CoverNote - March 2022 issue

March 2022

EQC cap causes concern The insurance sector is set to experience a shake up.

Remembering

Robyn Gosden The insurance industry has paid tribute to long-serving IBANZ employee Robyn Gosden

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 March 2022 edition Supply chain issues around the world seem to be easing, or at the very least are expected to ease throughout the year as most countries recognise the need to open up and return to a business-as-usual approach given their experience of the pandemic.

Locally, rising interest rates, the continuation of a very tight labour market, and the housing market appearing to cool will contribute to an uncertain 12 months.

We lost a very dear member of our IBANZ team early this year. Robyn Gosden, whom many of you will know, worked tirelessly on behalf of our association and members for over 20 years. In this edition, we pay tribute to Robyn, her loyalty, and her work.

There is plenty on the table from a legislative reform perspective in 2022. The bill on insurers' conduct (COFI) continues to move through the consultation process.

We will watch its evolution closely following feedback gathered by MBIE on the issues and imbalance its current form creates.

The Insurance Contract Law Review, which has been on hold since the beginning of Covid, finally appears set to come back on the table with a further round of consultation due in the form of an exposure draft. This covers many aspects of insurance law and aims to bring most together into one piece of legislation.

A

fter another spectacular summer, welcome to our first CoverNote of 2022.

This year promises to be as full as any other for clients and the insurance industry. Inflationary pressures are contributing to an increase in the cost of claims and creating a need to focus on the adequacy of sums insured, limits and insurance programmes as we all seem to be paying more for just about everything.

There remains much concern in New Zealand for how businesses are going to come through the next few weeks of our Omicron outbreak. The Government’s very recent announcement about the availability of support payments to companies facing significant revenue drops will provide assistance to some. The higher threshold of a 40% drop in revenue will see many others unable to qualify for relief despite ongoing and damaging impacts on their businesses.

The Earthquake Commission (EQC), which provides home insurance for natural disaster claims (such as earthquake, tsunami, volcanic eruption), is doubling its cap to $300,000 later this year. This edition includes an article on the impacts on insureds from the cap increase and the community rating approach being taken. The government is also reviewing the EQC act with a view to modernising it.

Further work is to be done on the Fire and Emergency (FENZ) levy review, and we await more consultation from FENZ and Internal Affairs in the coming months.

Whilst much of the intent with legislative reform is to raise standards and improve outcomes for clients, it is not always achieved. We support this intent and appreciate having the opportunity to submit and be heard throughout the consultation process so we can raise awareness of problems with proposed legislation or drafting.

As we have done in the past, we will continue our work to assist the government in identifying and avoiding foreseeable issues.

All the best for the year ahead.

Melanie Gorham CEO, IBANZ

Cover 6. COVER STORY EQC cap causes concern

Features 3. Wotton + Kearney adds to cyber team

4. Insurance product for digital nomads

10. Q&A: Cyber insurances gets personal

14. Long-awaited Insurance Contracts Bill released

20. Government income protection insurance launch

22. What you might not know about Accredited Employer Programmes

24. Underwriting the unvaccinated: rating risk in a pandemic

28. Opinion: Liability Insurance: Key differences between PL, PI and D&O policies

32. Weather events hit Suncorp NZ profit

42. Delta Insurance opens Australia office

March 2022

EQC cap causes co ncern

The insu rance sec experie nce a sha tor is set to ke up.

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ering

sden

www.iban z.co.nz

The insura nce indust ry has paid tribute to long-serving IBANZ employee Robyn Gosde n

HOT OFF THE PRESS!

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.

Website: www.ibanz.co.nz

Rememb

Robyn Go

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

Feature

Wotton + Kearney adds to cyber team L

aw firm Wotton + Kearney has promoted cyber, privacy and data security specialist Joseph Fitzgerald to partner.

Fitzgerald advises large sporting, health, education and infrastructure bodies, as well as SME and nonprofit entities on their cyber and data security risks.

The firm said its new hire “takes a proactive and commercial approach to addressing issues such as incident response, cyber insurance coverage, data privacy and data protection”. He is a fellow of the International Association of Privacy Professionals.

In 2021, Joseph was recognised for his expertise as a finalist in the Young Insurance Professional of the Year category at the ANZIIF NZ Industry Awards.

“Joseph’s promotion won’t surprise anyone who has worked with him, as he is an absolute star in the cyber, privacy and data security space. At Wotton + Kearney, and at our Legalign Global partner DAC Beachcroft in London, he’s advised on the full range of cyber and data incidents, spanning data breaches, network compromises, malware and ransomware infections, and various bank and payment frauds, ” said Antony Holden, the managing partner of Wotton + Kearney New Zealand.

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3

Feature

Insurance product for digital nomads G

lobal travel and health insurer PassportCard has launched a new product designed solely for digital nomads.

The product is aimed at digital-savvy remote workers and equips customers with a PassportCard red credit card. If a customer requires assistance, an app tops up the credit card, providing “location agnostic and comprehensive protection”.

PassportCard said it launched the new product due to the growing number of digital nomads, with New Zealand and Australia popular destinations for workers looking to relocate.

The company said its new product requires no paperwork, and gives small business owners a flexible and bespoke plan.

According to the company, there are 35 million digital nomads worldwide.

“Accelerated through a blend of enhanced technology, better connectivity and the impact of the COVID-19 pandemic, this remote working trend has allowed a new generation of workers to learn new skills, build their contact base and deliver the same service level while travelling the world.

PassportCard has a network of 2 million members spanning 150 countries, including Germany, Australia, Israel and Cyprus.

Leor Catalan, CEO of PassportCard Nomads said, “Now, for the very first time, there is a serious insurance option available for the digital nomad community - no matter where they are - that works in real-time and without the burden of laborious paperwork.

Our mission is to be the ultimate travel companion for customers.”

Remembering

Stephen Doecke 21.09.1964 - 01.03.2022 The insurance industry lost one of its true innovators and unique personalities on 1st March 2021. Stephen Doecke was an Australian Import to the NZ insurance industry hailing from Murray Bridge, South Australia.

He entered the insurance industry in 1994, first with CIC/HIH, before moving to NZ in 2001 and commencing work with PGG Wrightson Christchurch in 2002 before then shifting to Blenheim at the end of 2008 after accepting a role with Crombie Lockwood.

Stephen passed away on the 1st March 2022 in the care of Hospice Marlborough.

He is survived by his wife, Sid and boys, Owen and William. Stephen’s presence and larger than life personality will be sadly missed by us all.

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March 2022

Remembering

Robyn Gosden The insurance industry has paid tribute to long-serving IBANZ employee Robyn Gosden, who passed away in January following a short illness.

The much-loved IBANZ employee had worked for the organisation since its formation in 2005, and was responsible for arranging a host of industry events.

Tributes flooded in from across the market, led by IBANZ chief executive Mel Gorham.

In a statement to IBANZ members, Gorham remembered Robyn as IBANZ’s “stand in mum” with a “huge heart”, as well as tireless worker for IBANZ members. The chief executive said: I am very sorry to advise that Robyn Gosden passed away suddenly yesterday after a very short battle with cancer.

Many of you will know Robyn well as she has worked for IBANZ since it was first formed in 2005, focusing on providing outstanding conferences as well as superbly managing the office and accounts for IBANZ and Professional IQ College. Prior to that Robyn worked for IIBA which, along with CIBNZ came together to form IBANZ. Robyn worked tirelessly and had a fierce loyalty for Members that ensured your interests were always at the forefront of her mind. Over the years Robyn built up a remarkable knowledge of Members and the industry which was extremely helpful to me when I joined two years ago.

Robyn had a huge heart and personality and, most importantly, a great sense of humour and ever present twinkle in her eye.

As many of you will know, she adored her family and was immensely proud of them. She was a stand in Mum for us in the office too.

It goes without saying that Robyn’s passing leaves a huge hole in many of our lives but she does also leave us with wonderful memories to reminisce over.

We will sorely miss our wonderful Robyn, may she rest in peace.

CoverNote publisher Robert Johnson also paid tribute to Robyn, adding: I returned from a very short break to the shocking news that my friend of near on 20 years had succumbed to her short but fierce battle with cancer – Robyn Gosden had been with IIBA and then IBANZ and I have worked with her that entire time, to say she was a mother figure was an understatement, she was a mentor, a loyal rugby supporter (North Harbour and of course her favourite Wellington) a very loyal client and most of all a friend.

She also used her persuasion skills to get me into sponsoring the Industry awards, so a great salesperson as well.

We had lots of fun times over the years especially at IBANZ conferences the world over which she organised perfectly – I am sure they actually didn’t really require a photographer, but she always made room for me and the memories made will stay forever.

Due to Covid my dealings with her had tailed off on a day to day basis but she was never far from my thoughts, to Barry and their kids I feel incredibly sad as she was such a force in the family unit and they will miss her dearly.

Robyn I am incredibly sad and I will miss you.

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Cover Story

EQC cap causes concern

The insurance sector is set to experience a shake up after the government announced an increase in the EQC building cap.

But not everyone is happy with the move, writes Angela Cuming.

N

ews of an increase to the EQC building cap has been met with concern by some within the insurance sector, with warnings it could undermine an already competitive industry and unfairly penalise those who live in low seismic-risk parts of the country.

The Government recently announced it will increase the amount of insurance risk taken on by EQC, increasing the cap from $150,000 (plus GST) to $300,000 (plus GST), to damage caused by earthquakes, tsunamis, volcanic eruptions, hydrothermal activity and natural landslips.

The change will be significant, adding an extra $207 to homeowners’ premiums* when it comes into effect from October 1, 2022.

The Government increased the 6

March 2022

cap in response to insurers moving to risk-based pricing. It meant policyholders in high-risk areas like Wellington, Hawkes Bay and Canterbury were paying higher premiums. In those areas it was becoming difficult to obtain policy cover at affordable prices.

The Minister Responsible for the Earthquake Commission, Dr David Clark, said the ongoing Covid-19 pandemic had “highlighted the importance of having the right financial and other support when disaster strikes” and it was his government’s wish for “New Zealanders to have access to affordable residential property insurance”.

Clarke said increasing the cap “should lead to reduced premiums for many” as the Crown absorbs some

liability and risk from private insurers.

Reactions to the cap increase are not as cut-and-dry.

Mel Gorham, CEO of the Insurance Brokers Association of New Zealand (IBANZ), says she has a “few concerns” about change.

“It would seem doubtful that competition can be materially improved by extending the cap by which the EQC maintains a monopoly,” she says.

The figures released by the Government in the Treasury papers support her claim, says Gorham, citing government figures that show nearly two thirds of New Zealanders are expected to pay more.

“Perhaps the government sees the higher cap as enabling new entrant insurers into the market, given

the significant exposure to natural disaster that our country presents,” she says.

“This does not, however, guarantee better outcomes for consumers and needs to be considered against foreseeable issues that may occur given the volume of reform being driven by the government.”

Gorham has expressed concerns for months. In correspondence sent to Minister Clark late last year, she raised issues about the messaging from EQC and the government, which she said may mislead New Zealanders into expecting the increase in the cap will deliver a reduction in insurance spend as the rate is reducing from 20 cents to 16 cents.

The letter read: “It is recognised that the EQC and Government could point to a reduction in the rate from

20 cents to 16 cents. This would lack transparency and mislead New Zealanders by providing an inaccurate perception of the overall outcome from this. It will not be helpful in setting expectations and could even contribute to a mistrust of insurance and decisions associated with it.

“The community rating approach removes competition from the $150,000 to $300,000 layer by putting it into a government monopoly which is demonstrably worse for the majority of New Zealanders.”

Reactions from member brokers are mixed, says Gorham, and to some extent depend on whether the expected impact on the overall insurance spend is positive or negative.

“There are concerns over the

reduction in competition the higher cap brings and the foreseeable challenges this creates for the majority of New Zealanders who are facing increased costs for the same cover,” she says.

“It is unsettling that many will be faced with choosing which necessities they can do without or how they can reduce their spend on essentials. The foreseeable issues these types of choices create often impact the most vulnerable within our community.”

Insurance Council of New Zealand (ICNZ) chief executive Tim Grafton says the change will mean policyholders will now be at the mercy of not only nature but the Act of Parliament when it comes to natural disasters.

“The increase will mean private

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7

Cover Story

insurers will cover far less of the loss to a residential property caused by an earthquake, volcano, tsunami, landslip, or geothermal activity, meaning insurers will need to buy less catastrophe cover for New Zealand risk from reinsurers,” says Grafton.

“This means that EQC will need to buy more and insurers will still be managing and settling claims as agents for EQC under commercially agreed terms.

“Customers, though, will need to understand that far more of their loss will be covered by what an Act of Parliament says and not what the insurance policy they bought says in the event of one of these natural disasters.”

The ICNZ’s concerns are not a recent development.

The possibility of a cap increase had been publicly canvassed well before the official announcement, and Grafton says the ICNZ’s warned the government of “market distortion and unintended consequences”.

In summary, the concerns raised by the ICNZ with the government included: •

New Zealand has continued to enjoy extremely high levels of house insurance uptake and consequential EQC cover, indicating that there is no evidence of a significant affordability problem.

•

The view that the ability to send risk-based price signals is fundamental to insurance.

•

The equity consideration of low-risk areas subsidising those in high-risk ones.

•

The potential for a “moral hazard” of incentivising people to favour high-risk locations with cheaper property prices and/or not undertaking risk avoidance work.

•

The precedent a large cap increase would set in terms of public expectations about how the Government should manage other risks including climate change impacts to property owners, like flooding and erosion.

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March 2022

Insurance companies will feel the full weight of the change and one major insurer is as unenthusiastic as Grafton is by the increase.

Tower chief executive Blair Turnbull says the increase in the EQC cap has the potential to undermine the already competitive insurance industry and warned it would penalise customers who lived in lower seismic risk areas.

“Tower is all for competition – our model is predicated on offering an attractive alternative to the major Australian insurers – but we believe that ensuring the industry remains

sustainable insurance industry to support New Zealanders,” they said.

“We are still working through the implications of this announcement for our customers, and we will communicate any changes to customers prior to implementation on 1 October 2022.”

A report released by New Zealand actuarial firm Melville Jessup Weaver says by increasing the EQC cap, EQC is choosing to community-rate a greater portion of a policyholder’s earthquake insurance premium.

The report outlined that while in theory this should result in premium

It is unsettling that many will be faced with choosing which necessities they can do without or how they can reduce their spend on essentials. The foreseeable issues these types of choices create often impact the most vulnerable within our community.

IBANZ Mel Gorham

sustainable is essential,” Turnbull told Tower’s 2022 annual general meeting.

“From a customer point of view, the changes to the EQC cap will also see insurance costs rise for homeowners in less earthquake-prone areas.

While Tower has worked hard to remove the inherent unfairness of cross-subsidisation by implementing transparent, risk-based pricing, the EQC building cap will partly undo that work, “Homeowners in high-risk areas like Wellington, Hawkes Bay and Gisborne will have their premiums subsided by every other Kiwi.”

A spokesperson for IAG said the company has been “extensively engaged” with the government on the reform of the EQC Act and the current change to the EQC cap.

“Our focus has always been on ensuring there is a healthy and

reductions for policyholders in highrisk locations, in effect the EQC levy requires policyholders in Northland to subsidise the high cost of earthquake insurance in Wellington.

“Of course, different insurers will see things differently,” the report concluded.

“There are a variety of catastrophe models on the market and numerous choices of vulnerability functions to use. There is no one right way to allocate reinsurance costs between policyholders, nor is there a right way to allocate overheads. Different insurers have different priorities and will make different decisions.

“In short: individual results may

vary.”

*Source: https://www.treasury.govt.nz/publications/ information-release/proactive-release-treasuryadvice-related-increase-eqc-residential-building-cap

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.

Cyber insurance gets personal

Cyber insurance to protect against cyber bullying and other personal risks has launched in New Zealand.

Laura Murray, head of personal cyber at Delta Insurance, talks to Covernote about why individuals also need cyber protection.

Q. Why is personal cyber protection insurance necessary?

Laura Murray: Because, unfortunately, cyber-crime is on the increase globally, and the COVID pandemic has only served to worsen that. As more people work from home on insecure networks and devices, and spend more time online, clicking on links for health information and government updates and the like, this provides enormous opportunity for cyber-criminals to launch spoof websites, run phishing scams and hack your network. Data can exist on the Dark Web for years, where hackers and cyber-criminals can then transact Personally Identifiable Information on a case-by-case basis; for example, a scanned copy of a driver’s licence which was originally held on your network can be sold for a premium.

The rise in smart technology - the Internet of Things (IoT) - such as smart home appliances and systems and wearable tech also means there is access to a vast

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March 2022

array of personal data including passwords, log-ins and even health information and if a hacker gets in, they can lock you out of your own accounts, extort you or family members, and even access your employer’s network.

The risks through the IoT should concern everyone, given the security vulnerabilities, the vast array of information captured by IoT tech, and the way these new products are often rushed to market. The number of IoT devices is expected to reach 41 billion by 2027, and these emerging tools and technologies enable significant efficiency improvements for homes and businesses – but are we prepared for the security threats that come with them?

Q. What is the typical customer profile for this kind of product?

LM: There isn’t a “typical” customer as such, because everyone is at risk in the age of the web, smart devices,

online banking, and numerous apps and emails which can easily be compromised by cyber-criminals.

Delta have been focussed on business customers so far, because there is such a concerning increase in corporate cyber-attacks, and we want them to have this coverage in place so employees get preventative training and cybereducation, as well as insurance protection if they fall victim to a cybercrime. We provide a free IT consult on the security of each employee’s home network, so they can fix any vulnerabilities in their devices and home set-up before potentially being attacked and used as a point of entry into the corporate network.

We can also now provide this coverage to personal customers, and feedback from our broker partners is that families are very worried about cyber-attacks, especially with children home-schooling on devices and so much working from home going on nowadays. This product

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11

Question & Answer

is an excellent way to provide protection for the issues consumers are concerned about now – which is less about having their TV or other home contents stolen and more about the consequences of their personal data, photos, logins, banking credentials or identity being stolen.

Q. Are more individuals being targeted by identity theft and ransomware in NZ? LM: Yes. And sometimes these ransomware attacks are conducted for the purpose of accessing other information, for example, gaining access to the individual’s work network, particularly if they are in a senior management position or have accounting duties. But cyber-criminals will use just about anyone (with a more insecure network) as a way to gain access into a larger organisation’s network.

Cert NZ provides some great, simple information on what to do to prevent identity theft, and what to do if it occurs. https://www.cert.govt.nz/individuals/common-threats/ online-identity-theft/ Delta Personal Cyber customers can also access Cyber Scout, our specialised claims triage partner, and the New Zealand-based techies at “Geeks on Wheels” to assist with these issues.

Q. Who is targeting Kiwis in this way?

LM: It is very difficult to ascertain exactly who the cybercriminals are because they hide behind false names and IP addresses and are incredibly tech-savvy and professional at what they do. They are also extremely quick to pivot when one hack is patched away, and they don’t care as much about your one personal device, but more about the broader opportunities to attack you and your employer.

The hacker communities are generally located offshore, however, and do not discriminate in who they will target – they are opportunists and will run phishing campaigns, social engineering scams and other large-scale, automated campaigns, until they succeed in getting someone to fall victim. These organisations are slick and run as efficiently as large corporate businesses, and in general are using cryptocurrencies to demand payment in order to release your data.

Over the Christmas period many people received texts about unpaid taxes for imported goods, which was actually cyber-criminals capitalising on the Christmas gift-buying to use them as an attack vector, using stolen phone records to just spam-text multiple individuals to carry out phishing attacks. This has nothing to do with your security protocols or which device you have; it is just another massive wave of social engineering.

Q. What will your online shopping fraud product cover, and why did you launch it?

LM: I have had a lot of questions from brokers and others about whether the Personal Cyber policy would respond if you were tricked into buying something online, which turned out to be a phoney website and you lost your money. The answer was no – the policy would not respond as this is more of a social engineering cover, and our wording was (previously) more traditional cyber cover; for example, we were picking up costs that were a direct 12

March 2022

consequence of a network being hacked, rather than online scams such as this.

But the good news is that, with our new capacity partner, we are now able to offer this coverage, so if you have been induced to use a fraudulent website and the goods are never sent or don’t exist, and you cannot get them to refund you for the goods, then you can now lodge a claim for this. We don’t, however, pay for online shopping fraud losses if the loss is reimbursable by a bank or credit card company.

Q. Why did Delta create a cyber-bullying policy, and what kind of events will it cover?

LM: It is something I heard of and was aware was available in some international cyber wordings so when we researched new coverage and new underwriting capacity last year, I really wanted to include it in Delta’s policy, so Kiwis could get the same calibre of cover overseas markets offered, and to help future-proof the product.

There is not a huge amount of data on the costs of cyber-bullying in NZ, but we know the true costs are emotional and psychological more than financial, and this kind of human-centric, non-traditional insurance indemnity is really interesting to me, and I believe will provide even more tangible value to our customers.

Our policy defines a Cyber Bullying Event as three or more related acts by the same person (or group of people) and coverage of $25,000 is available. If you, or someone else insured under your policy are intimidated, harassed or humiliated and this results in mental injury which leads to your inability to attend school or work fulltime for more than a week then you can access support from our claims triage partner Cyber Scout and lodge a claim.

Our policy covers cyber-bullying expenses you may incur such as: the costs of up to 15 hours of psychiatric services to address the diagnosed depression, mental anguish or shock caused; professional digital forensic analysis to aid in the prosecution of a cyber-bullying event you have suffered from; professional cyber-security consultant services; and professional public relations consultant services.

Q. What are the repercussions of cyber-bullying and why does it require insurance coverage?

LM: Unfortunately, the repercussions can be severe and take a huge toll on individuals and families. The most significant resultant damage is not material damage or financial loss (as is traditionally the trigger for reimbursement in an insurance contract) but the trauma, stress, emotional cost and time lost while the person suffers and tries to cope with the situation. For this reason insurance can never fully repair the damage that cyber-bullying causes people, but we can provide expert assistance in the form of cyber support, mental health support, public image help and most importantly, we can take care of all these bills so that you can access the very best people, when you need them the most.

Feature

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Feature

Long-awaited Insurance Contracts Bill released Lloyd Cavanagh, partner, MinterEllisonRuddWatts and Sarah Jones, solicitor, MinterEllisonRuddWatts, review MBIE’s planned reform of insurance contract law.

T

he Ministry of Business, Innovation and Employment (MBIE) released a consultation draft of the Insurance Contracts Bill (Bill) for public feedback on February 24. The Bill reforms and updates New Zealand’s insurance contract law – the Bill proposes fundamental changes to the duty of disclosure, introduces regulation of unfair contract terms and the presentation of consumer insurance contracts, and is intended to roll up New Zealand’s disparate insurance legislative regime. The Bill follows a public consultation on how to reform insurance contract law in late 2019. The Bill aims to address shortcomings in insurance contract regulation identified in MBIE’s 2019 consultation.

The current consultation focuses on whether the Bill appropriately addresses these shortcomings.

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March 2022

Submissions on the consultation close 4 May 2022.

Who needs to read it? Why? The Bill will apply to a “contract of insurance” (as defined in the Insurance (Prudential Supervision) Act 2010). Accordingly, the Bill will have broad reach over the insurance industry – affecting both general and life insurance providers as well as reinsurers, and providing greater protections for policyholders.

The Bill should be considered by all insurers, their advisers, and individuals and businesses who are policyholders.

What does it cover?

Background to the Bill Following consultation in 2019, the Government agreed to reform insurance contract law, including: • Placing the responsibility on

Bill is to promote the confident and informed participation of insurers, policyholders and participants in the New Zealand insurance market and ensure that provisions in contracts of insurance, and the practices of insurers in relation to those contracts, operate fairly.

We have outlined the key aspects of the Bill below.

Disclosure duties Part 2 of the Bill reforms the current duty of disclosure placed on policyholders that enter into insurance contracts. Currently, before a contract of insurance is entered into or renewed, a policyholder has to disclose to the insurer all information that could influence the judgement of the insurer in assessing the risk they are assuming by providing the insurance, regardless of whether the insurer explicitly asked for the information or not. This must be done in accordance with the common law principle of “utmost good faith” which is a very high standard.

The Bill replaces the current duty with separate levels of disclosure duty for consumers and non-consumers.

Duty on consumer policyholders to “take reasonable care”

insurers to ask consumers the right questions when processing new insurance policies, rather than leaving it to consumers to know what to tell their insurer.

• Ensuring insurers respond proportionately when consumers don’t disclose something they should have, or misrepresent themselves.

• Requiring insurance policies to be written and presented clearly, so that consumers can easily understand them.

• Strengthening protections for consumers against unfair terms in insurance contracts.

• Extending powers to the Financial Markets Authority to monitor and enforce compliance with new requirements.

The Bill is intended to give effect to these reforms. The purpose of the

Under clause 14 of the Bill policyholders under “consumer insurance contracts” must “take reasonable care not to make a misrepresentation to the insurer” taking into account all relevant circumstances.

A “consumer insurance contract” is defined as a contract of insurance entered into by a policyholder wholly or predominantly for personal, domestic, or household purposes. We consider that private home, motor, life, health and travel insurance policies are likely to be considered “consumer insurance contracts”.

The relevant circumstances that determine whether an insured took reasonable care (set out in clauses 15 – 19 of the Bill) include the type of insurance product, how clear and specific the questions asked by the insurer were, how clearly the insurer communicated the importance of disclosure and whether the consumer received financial advice.

Consequences for a breach of duty by consumers An insurer will no longer have the absolute right to avoid an insurance contract where there is material non-disclosure by the policyholder.

The new Bill provides that where the policyholder has breached the duty to take reasonable care, the insurer will have proportional remedies available based on how the insurer would have responded to the information and whether the policyholder’s nondisclosure was intentional or reckless.

For general (i.e. non-life) contracts of insurance, these remedies escalate from reducing an amount paid on the claim to avoiding the contract, depending on the severity and circumstances of the nondisclosure.

For life insurance contracts, the Bill carries over the prohibition on life insurers in the Insurance Law Reform Act 1977 – which prohibits life insurers from avoiding a life insurance contract for a misrepresentation unless it was made fraudulently, or within three years before the date on which the policy is sought to be avoided or the death of the policyholder.

Duty for non-consumer policyholders to make a “fair representation of the risk” In relation to non-consumer insurance contracts (being contracts that are not consumer insurance contracts, e.g. insurance taken out for business purposes), clause 31 of the Bill replaces the disclosure duty with a duty to make a fair representation of the risk. The Bill details what a “fair representation” of risk means. Briefly, the non-consumer policyholder must make a disclosure of material circumstances that they know or ought to have known, in which every representation made is substantially correct.

Consequences for a breach of duty by non-consumers Where there is a breach of this duty, the Bill provides (similarly to that for consumer policyholders) that an insurer has a proportional remedy available.

Duties on Insurers in relation to disclosure duties of policyholders

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15

Feature

Subpart 6 of Part 2 of the Bill requires insurers to: •

inform all policyholders of the disclosure duty and its consequences before they enter into a contract; and

•

where an insurer seeks permission to access medical or other third-party records, the insurer must inform consumer policyholders of the information the insurer will likely access.

Presentation of consumer insurance policies The Bill introduces the requirement for consumer insurance contracts to be written and presented clearly.

This involves complying with specific presentation requirements and publishing certain information in a prescribed format to assist consumers with choosing and comparing insurers.

These obligations will apply to contracts entered into by licensed insurers that are consumer insurance contracts, or contracts of insurance that provide for life and/or health insurance.

The requirements are set out in Part 7 of the Bill. Subpart 6B of Part 7 of the Bill proposes to amend the Financial Markets Conduct Act 2013 (FMCA) to introduce a duty for licensed insurers to ensure consumer insurance contracts are worded and presented in a clear, concise and effective manner.

It is expected that further regulations will be issued providing more detail on the form and presentation of consumer insurance contracts as well as what information must be presented to policyholders.

Unfair contract terms in insurance contracts The Bill proposes to remove the insurance specific exemptions from the unfair contract term (UCT) provisions in the Fair Trading Act 1986 (FTA) and clarify how the generic exemptions apply to insurance contracts (clauses 171 – 175 in Part 7 of the Bill).

The current UCT regime applies to standard form consumer contracts generally but includes exceptions for 16

March 2022

insurance contract terms, including the subject or risk insured against, the sum insured, exclusions to liability, the basis on when claims may be settled, payment of premiums, the duty of utmost good faith, disclosure requirements (Exceptions).

The UCT regime will increase its coverage from 16 August 2022 to also apply to standard form small trade contracts generally, but still subject to the Exceptions for insurance. If the Bill comes into force in its current form, insurance contracts that are consumer contracts or small trade contracts will need to comply with the UCT regime. We consider that insurance contracts with an annual premium (including any fees payable) of below $250,000 annually will be caught by the UCT regime.

The original rationale for the Exceptions was to apply the generic “main subject matter” and “upfront price” exceptions (the terms which relate to these aspects of a contract are not subject to the unfair contract terms regime). However, the effect of the Exceptions is to generally remove insurance contracts from the unfair contract terms regime in the FTA altogether.

How the UCT regime will apply to insurers after the Bill is enacted is not yet decided – the Bill sets out two options for consultation: Option A: Option A is to define the main subject matter of insurance contracts in narrow terms (clause 171 of the Bill). This means that the main subject matter exception would apply only to the thing insured, the terms that set out the sum insured, and terms that set the quantum of the excess.

Option B: Option B is to define the main subject matter of the insurance contracts (clause 172 of the Bill).

This would mean that the policy limitations and exclusions that affect the scope of cover would be considered part of the main subject matter and therefore excluded from being declared unfair.

Consolidation of insurance legislation

The Bill will also consolidate and replace a number of pieces of existing insurance legislation.

Generally, insurance law is spread across a range of piecemeal legislation including: •

the Marine Insurance Act 1908;

•

the Life Insurance Act 1908;

•

Part 3 of the Law Reform Act 1936;

•

the Insurance Law Reform Act 1977;

•

the Insurance Law Reform Act 1985; and

•

the Insurance Intermediaries Act 1994.

Parts 3, 4 and 5 of the Bill carry over and update provisions of these Acts. Part 4 carries over and updates the provisions of the Insurance Intermediaries Act 1994. Part 5 of the Bill carries over and updates provisions of the Life Insurance Act 1908.

Part 3 of the Bill carries over and updates the provisions from Part 3 of the Law Reform Act 1936 (which relates to third party claims to liability insurance contracts), Insurance Law Reform Act 1977 (which sets restrictions on avoiding policies or denying claims), and the Insurance Law Reform Act 1985 (which sets out technical matters for life insurance policies). However, the Bill introduces some changes to those provisions in relation to: •

time limits for making claims under claims-made liability policies;

•

increased risk exclusions; and

•

third party claims for liability insurance money.

What is next for the insurance contract law reform Consultation on the draft Bill closes on 4 May 2022. Once consultation closes, MBIE will analyse the feedback and consider any changes that may be required to the Bill. Once the drafting of the Bill is complete, the Bill will be introduced to Parliament. MBIE have not indicated when they expect the Government will introduce the Bill, let alone when the Bill will be enacted and receive the Royal assent.

However, our expectation is that the Government would like that to occur

before the next election, which needs to be before the end of 2023.

Generally, the provisions in the Bill are proposed to come into force by Order in Council, with all provisions coming into force by the third anniversary of when the Bill receives Royal assent at the latest. The commencement date for the Bill will likely be scheduled after the Bill is in its final legislative stages. It follows that the core reforms in the Bill are likely to be in force some time in 2025 or 2026 (although the Government could move more quickly if it regards the regime as a priority).

Our view Like many of the participants in the insurance industry, we have watched and waited (and waited some more) for the consultation draft of the Insurance Contracts Bill to be released. As the consultation for the Bill points out, similar reforms have already been made in other jurisdictions such as Australia and the UK. This has left New Zealand out of step with overseas markets for some time. The impact of the Bill, especially how they will interact with other reforms currently in the pipeline, will be complex however, and will require careful consideration.

The Bill will sit alongside the Financial Markets (Conduct of Institutions) Amendment Bill (COFI Bill) which aims to ensure that financial institutions (including insurers) comply with the principle of fair conduct, and provides for conduct licensing for the first time for retail insurance.. The COFI regime is expected to be enacted later this year, with licenses to be applied for, before the full regime comes into force currently expected to be in 2025.

We welcome and support MBIE’s efforts in the Bill to conduct a structured and considered review of insurance contracts law. We consider that a consolidation of legislation will provide clarity, transparency and accessibility for the industry. We also agree that it is important to provide more certainty as to consumer rights.

However, it will be important that careful consideration is given to such a profound change to insurance contracts law, as is proposed by the two bills, plus the potential impact of

the UCT regime.

For example, in setting the terms of a contract, presenting a contract to a policyholder and responding to a nondisclosure or misrepresentation by a policyholder, insurers will need to have regard of their obligations in the Bill, whether their actions are consistent with the principle of fair conduct under COFI, and also the potential application of the FTA UTC regime.

Duty of disclosure The changes to the duty of disclosure for consumer policyholders reflect industry sentiment that this rule unfairly penalises them. We understand that a number of insurers already have put in place policies on a voluntary basis that provide for a proportional response where the policyholder has breached the duty of disclosure.

Presentation requirements The new duties in relation to presentation of insurance policies will bring the insurance industry in line with similar obligations for consumer credit providers (with obligations under the Credit Contracts and Consumer Finance Act 2003) and issuers of financial products (with disclosure obligations under the FMCA). As has been seen with the disclosure obligations on credit providers and issuers, information provided to consumers of these products has been of a higher quality, more readily understandable and provides for greater transparency between products. We consider that the requirements introduced in the Bill represent the same potential benefit for consumer policyholders.

However, care will need to be taken in considering the Bill to understand the potential for consequences in terms of the cost and availability of consumer insurance, of increased risks assumed by insurers, just as has occurred as a result of the consumer credit reforms.

The new presentation requirements will require insurers to review and substantially edit their insurance policies. We encourage MBIE to prepare regulations that prescribe presentation requirements in good time during the legislative process of

the Bill so that insurers can prepare for these substantial changes.

Unfair contract terms We understand that the inclusion of insurance contracts within the UCT regime has been the subject of opposition from the industry.

However, it seems clear that MBIE is proposing coverage both for consumers and those in business whose policies fall within the small trade contracts definition.

MBIE will need to ensure that the unfair contract terms regime can provide protection to policyholders while allowing insurers to adequately calculate the risk of a policy. This is also in the interests of policyholders as it will ensure that their policies are accurately priced and that availability is not unduly affected.

It is therefore critical that the final Bill takes these considerations into account. We query whether Option B would be of any great benefit to consumers given that it would exclude clauses that set out the scope of cover (exclusion clauses) from being subject to the unfair contract term regime. In its initial consultation, MBIE highlighted a number of terms in insurance contracts related to exclusions from the scope of cover – Option B would do little to remedy such terms.

However, Option A opens insurance contracts (and the risk they cover) to review by the Courts – which provides significant uncertainty for insurance underwriters.

What next?

Given the profound impacts the reforms will have on all engaged in the insurance sector, whether as insurers, advisers or policyholders, it is important that readers take the time to consider the impacts, and make submissions to MBIE on the draft Bill, ahead of it being introduced into Parliament.

The reality is that with the Government having an absolute majority in Parliament, it is likely changes made during the Parliamentary process, including at the Select Committee stage, be more in the nature of implementation detail, rather than underlying policy

www.covernote.co.nz

17

HUMANS of

Cultivating the future of claims Meet Chris Hughes, NZI’s new Executive Manager, Broker and Specialist Claims, who’s bringing the claims promise to life for NZI.

B

orn in London, raised in Hawkes Bay and proud Waiwera Valley resident, Chris Hughes, executive manager broker and specialist claims, started in the insurance industry 33 years ago and has recently come full circle.

After an extensive career in the brokerage world, including seven years in London, Chris has returned to the IAG fold, having worked for State Insurance 30 years ago.

Throughout his broking career, Chris worked closely with the NZI team, and so when it came time for a change, he decided to try life on the other side of the insurance fence.

“For 27 years of my career, I’ve been in the broking space, which I’ve loved and have a deep respect for. It’s a great model, and because I have first-hand knowledge of brokers’ expectations and the pressure they’re under, I know how we, as an insurer, can adapt to meet those demands.

“This perspective is what I’m excited to bring to NZI, so we can further improve our claims experience for both brokers and customers. That’s my biggest drive.”

What Chris is bringing to the table Chris and his family (wife, two sons and two chocolate Labradors) have lived in Rural North Auckland for the last four years. Since then, Chris has developed a newfound passion.

“I really enjoy landscaping and growing my own veggies and fruit throughout the year. I’ve just put a greenhouse up, so we’ll have tomatoes and peppers all year round.

“What I like about it is that gardening and cultivating involves a lot of planning. You have to make sure you do it at the right time and in the right way, and if you do, then you 18

March 2022

get to harvest good food to bring to the table.”

For Chris, this is no different to the workplace.

“With any transformation, you want to make sure you do it right - the timing and the way you do things is key. That’s why it’s important to take the time to plan, look at all the possibilities, and hear different perspectives.”

Bringing the claims promise to life For Chris, the insurance industry has come a long way since he first started. The role of the claims function has become more prominent, and Chris knows that further enhancing this is the way forward.

“Before claims time or the moment of truth, you’re selling a theory, a bit of paper and a promise. Claims time is when that promise comes to life. Brokers need to know when they recommend an insurer that their claims service isn’t going to let them down.

“If you’ve taken the time to recommend NZI, you know we promise to stand behind you with our claims proposition. We’re already getting great feedback on our high levels of consistency and service, but we won’t be resting there.”

Improving and speeding up processes to make things easier for brokers so they can spend more time with customers is a big goal for Chris.

“I want us to challenge ourselves in our thinking of what else we can do and how we can work with our broker partners to improve the claims service.

“There’s a lot more opportunity when it comes to the use of technology. We have to work smarter together, leveraging each other’s

skills and abilities to make sure we’re not duplicating work or getting in each other’s way, so the customer experience is quick and slick.”

Up for the challenge Since Chris can remember, he’s always had a competitive drive. “I’m probably too competitive for my own good. To be clear, I’m gracious in defeat, but I just don’t like not winning!

“This probably stems from being a middle child, needing to fight to be seen!”

Growing up, Chris also played a lot of competitive sports, including football, tennis and cricket, and even represented Hawkes Bay at a junior level in all three. Now Chris enjoys playing golf at a more leisurely pace.

In a work environment, this drive has been the motor to turn his aspirations into reality.

“I’m very committed to our team, our partners and customers.

I’m determined to see our efforts to further enhance NZI’s claims experience come through successfully.

“Above all, I want us to keep delivering on our promise - there’s always more work to be done to improve, adapt and to continue fostering those strong broker relationships.”

Feature

Have the

right team behind you

Business is constantly evolving, and recently many Kiwi businesses have been adapting to new ways of working.

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

NZI has been insuring Kiwi businesses for over 160 years. Today, nearly 300,000 New Zealanders choose NZI to have their back and protect what matters most to them.

Your success matters to us.

Talk to your broker about insuring with NZI. www.covernote.co.nz

19

Feature

Government income protection insurance launch W

orkers made redundant could receive up to 80% of their wages for seven months under a new government proposal.

Finance minister Grant Robertson has unveiled plans for a new statebacked income insurance scheme, which will work in the same way as ACC. The government is seeking feedback on its scheme, which has been designed by ministers and Business New Zealand, and the Council of Trade Unions.

Employees would be covered if they are laid off, 20

March 2022

or if a health condition or disability impacts their work hours.

The government scheme is likely to have a significant impact on New Zealand’s income protection market.

Ministers say the scheme could be run and managed by ACC. Employers and self-employed workers will pay a levy on salaries and income to pay for the programme. Employers are expected to pay a 1.39% levy.

Robertson said the government had learned lessons from the Covid-19 pandemic and the value of the wage subsidy scheme.

Permanent employers would need to give four weeks' notice and provide four weeks pay at 80 percent after the job ends, after which the scheme would kick in for up to six months.

"Our proposed scheme provides economic security to individuals directly, and supports them to transition into a good, new job, as opposed to economic support packages which keep people in their existing job even if that role is no longer viable," Robertson said.

MBIE will manage a consultation process on the new scheme, which has drawn criticism from the National Party.

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Feature

What you might not know about Accredited Employer Programmes Gallagher Bassett chief client officer, Steven Walsh

T

he Accredited Employer Programme (AEP) can be appealing and cost-effective for large employers seeking to lower costs and self-manage injury claims within their workforce. Facilitated by the Accident Compensation Corporate (ACC), this scheme allows large organisations to take control of their ACC levies, actively manage their Health and Safety environment and the total cost of when employees injure themselves at work, often resulting in better outcomes for their injured employees.

The AEP enables the organisation to ‘step’ into the shoes of the ACC, but it does come complete with the obligations that ACC has to injured workers. These responsibilities when managing workplace injury management claims require considerable skill, time, knowledge and resourcing – a limitation for many organisations wishing to leverage the many benefits of participating in the AEP. 22

March 2022

These limitations can play out in many forms, including; not having a claims team with adequate knowledge of the correct adjudication and legislation to apply which can result in additional claims costs, lack of independence when handling colleagues claims, availability of advanced claims management platforms and best practice, lack of data and analytics when coupled with manual and antiquated processes resulting in excessive administrative costs, not to mention the advances and best practice in the rehabilitation.

These risks are only compounded when staff retention is challenged.

To counteract these challenges, part of the ACC’s AEP program allows companies to manage their claims through a third-party claims administrator (TPA).

First, what are the constraints of using the AEP program?

The AEP program can be ideal for large employers that have the desire and capabilities to take control of

their workplace health and safety practices and have a ‘hands on’ involvement to ensure that injured employees are provided with the best possible outcome when injured performing their duties at work, which, with the impact of COVID-19, now includes those injured when working from home.

Meeting the criteria set by ACC To be eligible to join the ACC’s AEP program, employers must meet various requirements including being able to: •

Demonstrate their experience and commitment to effective workplace health and safety

•

Show their commitment to preventing injuries and providing the support and time for rehabilitation should it be needed

•

The policies, procedures, and resources for injury prevention, claims management and rehabilitation provide audited financial records that show

the business’ financial strength and stability to meet the costs of their employees’ cover and rehabilitation

your claim management period but financial liability remains for the lives of the claims.

when managing claims can be daunting – which is where TPAs come in,to offer support and guidance to your business.

•

Pass an on-site audit conducted by an ACC approved auditor

•

Responsibility to the employee is not always capped (but it can be) – if an employee is injured or harmed in a fatal or serious workplace injury, you, as their employer, could be liable for supporting their financial needs for the entirety of the claim. The claim does not expire if your business leaves the AEP program.

It might seem counterintuitive to partner with a claims administrator to manage your own people’s claims, but it’s often far more effective (in both costs and time) than managing your AEP internally or simply reverting to the status quo of having ACC manage your injured employees.

•

Managing your participation in the AEP requires time and dedicated resources. If you do not follow the program, or manage your employees claims accordingly, the cost and time requirements of being part of the AEP program could be greater than your previous levy.

Even after your business has been accepted into the program, there are still limitations and obligations to the program that need to be understood before deciding if the AEP program is best suited for you. These include, but aren’t limited to: •

Ensuring that you have the right cover plan option for your business. Options include whether the business will assume responsibility for claim management only until the end of the nominated claim management period and the financial liability ceases at the end of the claim management period, or will the business assume responsibility for claim management to the end of

How can a business overcome these challenges?

Navigating the AEP requirements

TPAs provide claims professionals that are knowledgeable and experts in their field that are continually instigating best practice in injury management.

They can provide support with injury prevention strategies, provide dedicated claims managers who know your company’s people, and processes and policies like their own.

Companies that engage a TPA often see better rehabilitation outcomes and reduced return to work timeframes, meaning healthier employees and a healthier bottom line.

www.covernote.co.nz

23

Feature

Underwriting the unvaccinated: rating risk in a pandemic Olivia de Pont, senior associate, MinterEllisonRuddWatts

A

person’s COVID-19 vaccination status and how they may be treated as a result has become an increasingly controversial topic.

Among other issues, it raises the question of how insurers may take vaccination status into account when underwriting life and health insurance cover.

Some American employers, such as Delta Airlines, have increased the health insurance premiums payable by unvaccinated employees. Legal and General, a UK insurer and financial services provider, has said that high-risk applicants are having their applications for new life insurance postponed for 12 months unless they provide proof of vaccination.

A New Zealand insurer, Partners Life, has also commented that it may take into account insureds’ vaccination status when underwriting health and life insurance. However, rating applicants’ and insureds’ risk based on vaccination status is not a

24

March 2022

straightforward exercise.

Challenges for rating risk based on vaccination status There are a number of obvious reasons why an insurer might take into account vaccination status when underwriting life and health cover. Insurers routinely take into account other behaviours and status when underwriting these types of risk, such as whether an applicant smokes and how much an applicant drinks.

Vaccination status may be taken into account as another indicator of risk. Being vaccinated against COVID- 19 may also correlate with an increased willingness to take other vaccines, or take medical advice and assistance more generally, thereby reducing an individual’s exposure to other diseases and health risks.

An increase in premiums for the unvaccinated may also encourage applicants to get vaccinated, which may reduce the overall risk to the

population and an insurer’s client base.

However, this also raises the question as to whether insurers should be taking into account other vaccinations an applicant has. It also raises questions about whether it is worth modifying underwriting practices at all in circumstances where the variant of COVID-19 that is currently dominant is both less responsive to the vaccines currently available and may be less likely to result in serious illness or death than earlier variants.

Other challenges for underwriters to consider include: Unlike chronic health conditions, the risk presented by COVID-19 may initially be high and decline over time as less virulent strains of the virus take over and vaccination rates increase. It may not be worth making long-term changes to how risk is underwritten in circumstances where the risk posed by COVID-19 may be relatively short-term compared to

permanently dangerous diseases such as polio and measles.

Vaccination status does not, on its own, define an individual’s risk of becoming seriously ill or dying of COVID-19, which is influenced by other comorbidities and the likelihood of being exposed to the virus – which may be influenced by overall vaccination rates in a particular area.

If vaccination levels in a particular area are high, then there may be little to be gained by adding vaccination status as a rating factor.

If vaccination status is relevant to underwriting decisions, should immunity gained through a prior infection also be relevant?

If regular booster vaccines are required to maintain immunity, then vaccination status would need to be reviewed regularly, increasing an insurer’s administration costs.

Alternatives to premium increases There are a number of

alternatives to premium increases based on vaccination status that insurers may consider.

Insurers could consider an overall increase in life and health insurance premiums, regardless of vaccination status.

This would be less difficult to implement than differentiating between applicants and insureds based on vaccination status and may help an insurer prepare financially for the possibility of future pandemics. However, unless such an approach is adopted across the industry, an overall increase in premiums may disadvantage an individual insurer, as vaccinated applicants may be able to obtain cheaper insurance elsewhere.

Insurers may also, as suggested

by Willowgrove Consulting’s JonPaul Hale, address the COVID-19 risk by offering product discounts for the vaccinated or loadings for the unvaccinated.

They may consider policy exclusions and term limitations for

the unvaccinated and reducing exclusions, such as waiting periods, for the vaccinated or offering rewards points. For unvaccinated applicants with other comorbidities, insurers may decline cover altogether.

Conclusion The relevance of vaccination status to underwriting risk raises complex issues as to how to fairly rate risk in a pandemic, in circumstances where the nature of the risk is constantly evolving. We may be more likely to see policy exclusions for the unvaccinated and incentives for the vaccinated to address the current risk, with overall premium increases for all insureds in the long-term.

The increased costs to insurers occasioned by the pandemic and the risk of new infectious diseases emerging in future may warrant a re-think of risk for health and life insurance more generally.

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25

Advertorial

Keeping kiwis in the know about vehicle safety

Here at Smith&Smith®, we’re on a mission to help keep your clients safe on our roads.

A

s advanced driver assistance systems (ADAS) become more common in vehicles worldwide and the safety technology becomes smarter, it is even more important that vehicle owners and repairers understand just how complex these systems are, how they improve road safety and in turn help save lives.

of technological features designed to increase the safety of vehicles and road users. Through electronics such as cameras and sensors, the driver is alerted to obstacles and hazards so they can react accordingly. Where the driver doesn’t react in time, some features can also take control of the vehicle to avoid an incident.

But it doesn’t stop there, it’s also important to know that many of these features must be maintained to keep working effectively. That’s where we come in. When your client comes to us for their windscreen replacement and their vehicle is fitted with ADAS, a recalibration of their

What are some common ADAS features?

forward-facing windscreen camera is often needed.

So, what exactly is ADAS?

Advanced driver assistance systems (ADAS) are a range

26

March 2022

If you’ve driven a modern vehicle, you will likely be familiar with these.

• Adaptive cruise control. This works above a certain speed to automatically maintain a safe distance from the vehicle ahead. It will maintain the vehicle’s cruising speed (determined by the driver), adjusting it according to what’s happening ahead.

• Lane keeping assist, also known as lane departure warning. This warns the driver when the vehicle is drifting out of its lane without use of the indicator.

•

Autonomous emergency braking. Occurs as required to avoid a collision with something in a vehicle’s path.

It will alert the driver to brake, before automatically applying the brakes if the driver has not responded in time.

•

Park assist. Using a range of sensors, park assist informs the driver whether a space is suitable to park in. Alerts indicate the proximity of other vehicles, walls, or hazards. Park assist can often control the vehicle’s steering wheel, and some systems can control the accelerator and brakes to park the vehicle for the driver.

What is a windscreen recalibration and how will my client know if they need one?

A windscreen recalibration is a technical process that checks the alignment of the forward-facing camera of a car, which is often located behind the windscreen, so that its ADAS can work with the camera as the manufacturer intended. Even a small deviation can negatively influence the potentially life-saving features. It’s a bit like having out of focus contact lenses while driving.

When your client books with us, we will ask them a few questions to help identify whether a recalibration is needed.

Our highly trained technicians will also be able to answer any questions on the day of their appointment.

latest vehicle manufacturer developments in vehicle glass and windscreens. They invest over €2m a year, which goes into continuously improving our knowledge and developing world class tools and processes.

We have over 60 corporate and Authorised Dealer locations, with most being able to offer windscreen recalibration services. And we are looking to expand this even more in 2022.

So why choose Smith&Smith® to look after your clients?

We’re also committed to sharing our findings and knowledge with our partners and customers industry wide.

We’re also sharing our findings with AGSA NZ (Auto Glass Safety Association NZ) and are encouraging our competitors to adopt the same safety standard.

The safety of your client and their vehicle is at the forefront of what we do. We have a dedicated research team at Belron International who keep up to date with the

Recalibration requires specialist tools and training so it’s important that you only trust an expert. Partner with us today and let’s help keep your clients safe on our roads.

Scan this QR code to connect with us.

Alternatively, please contact: Doug Waters

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

smithandsmith.co.nz

Opinion

Liability Insurance:

Key differences between PL, PI, and D&O policies Crossley Gates and Frank Rose, Keegan Alexander

U

nderwriters have historically broken-down liability insurance into several well-known products. Each product addresses a specific basket of ways that the insured can become legally liable to a third party.

In this article, we address the three best known ones: Public Liability (also known as Broadform Liability), Professional Indemnity and Directors and Officers Liability.

We consider the core types of liability each is addressing and what differentiates them.

Ideally, they should all work together so that the cover across them is seamless; there should be no overlaps or gaps. As we will see, there is room for underwriters to improve this.

PUBLIC LIABILITY

Liability in connection with property damage In this era of the ACC’s statutory cover for bodily injury in New Zealand, a Public Liability (PL) policy is focussed on indemnifying the insured for the insured’s liability for damage to a third party’s property.

However, there is a major limitation on the cover.

Historically, there has been no cover for liability for property damage to the item the insured has sold to, or worked on for, the third party beforehand (called a ‘product’). The cover has only been for liability for any property damage to other property resulting from the initial property damage to the product. Sometimes there is no resultant property damage, meaning there is no cover under the policy at all. In our experience insureds generally don’t understand this, leading to unnecessary disputes.

In recent years, some liability underwriters have provided limited cover (usually between $100,000 to $250,000) for liability for damage to the product itself as well, in the circumstances stated.

Putting this to one side for a moment, the nature of the insured’s business can greatly affect the potential scope of the cover. For example, for a business selling agricultural equipment, the scope of cover is narrower because the policy will only cover liability for damage to other property resulting from damage to the agricultural equipment itself (the product). However, for a commercial electrician, 28

March 2022

the scope of cover is wider. As the electrician often only works on the switchboard and wiring in discrete areas of a building (the product), a PL policy will cover liability for resultant damage beyond those areas to the rest of the building if, say, a fire occurs.

As we understand it, the historical exclusion for liability for damage to the product itself has been a wellrecognised underwriting demarcation between the greater risk of property damage to the product, on the one hand, and the lesser risk of this damage causing resultant property damage beyond the product, on the other hand.

Traditionally, a Products Guarantee policy covers the former risk (expensive and generally only available from overseas underwriters), whereas a PL policy covers the latter risk. The recent move to provided limited Product Guarantee cover for the product itself in a PL policy shows a softening of this historical demarcation. It will be interesting to see if it grows.

Even with the limited Product Guarantee cover, we recommend underwriters of PL policies make the resultant damage limitation more explicit when they refer to their product. We also recommend brokers always bring this limitation to the attention of their clients.

Bodily injury to employees A PL policy always excludes liability for bodily injury to an employee. We understand the reason for this is historical and relates to stopping the cover overlapping with a worker’s compensation policy in the days before ACC. Despite the ACC statutory cover, there is a narrow window of injuries not covered by it for which common law liability is still possible.

Where this liability arises outside the third party’s employment, the main insuring clause of a PL policy will cover it. However, where it arises in the course of the third party’s employment, the exclusion applies - hence the need these days for a separate Employer’s Liability policy to plug the gap.

Broadform Liability Historically, a standard PL policy provided very narrow cover. Even the limited cover for liability for resultant

damage was an optional extension, along with bailment and other common extensions.

In the 1990s the liability underwriter at New Zealand Insurance, Karl Kemp, decided he wanted to adopt a type of PL policy that incorporated all the common extensions as standard. The Americans had a policy like this called a Broadform Liability Policy.

the Uniplant) to CHH. In the text Professional Indemnity Insurance Law, advice is defined as “the communication of information or opinion, perhaps even couched in the form of a promise”.

The information comprising the advice may be communicated in a number of forms. But, however it is done, communication to the recipient is an essential element of advice. Unless communicated, the advice is merely an internalised opinion.…

Typically, the American version had just one overly broad insuring clause, followed by a lengthy list of exclusions. This made the extent of the cover hard to fathom as an insured had to digest all the exclusions first before the cover (what the exclusions didn’t address that still came within the insuring clause) could be determined.

Therefore, it is an essential element of any advice that information is communicated to the third party, otherwise it is not advice at all.

The New Zealand Insurance version turned this on its head by putting all the insuring clauses of the common extensions together into the policy, making the various categories of cover easier to navigate.

A PL policy primarily insures the legal entity conducting the insured business, whether it is a sole trader, partnership, incorporated company, or some other incorporated entity.

The Broadform Liability policy has now become the dominant type of PL product in New Zealand.

The cover under the policy is commonly extended to include partners, directors, and employees of that legal entity, as applicable.

Liability in connection with advice One of the key exclusions in a PL policy is the one about liability in connection with advice given by the insured to a third party. This exclusion creates the key underwriting demarcation between a PL policy and a PI policy. A PI policy does not have this exclusion.

In the decision of Timtech Chemicals Limited v QBE Insurance (International) Limited CA 219/2011, the Court of Appeal considered what amounts to advice. The insured manufactured industrial equipment used to treat freshly sawn timber in a type of kiln. The process was a delicate one needing the precise setting of ‘set points’ in the equipment. The insured made a mistake in these settings resulting in the third party incorrectly treating a large amount of timber, making it unsaleable as intended.

The insured held a PI policy, but not a PL policy. It tried to argue that the mistake it made in the settings was advice.

The Court of Appeal rejected this. It said:

[40] The fatal flaw in this argument is that TimTech did not communicate that “technical advice” (that is, the design or fixing of the set points on

Insured parties

PROFESSIONAL INDEMNITY

Liability in connection with advice

As the name of a Professional Indemnity (PI) policy implies, it was originally aimed at the traditional professions. The need for it was obvious. The traditional professions generally sell advice, not products. As the PL policy excludes liability in connection with advice, another policy covering advice was needed.

In the light of this, it is perhaps surprising that the only indication that this is the main purpose of the policy is the absence of the advice exclusion found in the PL policy.

The significance of this absence is not obvious to a casual reader of the policy.

Description of business activity in the schedule crucial Historically, the policy has often been triggered by a ‘wrongful act’ in connection with the insured’s business as described in the schedule. The definition of ‘wrongful act’ had a large number of failings, many of them torts, and usually included any ‘act or omission’ by the insured. Given

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29

Opinion

those words will apply to almost any situation, the rest of the words in the definition achieve little.

policy achieves this; it is a separate type of PI policy for the directors.

More recently, policies have done away with the definition of ‘wrongful act’ and simply cover any act or omission of the insured in connection with the insured’s professional services as described in the schedule. This makes that description especially important.

Many companies indemnify their directors for breaches of their duties as directors out of company funds, short of an intentional or fraudulent breach by them. A D&O policy recompenses the company for this payment instead of the directors. This is the second limb of the policy.

Brokers take note: make sure that definition is both comprehensive and all-encompassing of the insured’s business activities. The use of the adjective ‘professional’ in policies does not limit the cover anymore, despite it still being used heavily by underwriters. The business skills the underwriter agreed to cover in that description are what counts in terms of the nature of the business activities covered.

Some D&O policies have a third limb of the policy that provides liability insurance for the company itself. However, this is just the same as providing a separate PI policy to the company. The two products are being combined under the one policy.

In one Australian court case, the insurer argued that there was no cover for the activities of a real estate business because those activities were no professional.

This was despite the description of the business in the schedule clearly referring to real estate activities and the insurer agreeing to insure them. The court gave that argument short shrift.

Liability for property damage Broadly, there are two types of advisers: those whose negligent advice will result in the third party suffering economic loss (e.g., lawyers, accountants, and financial advisers), and those whose financial advice will result in property damage, or both (e.g., architects and engineers).

It is important to consider which category a client falls into. This is because some PI policies are aimed at the first category only and have an exclusion for liability for damage to property. This is obviously of little use to an architect or an engineer.

Some businesses involve both giving advice and selling a product. In this situation, the policy often just excludes liability in relation to the selling of products by the insured.

This keeps the cover in place for the advice element but excludes product liability for resultant damage that a PL policy covers.

Insured parties A PI policy primarily insures the legal entity conducting the insured business, whether it is a sole trader, partnership, incorporated company, or some other incorporated entity.

The cover under the policy is also commonly extended to include partners, directors, and employees of that legal entity, as applicable.

DIRECTORS AND OFFICERS LIABILITY

We have seen that the cover under both a PL and a PI policy is extended to include the directors of an insured company as well. How is the intended cover under a D&O policy kept separate from this? The usual way is to limit the cover under a D&O policy to directors whose alleged liability is in their capacity as directors only.

We are not aware of any case law that has determined the boundaries of this capacity.

The name of a D&O policy includes the word ‘officer’.

Under the latest Companies Act 1993, there is no legal standing for this title, so it is redundant.

However, a D&O policy covers employees of the company as well. In our experience, this cover is often forgotten about. It is not clear whether this cover is meant to overlap with the cover for employees under a PL or PI policy, or somehow be separate from it.

Summary 1.

A business selling, constructing or repairing goods needs a PL policy that covers liability to a third party for damage to its property resulting from a fault in those goods.

2.

A business selling advice needs a PI policy that covers liability to a third party for its economic loss arising from any fault in that advice. Depending on the subject matter of the advice, this may need to extend to liability for property damage as well.

3.

Directors of companies (and managers of other incorporated entities) need a D&O policy that covers directors’ breaches of duties contrary to the Companies Act 1993.

4. Employees have separate cover under all three types of policy.

Liability as a director

Please contact us if you require any further information.

The primary purpose of a Directors and Officers Liability (D&O) policy is to address the liability exposure of the directors of a company under the Companies Act 1993.

Crossley Gates cgates@keegan.co.nz

A company is a legal entity that requires its own PL or PI policy, or both. In certain circumstances the directors of a company can be sued personally, either separately or in addition to the company, and they need their own liability policy to address this separate liability exposure. A D&O 30

March 2022

Frank Rose frose@keegan.co.nz

In

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31

Feature

Weather events hit Suncorp NZ profit S

uncorp New Zealand saw profits drop by 34.9% in the six months to December due to a sharp increase in severe weather events.

Post-tax profit fell to $84 million in the half-year due to a series of flood events and declining investment income, and “adverse” market conditions.

The insurer, whose NZ operations include Vero Insurance and AA Insurance, was hit by a series of weather events in the second half of last year.

Chief executive Jimmy Higgins said the underlying business displayed growth, despite the weather-related losses.

“New Zealand experienced a number of flood and storm events in the second half of 2021, including the severe storm that affected Westport and all of central New Zealand in 32

March 2022

July, and flooding in west Auckland in August,” Higgins said.

According to Higgins, three weather events in July, August, and September resulted in $52 million in claims. Total weather-related claims hit $72 million, a 41.2% increase on the corresponding period in 2020.

“We’re experiencing rising input costs to both premiums and claims as well as disruptions in global market conditions that are significantly affecting investment returns. But we continue to focus on supporting New Zealanders and Kiwi businesses through difficult times.”

financial hardship,” he says. “We’ve been there supporting our customers following major weather events and also donated $150,000 to community organisations in Auckland and Northland to support communities affected by the Delta lockdown.”

Higgins said delivering customer value remains a strategic focus for the business, despite potential economic headwinds.

“We’re seeing good growth across all our lines of business because our customers know we will be there to support them now and in the longterm,” he added.

Higgins said Suncorp NZ had provided more than $1 million in support to businesses in need during the floods.

Suncorp’s NZ general insurance business delivered a net profit after tax of $78 million, down 22% on the last half of 2020.

“In the past six months, we’ve provided close to $1m in support to customers who have suffered

It said intermediated and direct channels showed strong customer growth, with revenue up 14%.

Auckland 33a Normanby Rd Mount Eden Auckland 1024 Wellington 23 Marion Street Te Aro Wellington 6011

Charles Tongue Valuation Specialist valuations@webbs.co.nz +64 22 406 5514 Auctions Private Sales Valuations webbs.co.nz

Webb’s Appoints New Valuations Specialist

Feature

Webb’s is New Zealand’s premier auction house. Established in 1976, we have a long and rich history of valuing New Zealand’s finest art and luxury collectibles and bringing them to market. Webb’s is fully diversified, with specialist departments in Fine Art, Decorative Arts, Asian Art, Fine Wine & Whiskies, Fine Jewels, Watches & Luxury Accessories, along with Cars, Motorcycles & Automobilia.

With premises in Auckland and Wellington, and forthcoming developments in Christchurch, we have national reach. Wherever you are in the country, get in touch with us today for valuations of your cultural assets and collectibles. We would love to hear from you.

Webb’s recently welcomed Charles Tongue onboard as our new Valuations Specialist. Charles comes to Webb’s with a wealth of experience gained in over 25 years working across museums and commercial art galleries. With a professional background both in New Zealand and abroad, Charles knows all facets of the art and luxury collectibles markets inside out. www.covernote.co.nz

33

FSCL Case Study

Conviction causes confusion

A

business owner runs a small construction company. As their business grew they contacted an insurance adviser to take out public liability insurance. The adviser sent through the policy documents, invoice and a form requesting further information about them and their business. The business owner paid for the insurance but did not return the form asking for further information.

Six months later, the person was driving a large truck towing a small digger when they drove into a deep gully. The accident caused significant damage to the truck and digger causing $60,000 worth of damage.

The person made a claim with the insurance adviser who, with help from the insurance underwriters, investigated the claim. A private

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investigator was hired to report on the circumstances of the crash and assist with obtaining the person’s traffic and criminal conviction history.

As part of the investigation, a number of traffic and criminal convictions, along with insolvencies in the person’s name were found to have not been disclosed, either at the start of the policy or at the time of the claim. The driving offences were extensive and included 6 losses of licence for demerit points in the last 5 years and over $25,000 in unpaid fines dating back several years.

Based on this newfound information, the insurance underwriter decided to void the person’s policy from its very start. That is, the policy was deemed to have never existed at all. All the premiums the person had paid were refunded.

Dispute

The person said that the insurance adviser failed to inform them that she needed to disclose her traffic or criminal convictions, previous bankruptcies, liquidations, or receiverships at the time they purchased the insurance. They said that they never asked for this information, nor did they receive the form requesting further information.

The insurance adviser acknowledged that no questions were asked in the initial phone call about their criminal history but showed evidence that he had sent the person a copy of the application form to check that all the information, including information about previous convictions, was correct.

The insurance adviser argued that

INSIGHTS FOR CONSUMERS The Fair Insurance Code 2020, which encourages good conduct and professionalism in the insurance industry, gives examples of material information that insurers may need to know. The examples include: •

any criminal convictions, unless you have a statutory right not to disclose them

•

any previous refusal by an insurance company to insure you

•

any previous claims, including any claims that were declined by an insurance company

Any current or previous bankruptcy, receivership or liquidation.

The law does not currently distinguish between ‘an innocent mistake’ and a deliberate attempt to mislead an insurer. Therefore, it is important to be completely truthful when you complete an application for insurance.

The duty to give information is not limited to the questions on the application form.

if he had known about the previous convictions and bankruptcies he wouldn’t have been able to find insurance for her.

The person complained to FSCL about the insurance adviser’s advice and the voiding of the insurance policy.

Review

Insurance contracts are contracts of good faith. ‘Good faith’ means that both parties (the insurer and the insured) are obliged to observe and honour the contract (policy) conditions. Any information (or disclosure) an insured exchanges with the insurance company must be truthful to the best of their knowledge.

As the insured, the customer’s ‘duty of disclosure’ was to tell the insurer about any relevant information (the

insurance industry calls this ‘material facts’) that could affect the insurer’s assessment of the risk they are taking in insuring her property. If the insurer thinks the customer did not disclose some material facts, they can invalidate her policy and deny her insurance claim (as the insurance company eventually did).

The insurance underwriter said that they considered both the person’s criminal and traffic convictions and bankruptcies to be material information. They said that if they had been advised of these at the start of the policy, they would have declined to provide insurance.

FSCL decided that the customer did not disclose material facts. Even if they had declared their convictions and insolvencies, FSCL was satisfied that the customer would not have

been able to obtain insurance cover with any insurer.

Resolution

FSCL accepted that the insurance adviser failed to ask the customer the relevant questions about previous convictions when she took out the policy, which would have been best practice, but did not believe that this affected the outcome of the claim. FSCL accepted that the nondisclosures would have still been discovered when the claim was lodged.

FSCL also considered that the insurance underwriter was correct in voiding the policy from its commencement, as the customer failed to declare material information when they took out the policy.

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35

FSCL Case Study

Aviation scam leads to dispute

A

business owner runs an aviation engineering business and needed a rare engine part for a helicopter he was working on. He found and purchased the part from a USA supplier. The person transferred $28,000 into the supplier’s bank account, believing that the part would be shipped to New Zealand.

Two weeks passed and, as there was no sign of the part, the person emailed the supplier.

The supplier assured the person that the issue was being investigated and they were testing the part to make sure it was satisfactory before shipping it. As time passed it became apparent that this was not the case.

Eventually the communication broke down and it became clear that the

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March 2022

person had been defrauded by the supplier company.

The insured did not accept this offer and he complained to FSCL.

The business owner made an insurance claim under the crime section of his business insurance policy. Even though the insurance company accepted that the customer was a victim of fraud, they declined the claim on the basis that the customer had received an invoice, with the part to be shipped when the invoice was paid.

Dispute

The insurance company concluded this meant a ‘credit arrangement’ was entered into. Within the terms of the insurance policy, an exclusion clause stipulated that if the loss arose because of a default under a credit arrangement, the claim would not be paid.

The insurer said that the supplier company rendered an invoice for the engine part which was to be shipped in return for payment, and this was a ‘credit arrangement’ for the purposes of the exclusion clause. The supplier company defaulted under this credit arrangement in that the part did not arrive.

The insurance company also said that the policy exclusion was intended to exclude cover for such a default, whether or not an invoice is genuine.

The customer said that there was no genuine ‘credit arrangement’, as

INSIGHTS FOR CONSUMERS Transactions made internationally are inherently risky because the seller and the buyer are geographically separated. This can cause challenges for the buyer in assessing the sellers’ ability and willingness to fulfil the order, and their trustworthiness.

If clients have fallen victim of fraud, report the scam to Netsafe, who can advise you on what to do next.

This complaint is a good reminder for insurers to ensure they carefully consider exclusion clause wording before declining claims and make sure they are applying the exclusion correctly. Although there are often subtle differences in the way exclusion clauses are worded, those subtleties can be the difference between a claim being paid or not.

the supplier company never intended to supply the part.

The business owner considered the supplier company’s invoice was fake or dishonest and was not a normal business credit arrangement. He had suffered a loss as a result of a crime, which he was insured for.

The customer felt that, if the claim was covered under the policy, it should be paid in its entirety.

Review The invoice was only one element of the deception. In this case, the fraud also involved email exchanges, fake websites, social engineering and phone calls.

The key issue for FSCL to determine was whether the person entered

into a credit arrangement and, if a credit arrangement was entered into, whether a default occurred.

FSCL agreed that a credit arrangement for the purposes of the exclusion clause never existed. To start with, the ordinary meaning of a credit arrangement suggests that goods or services will be supplied before payment, based on the trust that payment will be made in the future. In this case the business owner had paid for the part in full before it was supplied.

FSCL considered that the policy definition of Credit Arrangement, which used terms such as ‘’extension of credit or hire purchase, loan, lease or rental agreement… otherwise evidence of debt…’, was consistent

with the ordinary meaning of ‘’credit arrangement”.

In this case, the fraudster sent their invoice for payment and the scam company told the business owner that they required payment before the part would be supplied. Therefore, no Credit Arrangement had been entered into.

FSCL found that the claim should be paid in full, minus any excess.

Resolution The insurer accepted FSCL view and agreed to pay the claim. The client was very happy with this outcome and used the money from the claim to buy the part from a legitimate company and finish his work on the helicopter.

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37

Ask an Expert

Dog walker dilemma We have a dog walker who a colleague is looking to provide quotes for under GL. We have it agreed by insurers we have got terms from that the Care Custody Control (CCC) extension will extend to treat dogs as third party property in the event a dog is injured whilst in their care.

We are seeking clarity as to whether or not you would expect a dog walker to be liable for injuries sustained to dogs in their CCC, where a Third Party dog (not one in their CCC) caused the injury (say for example a Third Party's dog escapes

QUESTION a property or is off a leash).

We have pointed out that there may be certain circumstances where strict liability is imposed (i.e. there does not need to be a negligent act/omission that could make the dog walker initially liable) and therefore the GL policy would have to respond to pay damages to the dog walkers client in the first instance, prior to seeing if recovery from any other party was possible.

Are you able to clarify?

CROSSLEY GATES A person walking another person’s dog has that dog in his or her possession and so is a bailee of the dog.

cover for care, custody and control (bailment). That is the primarily liability a person walking another person’s dog faces.

A bailee is only liable for damage (injury/death) to the dog if the bailee has been negligent (failed to take the care that a reasonable person would take in all the circumstances). The liability is not strict. However, bailment law reverses the onus of proof. So instead of the dog owner having to prove the bailee failed to take reasonable care, the bailee has to prove that he/she did take reasonable care despite the injury/death.

For reasons that I have never understood, the insurance industry does not refer to this branch of tort law by its correct name (bailment). Instead it refers to ‘care, custody and control’. In most situations this amounts to the same thing.

I suggest that what is critical for you client is to have

Vermin problem Birds have set up nests in the outdoor component of our client’s combine heater & hot water system causing both direct & resulting damage.

The policy exclusion states cover is excluded for damage to the insured property or part immediately affected directly caused by vermin or insects. Insurers have not covered the direct damage but are considering the resulting damage as this stage.

The policy does not define vermin.

QUESTION Typically I would think of rats etc as vermin but in a dictionary search some definitions include birds. Is there any legal determination of what vermin actually is? or whether birds should not be included as vermin?

Appreciate any guidance on the insurance view of the scope of vermin.

Thanks

CROSSLEY GATES I am not aware of any special insurance definition for 'vermin' so it will be interpreted based on its dictionary meaning. Dictionary.com uses this definition: noxious, objectionable, or disgusting animals

collectively, especially those of small size that appear commonly and are difficult to control, as flies, lice, bedbugs, cockroaches, mice, and rats.

I suggest birds do not come comfortably within that definition.

Do you have a question for our experts?

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March 2022

Ask an Expert

Solar panel theft

QUESTION The insured operates a communications business which includes the setting up and supply of radio networks. They have over 20 transmitting sites throughout NZ, many of these are in high altitude remote areas.

Due to a long-lasting storm event, the solar power to one of the sites was not sufficient to keep the battery charged so the insured arranged for a mobile generator to be delivered to the site. This is quite common following adverse weather. The generator is then used to charge the battery for a period of 24 hrs. at which point the solar panel then takes over again.

The generator was situated on a very remote site.

When the insured returned to check the site the generator (weighing approximately 20kgs) and the solar panel had both been stolen.

The generator had been unplugged and stolen and the solar panel which was bolted down had been torn from its mounting.

The insurer considers that the theft of the solar panel is "burglary' whereas the theft of the generator

is 'theft'. The insurer believes the solar panel forms part of the 'structure' of the building, whereas the generator does not.

Under the policy a burglary excess is $1,000 and theft is $2,500. Both items were assumed to have been stolen at the same time (one event) and both items fall under the material damage policy of the insured. The insured wants to apply the higher of the two excesses to the claim.

However, there is noting in the policy wording that stipulates what excess should apply. The only reference to excesses is where there is a claim under 2 or more policies for the same event, in which case the insurer states that it will apply the highest excess applicable to any policy. However, in this claim, the items are being claimed for under the one policy and the policy is silent on the issue of excess.

We argue that the insurer should accept the claim on the lower burglary excess of $1,000 whereas they only wish to settle the claim on a $2,500 excess.

Thoughts?

CROSSLEY GATES Assuming the policy does not specially define the words 'theft' and 'burglary', the dictionary meanings will apply.

Theft involves stealing someone else's property.

Burglary involves breaking and entering a building to commit a crime such as stealing someone else's property. The threshold for breaking and entering is low - opening a closed window is sufficient.

Therefore, where items are stolen, the key issue in

determining whether there was a burglary or a theft is whether the item was stolen from inside a building that required some element of force to enter (to be compared with walking through an already open door).

I am unsure about applying this to your scenario as I don't know if either the generator or the solar panel were in a building (presumably the latter was not). If they were both out in the open, there was no burglary, only the theft of both items.

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

Ask an Expert

Wine liability

QUESTION

Our client contracts to a large transport company who has contracts with wineries to transport grapes from their vineyards.

The client is paid on an hourly basis to transport the grapes on behalf of the transport company, dependant on the capacity of their truck/trailer unit.

Our client had a load of 8 Tonne, but lost 4 Tonne to the ground. The transport company has invoiced them for $8,000 ($2,000 per unit, 4 units).

Our client has Carriers Liability and our insurer has advised that because our client is paid hourly, under Section 259(4) ("The reference to each unit of goods in subsection (2) is to each unit of goods as accepted for carriage by the actual carrier or (if the carriage is undertaken by more than 1 carrier) the first actual carrier (whether or not the unit that is accepted is subsequently packed, repacked, or unpacked, or otherwise aggregated with or segregated from any other goods, at any stage of the carriage)."), the definition of a unit is one truck load so our insured's

PAULINE DAVIES Ah, the annual grape harvest issue. This comes up every year, without fail.

The first point to make is that the liability to the wineries falls on the transport company as contracting carrier. The transport company has the initial obligation to settle that part of the claim, and then can talk to your client about its separate obligation as an actual carrier.

It sounds from what you have said that the arrangement between your client and the transport company is accepted as being one at limited carrier's risk.

I agree with the insurer that the initial question to address, is as to what "unit of goods" was accepted

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March 2022

liability is only $2,000.

My argument is that the hourly rate has no bearing on the definition of a unit and therefore Section 247 should apply (“Meaning of unit of goods (1) In this subpart, unless the context otherwise requires, unit of goods or unit,— (a)in relation to bulk cargo, means the customary freight unit; that is, the unit of bulk, weight, or measurement on which the freight for that type of cargo is customarily computed or adjusted (subject to subsection (2)):”).

As grapes are commonly measured by the tonne (Bought, Sold, Weighed, Pressed, Consigned, Harvested) in the wine industry, I would have thought this measurement would apply to the carriers risk?

Would it make a difference if we say got the larger Transport Company to confirm that they calculate freight per Tonne?

Are we beating a dead horse here and the actual liability is indeed $2,000 not $8,000? for carriage for the actual carrier, under section 259(4). This is a factual issue and there is insufficient information here to answer it. Were the grapes just tipped into the truck in bulk or were they in bins? Who did the loading of the truck - winery staff, or your client (or someone else?) Was your client's driver in attendance at the time the loading was carried out, or did s/he go off for a coffee and come back when the work was done? Was the driver able to verify the quantity loaded, perhaps by weighbridge if the load was in bulk?

If the conclusion from all of this is that your client accepted one full truck load of grapes in bulk, I would agree that there was a single unit of goods and liability is limited to $2000.

IFSO Case Studies

Impact of Covid-19 and redundancy M

rs Hall* had payment protection insurance and made a claim to the insurer when her employer terminated her employment due to COVID-19.

The insurer declined the claim, on the basis that Mrs Hall had been made redundant due to the impact of COVID-19 and, therefore, the claim was excluded by the policy’s state of emergency exclusion. Mrs Hall complained her redundancy was caused by her employer restructuring, rather than COVID-19. She said New Zealand’s borders were closed from March 2020 and she was made redundant in August 2020.

While the IFSO Scheme found that the policy provided cover for redundancy, it did not cover redundancy arising from “state of emergency”. The policy did not define a “state of emergency”; however,

one can be declared by the New Zealand Government under section 66 of the Civil Defence Emergency Management Act 2002.

The state of emergency was in place from 25 March to 13 May 2020, and Mrs Hall was made redundant in August 2020, when the state of emergency was no longer in place.

While Mrs Hall was made redundant due to COVID-19, there was no evidence to suggest her redundancy arose from the state of emergency, which is what the exclusion required.

The case manager discussed this with the insurer, and it agreed to pay the claim.

Complaint settled Consumers should be aware that exclusions can take away cover in certain situations, and it is important to know when they will apply.

Misunderstanding “off-roading” A

man complained his insurer had an incorrect understanding of the term “off-roading”. His claim had been declined after his vehicle stopped in the middle of a river.

In May 2020, Mr Vaai* was driving his vehicle in a social 4-wheel driving event up a river. During the crossing, the motor flooded, and the vehicle stopped working.

When interpreting a contract, the IFSO Scheme considers commercial common sense and the intention of the parties. It also considers definitions from the Shorter Oxford English Dictionary: • “off-road adjective used, for

use, or taking place away from roads; on or for rough terrain…”

• “off-roading driving over rough terrain, driving off-road vehicles, esp. as a sport”.

The key factor in both definitions was “rough terrain”. The dictionary definition of “road” can be quite broad: “A path or way between different places, usu. one wide enough for vehicles as well as pedestrians and with a specially prepared surface.

Also, the part of such a way intended for vehicles, the roadway …”.

Section 2 of the Land Transport Act 1998 defines a “road” as nearly

all land accessible by the public, including “fords forming part of a road …”.

Having considered these definitions, the IFSO Scheme found that Mr Vaii was not driving on a route “intended for vehicles, the roadway…”, even if he was fording a river. Consequently, Mr Vaai was “offroading”, coming within the meaning of the policy’s exclusion.

Complaint not upheld

*Names changed

Mr Vaai made a claim for the damage. The insurer declined the claim, finding there was an exclusion for off-roading in Mr Vaai’s policy, and the insurer believed that, because Mr Vaai was crossing the river in the vehicle, he was “off-roading”. Mr Vaai disputed the decision, arguing that “offroading” only applied to competitive events. He also stated that rivers were roads.

It is important for consumers to understand what they are and are not covered for under their policies.

Exclusions often take people by surprise.

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41

Feature

Delta Insurance opens Australia office N

ew Zealand underwriting agency Delta Insurance has opened its first office in Australia, as the fast-growing liability insurer looks for new clients across the Tasman.

Delta already operates in Singapore, becoming the first Lloyd’s of London coverholder in the city-state. From its Asian office, the firm underwrites for clients in Hong Kong, Taiwan, Malaysia, Vietnam, and Indonesia.

Delta co-founder Ian Pollard said: “It [Australia] is one of the biggest insurance markets in the world. We have been building a business case to launch in Australia since we started Delta Insurance, and we’re excited that moment has arrived.”

The specialty lines insurer, co-founded by Pollard and Craig Kirk in 2014, has drafted in Stephen Carey to lead the Australian business.

His team will be based in Brisbane.

Carey was most recently at Chubb, where

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he held underwriting, management and business development roles. Carey has worked in the UK and Australian markets.

Crey said: “Brokers are looking for insurance partners who can not only provide superior products for their clients, but also exceptional customer service across both underwriting and claims,” he said.

Delta will offer products including professional indemnity, management liability and cyber insurance to its Australian clients.

“We’re particularly focused on working with clients in the professional services, technology, healthcare and manufacturing and food and beverage sectors,” Carey said.

Following the Aussie launch, Delta has expanded upon its partnership with Lloyd’s, establishing a new coverholder in Australia with the support of several new and existing capacity partners.

IBANZ CALENDAR OF EVENTS MARCH 2022 - ALL WEBINARS ARE HELD AT 10.30am - 11.30am March 2 | Outlook Email: 10 Tips To Free Up 20 Minutes A Day

| Debbie Mayo-Smith

Rock your 2022 productivity and reduce stress with these 10 must know Outlook top tips.

March 8 | Fabulous Time Saving Money Making Tricks for Databases & Lists

| Debbie Mayo-Smith

If you want to learn easy, unforgettable clever tips and tricks to improve the way you set up and work with your database and lists, then you must attend this webinar. It doesn’t matter if you store your data in another program. You are going to learn how to use Excel to clean, de-duplicate, fix and create consistencies. You can then then import your data back into other programs.

March 10 | Presenting to Groups – You only get one shot | Trevor Slater It is fair to say that most advisers are excellent talkers. But what if you need to present to a group of people, such as a Board or management team? The skills needed to do so are very different from the one-on-one conversation.

March 15 | Material Damage - Fire | Andrew Brooke Join Andrew Brooke Executive General Adjuster in the Specialist Services team at McLarens for an insight on Material Damage and Fire March 16 | Bailee’s liability vs. ‘care, custody and control’ – is there a difference? | Crossley Gates Learn who is a bailee? When is a bailee legally liabable?, What amounts to ‘care, custody and control’? And lots more.

March 17 | Dealing with challenging client behaviours | Stephanie Newton Stephanie will share some practical tips about how to manage clients who are stressed or engaging in unreasonable conduct, so you can diffuse the situation and ensure you are best meeting their needs. Stephanie will also share some real life experiences of dealing with challenging behaviour, from complaints investigated by FSCL. March 22 | Email: Write More Business and Keep On Top | Debbie Mayo-Smith Very often Outlook Contacts, Calendar and Tasks play second fiddle or aren’t even looked at. Yet they offer stunning integrated benefits with all of MS Office. Wouldn’t you like to learn how you can better use these three programs with the direct benefit of strategies to never lose an opportunity and create systems to write more business?

March 23 | Business Interruption Insurance for beginners – Part 2 | Mark Anderson This is Part 2 of a 2 Part presentation for those new to commercial broking and who have had little to no exposure to business interruption insurance.

March 24 | Marine Cargo & supply chain with impact from pandemic | Pauline Davies Why has COVID-19 caused supply chain issues?

APRIL 2022 - ALL WEBINARS ARE HELD AT 10.30am - 11.30am April 5 | Contract Works from an underwriting perspective | Russell Gill More details to come April 12 | Business interruption natural disaster claims and issues | Mark Anderson In one hour we share some of the actual issues we experience and how we resolve differences to get to a fair claim settlement.

April 13 | Microsoft word mastery | Debbie Mayo-Smith You’ll learn how to free up heaps of time working with text, tables, templates as well as producing more professional looking documents in moments instead of hours.

April 14 | Introduction to Mediation | Trevor Slater In this webinar the mediation process will be explained along with how to participate in a mediation and how to find a suitable mediator.

April 27 | Take Control of Your Web Presence | Steven Mayo-Smith Learn how easy it is to create and / or maintain your company website.

MAY 2022 - ALL WEBINARS ARE HELD AT 10.30am - 11.30am May 11 | Helping your client – getting claims paid and other problems resolved | Trevor Slater In this session Trevor will share his knowledge on how to hep your client resolve their problems.

May 12 | Underinsurances | Emma Gabor The difficulty in setting the Sum Insured, issues identified with the Cordell calculator, potential PI risks to brokers.

May 17 | Gross Profit: Don't get it wrong (Calculating business interruption sums insured) | Mark Anderson This session will cover the importance of gross profit when putting a business interruption programme together.

May 18 | New Health & Wellbeing Ideas for Work and Home | Debbie Mayo-Smith We live in unusual times so it's perfect to introduce new activities that individually or as a team you can create healthy food and drinks to improve health and ultimately productivity with very little effort or cost.

May 26 | Contract Works – the LEGs | Frank Rose A refresher on the London Engineering Group "defects wording" in particular LEG 3" Below please find a list of proposed topics which we expect to provide this year: Others will be added as presenters come on board • • • •

PL & PI Policies - What amounts to professional advice?

Faulty workmanship exclusions Material Damage - Fire Agriculture - Crops

• • • •

Aggregation and de-aggregation of claims Insuring Clauses and Exclusions Reasonable Care A round up of recent complaints

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 March 2022

Simon Casford

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

Devon Crowhurst

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

Sylvia Heywood

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

WANT YOUR VERY OWN COPY OF COVERNOTE?

EQC cap causes concern

The insurance sector is set experience to a shake up.

Each issue of CoverNote Robyn Gosden 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

Remembering

Janice Gracias

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

Larissa Nixon

Simon Moss

General Manager DDI: 09 306 1733 Mob: 027 270 5774 simon@ibanz.co.nz

Karen Scard

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

Marianne Taljaard

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

Mel Gorham

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

IBANZ Physical address:

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

Toll free: 0800 306 173 44

March 2022

Mailing address:

PO Box 302504, North Harbour, Auckland 0751

www.ibanz.co.nz

The insurance industry tribute to long-servin has paid g IBANZ employee Robyn Gosden

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

Insurance Brokers Alliance Ltd

Invercargill

Abraham & Associates Ltd

Christchurch

Insurance Design Limited

Warkworth

Adams Trimmer Insurance 1992 Ltd

Whangarei

Insurance People (Fire & General) Limited

Auckland

Advance Insurance Services Ltd

Paeroa

Insure 247 Ltd

Auckland

Affiliated Insurance Brokers Ltd

Wellington

JRI Limited

New Plymouth

AIB Group Insurance Ltd

Lower Hutt

Lockton Companies NZ Limited Partnership

Auckland

AIM Associates Ltd

Auckland

Luxor Insurance Brokers Ltd

Auckland

Albany Insurance Services Ltd

Albany Village

Malcolm Flowers Insurances Ltd

Taupo

Amicus Brokers Ltd

Christchurch

Marsh Ltd

Auckland

Aon New Zealand

Auckland

McDonald Everest Insurance Brokers Ltd

New Plymouth

Apex General Ltd

Auckland

Moneybox GI Limited

Wellington

Atlas Insurance Brokers Ltd

Christchurch

Multisure Ltd

Auckland

Austinsure Ltd

North Shore City

MW Insurance

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

BMS Risk Solutions Limited

Christchurch

Northcrest Insurance Brokers Ltd

Auckland

Bridges Insurance Services Limited

Hamilton

O'Connor Warren Insurance Brokers

Tauranga

Broker Direct Services Ltd

Christchurch

OFS Insurance Brokers Ltd

Dunedin

BrokerWeb Risk Services Limited

Auckland

Omni Fire & General Ltd

Auckland

Builtin Insurance Brokers Limited

Tauranga

Paramount Insurance Agencies Ltd

Auckland

Cambridge Insurance Brokers Ltd

Cambridge

Partridge Advisory Limited

Auckland

Capital Risk Solutions Limited

Wellington

Paterson & Co NZ Ltd

Auckland

Cartwrights Ltd

Ashburton

Penberthy Insurance Ltd

Auckland

Certus Insurance Brokers NZ Ltd

Auckland

PIC Insurance Brokers Ltd

Manukau

Coast Insurance

Whangaparaoa

Primesure Brokers Ltd

Auckland

Commercial & Rural Insurance Brokers Ltd

Alexandra

Property and Commercial Insurance Brokers

Feilding

Crème Insurance

Auckland

Protekt Insurance Brokers 2008 Ltd

Auckland

Crombie Lockwood (NZ) Ltd

Auckland

Provincial Insurance Brokers Limited

Masterton

Dawson Insurance Brokers (Rotorua) Ltd

Rotorua

PSC Connect NZ Limited

Auckland

Emerre & Hathaway Insurances Limited

Gisborne

RMA General Ltd

Warkworth

FG Insurance Services

Gisborne

Rothbury Group Ltd

Auckland

Frank Risk Management

Hamilton

Runacres Insurance Ltd

Christchurch

FundAGroup Insurance Brokers Limited

Auckland

SHARE

Auckland

Grayson & Associates Ltd

Auckland

Sit & Blake Limited

Auckland

Gregan & Company Ltd

Papakura

South Pacific Insurance Brokers Ltd

Auckland

GSI Insurance Brokers

Waitakere

Sweeney Townsend & Associates Ltd

Rotorua

GYB Insurance Brokers Ltd

Lower Hutt

Thames Valley Insurance Ltd

Thames

Hazlett Insurance Brokers Ltd

Christchurch

The Advisers for insurance

New Plymouth

Honan Insurance Group (NZ) Ltd

Auckland

Thorner General Insurances Ltd

Upper Hutt

Hood Insurance Brokers NZ Ltd

Auckland

Towes Insurance Brokers Ltd

Te Aroha

Hurford Parker Insurance Brokers Ltd

Hastings

Trevor Sutcliffe Insurance Ltd

Hamilton

Hutchison Rodway Ltd

Auckland

Vercoe Insurance Brokers Ltd

Morrinsville

ICIB Limited

Auckland

Vision Insurance (S.I.) Ltd

Ashburton

ILG Insurance Brokers

North Shore City

Wallace McLean Ltd

Auckland

Ingerson Insurances Ltd

Wellington

Wanganui Insurance Brokers Ltd

Wanganui

Insurance Advisernet NZ Ltd

Auckland

Willis Towers Watson

Auckland

www.covernote.co.nz

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