Through this, we helped thousands of companies find the opportunity to improve their team’s understanding and prevent accidents and injuries in the workplace.

“Through our free Poster Designer tool, any company could access our cutting-edge technology and easily design and deliver material that had lasting, positive impacts on their workforce.

“In the face of a shrinking talent market, we applied a creative and meaningful process to help employers provide their team with the right tools to do their job best."

ANZIIF Judges were impressed with Gallagher Bassett’s approach, stating, “the submission took them on a journey highlighting the innovation’s ability to deliver critical information to New Zealand organisations and communities in a unique and engaging way.”

CONGRATULATIONS! LARGE BROKING COMPANY OF THE YEAR

Insurance Advisernet New Zealand www.covernote.co.nz

37

Ask an Expert

Car swap gone wrong The client had a mutual agreement to swap his vehicle for another vehicle with a third party.

However, a disagreement broke out, and our client’s vehicle was taken with the keys and was left with no vehicle.

The client states that he was threatened and so ran away and the TP took the vehicle as well.

The client was not aware of where the vehicle went and was therefore reported to the police.

The police then found the vehicle but was impounded and have asked the client to collect the vehicle. There is no damage but the client needs to get a locksmith out to change the locks and provide them with a key.

The insurer has stated that there is no cover and that this is a civil matter, as the client knew who the TP was, and had the intention of selling the vehicle.

Although, agree at large, we are only claiming for the locksmith and key costs.

QUESTION We believe the insurer should pay for the costs based on the below: Wording:

Keys and locks

“We’ll cover you for the cost of replacing the keys and locks for your car following theft, loss or the unauthorised duplication of your keys during the period of insurance.

“The most we’ll pay is $3,000 for any one loss.

If you’ve got another policy with us which also covers these costs, the most we’ll pay you is $3,000 in total under all of the policies for any one event.”

An excess of $100 applies to each claim.

We know the TP took the keys and there is no indication that they did not duplicate the key and we cannot penalise the client on the assumption it wasn’t duplicated. It is also technically theft as the client did not know where the vehicle was or that a fair transaction was completed.

CROSSLEY GATES I suggest the fact that a (civil) dispute arose between parties does not necessarily invalidate a claim. The focus should always be on the insuring clause.

Based on the facts stated above, the TP converted the vehicle into his possession. This amounts to an unauthorised and accidental physical loss of the vehicle from the insured's point

of view. The insured has found the vehicle again thanks to the Police, but the keys to the vehicle remain accidentaly lost from the insured's point of view.

The keys cover insures the cost of replacing the keys/locks '... following ... loss ... of your keys during the period of insurance'. The keys remain lost so it is hard to see why the keys cover does not apply.

Pleasurecraft: is insurer on board?

Insured sold their pleasurecraft a year ago, the purchaser has not paid the full amount (will pay remainder later) but essentially owns the vessel.

QUESTION

The vessel continued to be insured because the client assumed that they would still be covered since they still have a financial interest.

If a loss occurred would the insured be covered?

CROSSLEY GATES Possibly.

Is the loan a personal one or is it secured over the boat? If it is secured over the boat the insured is prejudiced by damage/loss to that security up to the amount of the loan.

The insured's insurance policy could protect this.

However, does the underwriter know the boat has been sold and the insured is insuring this

financial interest only?

The owner of the boat has changed and so the moral hazard may have changed with it. Such a change in circumstances is probably material to the underwriter.

To be sure there is cover, I would strongly recommend the underwriter is on board (pun intended).

Do you have a question for our experts?

38

December 2021

Ask an Expert

Shared fence dispute Our client has a shared fence with a neighbour.

The fence blew down during some of the big storms.

Our client provided a quote to their insurer that stated repairs costs and replacement costs.

Their Insurer (Insurer A) settled the claim based on repair. However, the neighbour’s insurer (Insurer B) settled the claim has full replacement.

Our client felt that they were not compensated fairly. So we obtained a second quote that stated replace.

We also got our client’s Insurer (Insurer A) to

QUESTION make contact with Insurer B to confirm that that replacement was paid out, which it was. Neither insurer could do a site visit due to level 4.

We believe the benefit of doubt should go to the client and should be paid out for replacement, considering that all three quotes state replacement, and only the first quote included repair as well.

Your thoughts?

Also, the neighbour would not accept a repair with our client as they were paid out for full replacement and insisted the fence be replaced.

CROSSLEY GATES As the fence is situated 50% on each property, each owner is entitled to receive from its insurer for its 50% of the fence is governed by the basis of settlement under each owner's property. It is conceivable that different policies will lead to a different outcomes for each.

Assuming that each insurer has paid out correctly in relation to each policy, the insurers' obligations have been satisfied and there is no insurance issue anymore.

If one insurer has not paid out correctly, that is a claim dispute one owner has with his or her insurer, but as you will see below, this doesn't need to

impact the final repair/replacement decision.

The remaining issue is a practical one between the two neighbours about what they do about repairing/replacing the fence. They must agree as half of the fence sitting on each side of the boundary belongs to each of them.

This decision is separate to the insurance entitlement and is not driven by it. They simply have to reach an agreement, which may involve an element of compromise by one or both.

The amount each received from his or her insurer is not directly relevant to the decision as I assume the claims were cash settled.

Under the influence of drugs Policy exclusion: "This policy does not insure loss to or liability arising from any insured vehicle while it is being driven by any person who is under the influence of any intoxicating substance or drug."

QUESTION What is considered to be "under the influence" given there is no legal limit for drugs like there is with alcohol?

CROSSLEY GATES Sorry, no there is no legal authority on that [drug limit].

I suggest it depends upon what evidence beyond the positive test that the Police may have.

For example, if the insured was observed weaving all over the road before being stopped, this would be compelling evidence that the insured's driving

was materially affected by the presence of the drug.

On the other hand, if the Police report has no mention of any impairment, as you say, then it might be difficult for the insurer to prove the exclusion applies. The onus is on the insurer to do so.

If so, visit iNavigator, www.inavigator.co.nz, or the IBANZ website, www.ibanz.co.nz - and let us know. www.covernote.co.nz

39

IFSO Case Study

Methamphetamine contamination confusion

T

hrough a financial adviser, a couple held insurance on a rental property.

In June 2020, the couple discovered that their rental property had been damaged by methamphetamine contamination.

They made a claim through their financial adviser to the insurer for the damage.

However, the insurer responded to the financial adviser, saying the policy required contamination levels above 15-µg, and asked for a detailed report on the contamination.

The report showed levels of 2-µg in the bathroom. After receiving the report, the insurer said the

contamination claim fell outside the scope of cover provided by the policy, because the contamination levels were below the Gluckman report’s recommended level of 15µg level threshold.

The insured disputed the decision.

They said the Gluckman level was out of step with current law. The couple believed the house had to be decontaminated in line with Tenancy Services’ use of the standard of 1.5-µg. They had the house decontaminated and said the insurer’s delays in notifying them of the declined claim caused a further loss of rent.

The IFSO Scheme found the insurance contamination clause

clearly sets out the cover only applied where the contamination levels were above 15-µg. But it appeared most insurers applied the lower standard.

This meant the insurer had to bring this different approach to owners’ attention. The IFSO Scheme found the financial adviser was informed of the contamination threshold and was asked to include a leaflet setting out the details of the changes to all customers.

As the financial adviser was the couple’s agent, the insurer had not failed to inform them about the different contamination threshold it used.

Complaint not upheld

Consumers need to know that there are two very different methamphetamine standards in New Zealand; the Ministry of Health standard of 1.5-µg, and the standard set out in a report prepared by the former Chief Science Adviser, Professor Sir Peter Gluckman, of 15-µg.

40

December 2021

Professional

College

Professional Development

Closing the Gaps Quick Checks from PIQ

F

or many Fire & General advisers, attaining the New Zealand Certificate in Financial Services Level 5 (NZCFSL5) has either been ticked off the list or is well underway. Which is a great place to be some 16 months before the competence safe harbour period draws to a close in March 2023.

However, there are some key points that we want to ensure our IBANZ members who are completing, or who have completed, one of the formal Level 5 qualification options as outlined in the Code, are aware of. See the quick summary below. Some of the qualification lingo can be complicated, so don’t hesitate to reach out if you need to clarify anything in the following.

Demonstrating knowledge of the current regulatory framework Under Code Standard 9, you must be able to demonstrate knowledge of the current regulatory framework. While the Core Knowledge Strand of Version 2 of the NZCFSL5 addresses this requirement, advisers who completed their qualification under Version 1, may have a gap to address.

To achieve this, you have options: you might choose to attend a session provided by a subject matter expert, for example hosted by a professional body, or you could choose to complete the Legislative Framework Module – designed to address this gap – offered by Professional IQ College. Whichever way you choose to go, the key thing to note is that the training or session needs to be offered by a subject matter expert; reading up on the Legislation is unlikely to be sufficient.

For advisers undertaking Version 1 Version 1 of the NZCFSL5 expires on the NZQA

Qualification Framework in December 2022. There’s no need to panic, and if you have this Certificate it is still valid. But please be aware that you need to complete your full qualification before this point to get your Unit Standards registered and to meet requirements to attain the Certificate (which is Core Knowledge and one specialist advice Strand). If you have started on Version 1, we recommend completing all requirements well in advance of the December 2022 expiry, to allow time for assessment and having your credits registered.

If you do not complete your qualification by this time: you will need to complete any outstanding Strands in Version 2 of the NZCFSL5 to achieve the relevant Unit Standards to meet competency requirements (bearing in mind that there are other ways to demonstrate competency under the Code).

A little-known fact. You can meet the Code competency requirements with a combination of Strands completed in Versions 1 and 2. For example, you could complete Fire & General in Version 1 and Core Knowledge in Version 2. However, to receive the physical Certificate (to hang on the wall, use in your client communications), both Core Knowledge and at least one Strand need to be completed within the same Version, i.e., Version 1 or Version 2.

Contact the team for help or clarification That’s it for this month - just a few potential gaps we want to ensure IBANZ members are aware of. If you have any questions about Level 5 in general or queries about the above information, we welcome you to contact the Professional IQ College team we’re here to help. Call us on 09 306 1731, email at info@professionaliq.co.nz or visit the website at professionaliq.co.nz.

www.covernote.co.nz

41

Professional

College

Professional Development

PIQ Welcomes New CEO, Simon Casford Taking a can-do attitude often results in massive gains.

I

n October, Professional IQ College welcomed new CEO, Simon Casford.

A business leader who has been at the helm of change, innovation, and growth many times, Simon brings extensive experience in the education sector, having held strategy and leadership roles at The Skills Organisation and Skills International, Unitec, and Manukau Institute of Technology.

Shortly after Simon joined the College, we sat down to talk about his experience in the sector, supporting advisers, and plans for the future.

Looking back, what drew you to the education sector?

From a strategy and development perspective, there’s a continuing wealth of opportunity to do things differently, to explore new services and ideas.

In my time at Skills, as an example, the Industry Training Organisation (ITO) sector was undergoing rapid change. One of the strategic initiatives I led was setting up Skills International, a venture that, for me, really drove home the immense value of taking a “yes we can do that” attitude. Within two years from launch, we grew the business to a $6 million annual turnover, providing services to Education New Zealand, the Ministry of Foreign Affairs, and international clients, including designing financial services qualifications and assessments for Saudi Arabia.

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December 2021

Developing new services and relationships was also a key focus in your time as General Manager of Business Development at Unitec. What’s key to success?

In a nutshell: getting a crystal-clear picture about what your clients and students need and delivering on it.

At Unitec, we delivered project management training programmes for Hawkins Construction, set up The Mind Lab and Tech Futures Lab joint ventures, amongst other initiatives. But the key theme in all was keeping the needs we were delivering to front-of-mind: from developing the training programmes and material, through to how students experience the learning.

In addition to business development and strategy roles, you’ve consulted on regulatory change for the vocational training sector. What did this highlight for you?

It’s a big subject of course, but a key focus of the Reform of Vocational Education is to seek efficiencies and ready the sector so that it can swiftly respond to fast-changing needs in skills and learning. The wider vocational sector is undergoing huge change – the amalgamation of all the polytechs, the dissolution of Industry Training Organisations etc., so a big part of our job is to navigate these changes, so that the industry doesn’t have to.

As financial advisers have experienced, it’s crucial to have access to a trusted education partner to attain required qualifications and to source training for ongoing professional development.

In partnership with IBANZ, this is a key focus for the College: Level 5 of course, but also ensuring financial advice businesses and advisers have a partner they can turn to for a broad – and continually evolving – range of skills development and training needs.

Your role with the College signals the potential for collaboration with LearnPlus. Four weeks in, are there opportunities you have already identified?

As the CEO of both Professional IQ and LearnPlus, I can see some potential to leverage systems and resources, and the broader team and I will take a close look at those in time.

In the short term, the focus is all about people – the PIQ team and our more than 500 current Professional IQ students. We want to make sure that the College is well resourced to deliver a great experience and that advisers can smoothly achieve their Level 5 qualification. I’ve been in listening mode in the past few weeks – reaching out for feedback from our IBANZ partners and the PIQ Learning team – with the focus on efficiency and student experience.

The Level 5 Certificate is a key focus for Professional IQ College and the industry in the medium term. We’re focused on becoming the industry preferred partner in delivering this.

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Compared to other academic providers, PIQ is industry relevant, and uses Strand-relevant assessors. What’s more, the PIQ Level 5 Certificate addresses the different learning needs of existing – and often busy – advisers: it’s an in-work qualification, reinforcing learning as you go and using examples from your practice, rather than more generic, academic examples.

Is there anything you would like to add for our IBANZ members and advisers?

I’d like to take the opportunity to acknowledge the PIQ Learning team – it has been a very busy period and they have risen to the challenge. We’ve been examining our processes and are highly focused on student experience and fine tuning how we support advisers through attaining the qualification.

As I said earlier, Level 5 has been and will continue to be a key focus for advisers. But putting this to the side for a moment, we’re also seeking thoughts and insights on what the industry wants for their ongoing training and professional development needs. From business administration, sales, various soft skills – nothing is off the table. We want to hear about what would be useful from the perspective of the industry.

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To get in contact with Simon or the PIQ Learning team, call 09 306 1731, email info@professionaliq.co.nz, or visit the website at professionaliq.co.nz. www.covernote.co.nz

43

IBANZ Board Roger Abel

Tony Bridgman

Rothbury Group Limited PO Box 1596 Shortland Street Auckland 1140 Mob: 021 952 230 roger.abel@rothbury.co.nz

(Vice President)

Neil Cousins

Jill Comley-Forbes

Executive Director Marsh Ltd PO Box 2221 Auckland 1140 Tel: 09 928 3015 Mob: 021 873 399 tony.j.bridgman@marsh.com

Broker Services Manager Steadfast NZ Ltd PO Box 180 Shortland Street Auckland 1140 Tel: 09 309 7942 Mob: 021 377 942 neilc@steadfastnz.nz

Samuel Kerr

Ramesh Mavani

Jo Mason

Simon Ross

James Shearing

(President)

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

Angus McCullough

General Manager Marketing & Chief Officer Aon New Zealand PO Box 1184 Shortland Street, Auckland 1140 Tel: 09 362 9059 angus.mccullough@aon.com

Insurance Broker SHARE PO Box 305415 Triton Plaza Auckland 0757 Tel: 09 476 1670 Mob: 021 980 435 sam.kerr@sharenz.com

Southern Regional Manager Willis New Zealand Ltd PO Box 2220 Christchurch 8140 Tel: 03 339 5021 Mob: 021909124 simon.ross@willistowerswatson.com

Manager Insurance People (Fire & General) Ltd PO Box 47218 Ponsonby, Auckland 1144 Tel: 09 360 5616 Mob: 021 078 3465 ramesh.mavani@ insurancepeople.co.nz

Chief Broking Officer BrokerWeb Risk Services Limited PO Box 7264 Sydenham Christchurch 8240 Tel: 03 348 9802 Mob: 027 451 8098 jill.comley-forbes@bwrs.co.nz (Vice President)

CEO NZ Brokers Management Ltd PO Box 334012 Sunnynook, North Shore City Auckland 0743 Tel: 09 869 2785 jom@nzbrokers.co.nz

Director Affiliated Insurance Brokers Ltd PO Box 22221 Khandallah, Wellington 6441 Tel: 04 479 8451 Mob: 027 2460046 james@affiliated.nz

PIQ Board Neil Cousins

Broker Services Manager Steadfast NZ Ltd PO Box 180 Shortland Street Auckland 1140 Tel: 09 309 7942 Mob: 021 377 942

David Crawford (Chair) Director NZ Insurance Advisernet NZ Ltd PO Box 37670 Market Road Auckland 1151 Tel: 09 926 2062 Mob: 021 905 537 dcrawford@ianz.co.nz

Andrew Gunn

Strategic Partnerships Manager Insurance & Financial Services Ombudsman Scheme PO Box 10-845 Wellington 6143 Mob: 021 684 355 andrew@ifso.nz

Angi Mann

Contract Compliance and Learning and Development Specialist Auckland Mob: 021 293 1724 factnz2012@gmail.com

Gary Young

Auckland Mob: 027 543 0650 gary@ibanz.co.nz

IBANZ / Profesional IQ College Staff December 2021

Simon Casford

Devon Crowhurst

Mel Gorham

Janice Gracias

Robyn Gosden

Sylvia Heywood

Larissa Nixon

Karen Scard

Marianne Taljaard

CEO Professional IQ College Ph: 09 306 1731 Mob: 027 466 2648 simon@professional.co.nz

Student Liaison DDI: 09 306 1731 janice@professionaliq.co.nz

Student Liaison Ph: 09 306 1731 devon@professionaliq.co.nz

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

Data Student Support Administration Manager DDI: 09 306 1731 DDI: 09 306 1738 support2@professionaliq.co.nz karen@ibanz.co.nz

Chief Executive IBANZ DDI: 09 306 1734 Mob: 021 0852 5568 mel@ibanz.co.nz

Academic Manager Professional IQ College DDI: 09 306 1737 sylvia@professionaliq.co.nz

Student Liaison Manager DDI: 09 600 5710 marianne@ professionaliq.co.nz

IBANZ Physical address:

Unit 4D, 2B William Pickering Drive, Rosedale, Auckland 0632

Toll free: 0800 306 173 44

December 2021

Mailing address:

PO Box 302504, North Harbour, Auckland 0751

www.ibanz.co.nz

WANT YOUR VERY OWN COPY OF COVERNOTE?

How Covid-1 9 will change the broker mar ket

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

TO ADVERTISE: Contact Robert Johnson on: e-Mail: robert@benefitz.co.nz Phone: 09-477 4702 Mobile: 0274-970-712 CoverNote is published quarterly by IBANZ, the Insurance Brokers Association of New Zealand.

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

IBANZ CORPORATE COMPANY LIST

Abbott Group

Christchurch

Insure 247 Ltd

Auckland

Adams Trimmer Insurance 1992 Ltd

Whangarei

JRI Limited

New Plymouth

Advance Insurance Services Ltd

Paeroa

Lockton Companies NZ Limited Partnership

Auckland

Affiliated Insurance Brokers Ltd

Wellington

Luxor Insurance Brokers Ltd

Auckland

AIB Group Insurance Ltd

Lower Hutt

Malcolm Flowers Insurances Ltd

Taupo

AIM Associates Ltd

Auckland

Marsh Ltd

Auckland

Albany Insurance Services Ltd

Albany Village

Matt Jensen Insurance Brokers Ltd

Taupo

Amicus Brokers Ltd

Christchurch

McDonald Everest Insurance Brokers Ltd

New Plymouth

Aon New Zealand

Auckland

Moneybox GI Limited

Wellington

Apex General Ltd

Auckland

Multisure Ltd

Auckland

Atlas Insurance Brokers Ltd

Christchurch

MW Insurance

Auckland

Austinsure Ltd

North Shore City

National Credit Insurance (Brokers) NZ Ltd

Auckland

Avon Insurance Brokers

Christchurch

Nelson Marlborough Insurance Brokers Ltd (NIB) Nelson

Baileys Insurance Brokers Ltd

Auckland

Neville Newcomb Insurance Brokers Ltd

Auckland

Bay Insurance Brokers Ltd

Tauranga

Northco Insurance Brokers Ltd

Masterton

Bridges Insurance Services Limited

Hamilton

Northcrest Insurance Brokers Ltd

Auckland

Broker Direct Services Ltd

Christchurch

O'Connor Warren Insurance Brokers

Tauranga

BrokerWeb Risk Services Limited

Auckland

OFS Insurance Brokers Ltd

Dunedin

Builtin Insurance Brokers Limited

Tauranga

Omni Fire & General Ltd

Auckland

Cambridge Insurance Brokers Ltd

Cambridge

Paramount Insurance Agencies Ltd

Auckland

Capital Risk Solutions Limited

Wellington

Partridge Advisory Limited

Auckland

Cartwrights Ltd

Ashburton

Paterson & Co NZ Ltd

Auckland

Certus Insurance Brokers NZ Ltd

Auckland

Penberthy Insurance Ltd

Auckland

Coast Insurance

Whangaparaoa

PIC Insurance Brokers Ltd

Manukau

Commercial & Rural Insurance Brokers Ltd

Alexandra

Primesure Brokers Ltd

Auckland

Crombie Lockwood (NZ) Ltd

Auckland

Property and Commercial Insurance Brokers

Feilding

Dawson Insurance Brokers (Rotorua) Ltd

Rotorua

Protekt Insurance Brokers 2008 Ltd

Auckland

Emerre & Hathaway Insurances Limited

Gisborne

Provincial Insurance Brokers Limited

Masterton

FG Insurance Services

Gisborne

PSC Connect NZ Limited

Auckland

Frank Risk Management

Hamilton

River City Insurance Brokers 2000 Ltd

Wanganui

FundAGroup Insurance Brokers Limited

Auckland

RMA General Ltd

Warkworth

Grayson & Associates Ltd

Auckland

Rothbury Group Ltd

Auckland

Gregan & Company Ltd

Papakura

Runacres Insurance Ltd

Christchurch

GSI Insurance Brokers

Waitakere

SHARE

Auckland

GYB Insurance Brokers Ltd

Lower Hutt

Sit & Blake Limited

Auckland

Hazlett Insurance Brokers Ltd

Christchurch

South Pacific Insurance Brokers Ltd

Auckland

Honan Insurance Group (NZ) Ltd

Auckland

Sweeney Townsend & Associates Ltd

Rotorua

Hood Insurance Brokers NZ Ltd

Auckland

Thames Valley Insurance Ltd

Thames

Hurford Parker Insurance Brokers Ltd

Hastings

The Advisers for insurance

New Plymouth

Hutchison Rodway Ltd

Auckland

Thorner General Insurances Ltd

Upper Hutt

ICIB Limited

Auckland

Towes Insurance Brokers Ltd

Te Aroha

ILG Insurance Brokers

North Shore City

Trevor Sutcliffe Insurance Ltd

Hamilton

Ingerson Insurances Ltd

Wellington

Vercoe Insurance Brokers Ltd

Morrinsville

Insurance Advisernet NZ Ltd

Auckland

Vision Insurance (S.I.) Ltd

Ashburton

Insurance Brokers Alliance Ltd

Invercargill

Wallace McLean Ltd

Auckland

Insurance Design Limited

Warkworth

Wanganui Insurance Brokers Ltd

Wanganui

Insurance People (Fire & General) Limited

Auckland

Willis Towers Watson

Auckland

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45

We’d like say a big thank you to our broker partners for your business over the last 20 years.

Here’s to the next 20.

Back in 2001, we opened our doors with a vision to become New Zealand’s leading liability insurance provider.

We achieved that goal, and two decades on, we’re still proud and privileged to help you help protect your client’s businesses from the unexpected. Cheers to that!

Get in touch. We’d love to hear from you.

veroliability.co.nz

New Zealand’s leading liability insurer