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Tuesday, April 28, 2015

Insurance Ombudsman wants insurance legislation to cover non-disclosure of information

The Insurance Business New Zealand website is reporting that the Insurance and Savings Ombudsman Karen Stevens supports legislation to better protect customers relating to information they disclose to an insurer. The following are extracts from the article (the full article is here).

Karen Stevens says legislation would mean an insurer could only avoid a policy where it could show the non-disclosure was deliberate.

Some cases are clear, where people deliberately leave out information they were asked to provide, knowing that it will go against them. However, in other cases, people accidentally leave out information because they have forgotten, or do not realise it is important.”

The current law requires a consumer to disclose to an insurer all information a ‘prudent underwriter’ would consider important. But, said Stevens: “This is extremely difficult for consumers to understand.

“My concern is that consumers don’t understand the consequences of not providing the information.

However, she said: “Industry self-regulation is not enough on its own. We need to review the law and make changes to stop consumers getting themselves into a situation where they are uninsured and, in many cases, uninsurable in the future.”

Later in the article the views of Insurance Council of New Zealand CEO Tim Grafton are aired. These include the following:

"Tim Grafton, CEO of the Insurance Council of New Zealand, maintained the New Zealand was, in fact, one step ahead on the subject.

So, we have no problem about addressing this issue - indeed we are ahead of the curve.  What is important here is insurers' approach and the new Code addresses the issue.”

Tim Grafton's comments are not, in my view, an accurate reflection of the situation.

As mentioned in some detail on this blog (17th of March here) the Fair Insurance Code does not come close to the lead set elsewhere, especially the U.K., with regards to information disclosure. New Zealand legislation based upon the U.K.'s Consumer Insurance (Disclosure and Representations) Act 2012 is where we should start. Insurers in New Zealand have not shown themselves to be trustworthy, and are certainly quite unsuitable candidates for self regulation where so much is at stake for the general public.

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Tuesday, April 21, 2015

A plan followed by consultation for the outstanding red zone Crown offers

Earthquake Recovery Minister Gerry Brownlee has decided that everyone can have a say on what level of pay-out should be provided to those in the Red Zones who have been ineligible so far (uninsured owners of land and property).

It is hard to tell whether the Minister has suddenly been overcome by a desire to indulge in participatory decision making or it is a device to allow public participation to be used as a shield for yet more delays followed by the same decision as before.

The news release is reproduced in full below. The original is available on the Beehive website here.

Release Date: 21 April 2015

Canterbury Earthquake Recovery Minister Gerry Brownlee has announced a process to give everyone a say on the Crown offers to owners of vacant, commercial/industrial and uninsured properties in the Residential Red Zone.

"I have asked the chief executive of the Canterbury Earthquake Recovery Authority (CERA) to prepare a Recovery Plan that looks at the offers to property owners in these categories," Mr Brownlee says.

"Following a legal challenge by the Quake Outcasts group, the Supreme Court directed that the decision on the offer to properties in these categories should be revisited and that a Recovery Plan was an appropriate approach."

Owners of properties in these categories in the Port Hills red zones have not yet received an offer.  An offer will be made to them on the basis of the outcome of the Recovery Plan but will not be less than the offer already made to those in the flat land red zones.  Consideration will also need to be given to those who did not accept the earlier offer and those who had a reduced offer as a result of significant underinsurance.

"The Recovery Plan process allows us to consider the different options, and for people to give their views based on what it means for the property owners, as well as the taxpayer and how people insure their properties," Mr Brownlee says.

"If the process results in a larger revised Crown offer from that which has expired, then those owners who accepted the original offer will be eligible for a top up of their payments.

"There will be two stages of public input through written comments in the development of the Recovery Plan, and CERA will be publicising those opportunities.

"Following the analysis of the public input and advice from officials, I expect the Recovery Plan to be finalised and decisions made in relation to the Crown offer by the middle of this year."

Wednesday, April 15, 2015

Help with making an Official Information Act (OIA) request

The New Zealand Herald is helping to re-establish a website designed to make requesting official information as easy as possible. From the Herald’s website:

The Herald is helping relaunch FYI.org.nz - a website which helps members of the public to make Official Information Act (OIA) requests.

Rowan Crawford, a software developer, set up the FYI website after a 2009 Open Government event as the first version of this tool outside of the United Kingdom.

Users of the FYI website can make requests and receive replies from various government agencies directly through the website.

The rest of the Herald article is here.

Apart from helping individuals with the OIA process, the website publishes all requests and answers so anyone can follow what is happening on a particular topic or with an agency or department. 

From a privacy perspective, if you want your request to be personal to you and whoever has the information, this website isn’t for you.  As the FYI website says on the form used to make a request:

Everything that you enter on this page, including your name, will be displayed publicly on this website forever.

Additional information on the  FYI website and privacy is here.

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Monday, March 23, 2015

Fair Insurance Code 2016– where to now?

The revised Fair Insurance Code has yet to be ratified. It is to be considered at the ICNZ AGM some time this month and “there may be minor adjustments” to the Code. One wonders what “minor” might allow by way of changes.

Will keep you posted on what is decided. In the meantime there will be a break at the Avonside Blog until early April, unless something interesting arises.

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Sunday, March 22, 2015

Concerned IAG may cash you out?

Lawyer Duncan Webb from law firm Lane Neave has written an article My insurer wants to cash settle my claim … which covers the issues IAG customers might find themselves facing. The article is here.

It is very informative, practical and a worthwhile read even if IAG is not your insurer. IAG customers are likely to feel a bit more at ease for having read it.

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Friday, March 20, 2015

Summarising the Revised Fair Insurance Code – Part 3

Insurance policies and the associated code of conduct cannot be seen in isolation from those who buy the policies, and the claims experiences they undergo. So far the Revised Code has been considered without much direct reference to the human experience. These are experiences other New Zealanders can anticipate undergoing, should there be another disaster and the Code remains substantially unchanged.

What follows, as well as what has gone before, will seem ill-informed, harsh and graceless to those in the insurer camp. They, in my opinion both here and below, are wrong.

Nature can cause devastation but it is humans who layer injustice and cruelty upon disaster - something insurers, amongst others, seem adept at. Of course there are those who point to the unprecedented nature of the Canterbury earthquakes, as if this justifies all shortcomings and bad behaviour. What is not so eagerly highlighted are the precedents and parallel examples of bad insurer behaviour – Hurricane Katrina, Hurricane Sandy, the Queensland floods. With each disaster there have been variations on the same behavioural pattern.

For the people who struggle to recover after the quakes life was, and remains, very difficult. Those who made the rules changed them whenever they saw fit, to ensure their interests were protected. It did not seem to matter that the changes attacked the content of insurance policies.

Assessments were often done, and redone, to find the cheapest solution. Yesterday's rebuild became today's repair, and who knew what next week would bring. Challenge the quality of the assessment and the lightly veiled threat was sometimes there – we may come back with a lower number. Quite possible, yet voiced in a way that made plain the intent was threatening, not neutral.

Then there was what seemed to be sleight of hand, with like-for-like bearing little resemblance one to the other. Or significantly sloping floors deemed level enough, cracks like continental drift that resin was going to fix, and pre-existing damage that didn't exist pre-earthquake. This was followed by repairs and rebuilds that sometimes took too long and were of substandard quality.

What toll has this taken, and will it continue to take? Many people took to pharmaceuticals to cope, others self-prescribed with alcohol and tobacco. Some still do. Neighbours worried about neighbours, and watched alcohol and tobacco consumption rise as morale and the ability to cope decreased. Occasionally there was an informal suicide watch on someone who was despairing and withdrawn. There were attempts at suicide.

Earthquakes frighten most people, it is the pattern of abusing behaviour experienced afterwards that drains the life out of them. Insurers, their agents and contractors, (along with EQC and to lesser the government and CERA) have done great harm and it has not yet stopped. As recently as yesterday IAG announced that it was going to cash out many of it's customers so deadlines could be met. A convenient way of passing escalating repair and building costs on to customers?

Do insurers hope that time will make the past hazy and, with suitable branding and promotion, they will be able to return to business as usual? The Revised Code, in my opinion, suggests they at least hope that no matter what occurred over the last nearly five years, they will be able to return to their preferred modus operandi with minimal inconvenience.

Click the link to continue

Tuesday, March 17, 2015

Summarising the Revised Fair Insurance Code – Part 2

In this post we will look at whether the Code is fair or transparent, and whether utmost good faith remains relevant to New Zealand insurance practices.

Is it a Fair code?

No.

There is no definition within the Revised Code explaining what fairness is. In the world of dictionaries there are varying definitions, with the Oxford Dictionary giving this: “Impartial and just treatment or behaviour without favouritism or discrimination”.

  1     Using this authoritative definition it is quite obvious the Revised Code is not impartial. The Code has been written by insurers, for insurers. The Revised Code has omitted a large portion of what was asked for in submissions to the Review – changes and provisions that would have make the Code less partial towards insurers.  

  2     The Revised Code continues to require customers to anticipate and comply with sometimes unclear or unknown requirements. It then allows insurers to penalise them for not complying with the requirements. This cannot be considered just treatment.

An interesting comparison is that between the New Zealand situation and how the U.K. handles disclosure of important information i.e. information both the insurer and the customer must provide to each other to ensure both understand the obligations and risks associated with the policy.

The U.K. Financial Ombudsman Service has published information on how it handles complaints when an insurer forms the view a consumer (customer ) has not disclosed everything they should have (here).

There is a section, what was asked and how it was asked, which includes:

We will then consider whether the questions the insurer asked were clear - and whether the consumer answered them correctly.

We will bear in mind that a consumer can only answer questions to the best of their knowledge and belief - and it may not be reasonable to expect a consumer to have a precise recollection of when certain events happened. So we will look at whether the insurer made it clear that the consumer should check their records rather than guess.

The section that follows, what doesn't need to be disclosed, includes:

We are unlikely to say an insurer should have expected a consumer to provide information if we think:

  • the insurer did not ask a specific and clear question which - if answered honestly - would have given them that information
  • the consumer did not know the information or
  • the consumer could not reasonably have been expected to know.

And we usually say it is not reasonable to expect a consumer to provide:

  • facts of law
  • information already known to the insurer - for example, facts the insurer should have noted in a surveyor's report where it had already carried out a property survey
  • information that we decide the insurer should reasonably be expected to know - for example, where a consumer answers "see your records for claims history" and the insurer does not check them
  • information that the insurer has waived its right to know
  • information that reduces the risk to be covered by the policy and
  • information about convictions spent under the Rehabilitation of Offenders Act 1974.

The Revised Code would be much fairer if it included provisions to cover these situations. Why were they not adopted?

  3     The mix of plain English and insurance terms in the Revised Code deliberately favours insurers, discriminating against those not familiar with the world of insurance, business in general, or lacking ability in English.

Could ICNZ have done a better job? Is there another Code that could have been used as a starting point?

The Australian equivalent of the New Zealand document is the Code of Practice. The title is much more accurate and the document itself superior to the New Zealand Code in some areas. A copy can be downloaded from here.  The recent changes in the U.K. would also have provided a superior model. Why were these not used as a basis for the New Zealand Code? Because they are more customer focussed – an undesirable change to the preferred business model? 

Transparency

There is far too little openness and clarity in the way in which insurers operate.

As mentioned above key words and expressions are undefined and open to convenient insurer interpretation. Beyond the policy there is a lack of transparency covering how some claims are investigated and what information is gathered. Where disputes arise, the insurers’ review agencies operate behind the scenes where the customer cannot see or participate in the process.

  1     From the beginning key requirements and concepts are deliberately undefined (e.g. material, properly maintained, reasonable). This leaves the customer uncertain or unaware as to what is required or offered. 

Insurers seem capable of determining how such terms are to be used when processing a claim, yet not when asked to define them in advance.  A variation on situation ethics perhaps, where - instead of determining meaning based on situation – meaning is obscured to allow it to be defined depending on who will be the beneficiary?

  2     Insurers have a track record of hiding their actions through delaying or withholding information requested by customers using the Privacy Act 1993.

While the Revised Code promises that there will be ongoing communication with the customer, the commitment to doing this consistently and openly has yet to be demonstrated. Post-earthquake there were numerous situations where insurers would not fully release information they held when it was requested.

A very recent non-earthquake case in point is that of an insurer inappropriately claiming legal privilege for information sought by a customer. It took a complaint to the Privacy Commissioner for the customer to be able to get access to that information (the case note is here).

  3     In a range of areas insurers have responded to claims by finding  breaches of the policy and disallowing the claim and, on occasions, cancelling the policy. These can be disproportionate actions and have caused ongoing criticism. The Revised Code attempts to improve on this by stating )Para. 20:

If you do not tell us something that would have affected our decision to insure you or the terms under which we insure you, we may refuse to pay all or part of your claim, or we may even cancel your insurance from the start date of your policy. We will respond reasonably in relation to what you did not disclose.

How transparent is this? What does “respond reasonably” mean in the last sentence?

FAQ 7, 3rd paragraph tells us that this is a reflection of Australian and U.K. developments and that ICNZ is “effectively moving toward the legislative changes elsewhere”. In response to an article on insurancebusinessonline.co.nz (here) the CEO of ICNZ elaborates further:

“Our guidelines to members on the ‘reasonable’ response to non-disclosure cite UK law in this area and reasonableness will be determined by the independent Dispute Resolution Schemes.”

In saying this, there is no indication of the guidelines to be used.  Do they exist? If so, where are they? Why not publish them?

The U.K. has already taken a public position on what responding reasonably means by simply dividing these situations into three categories.  The following approach is excerpted from the U.K. Financial Ombudsman’s website (here).

  1.  If we decide that the consumer took reasonable care, we generally say that the insurer should disregard the misrepresentation. This means that if the insurer has avoided the policy, it should be reinstated as it originally was. And if the insurer accepts the claim, it should be settled in full.
  2. If we think the consumer did not take reasonable care when answering, we usually consider a "proportionate" response to be appropriate. There is a section about proportionate responses below. [Note: in Schedule 1 of the U.K. legislation mentioned a few paragraphs below there is a formula for determining the appropriate value of the claim]
  3. But where we consider that a misrepresentation was deliberate or reckless, we may say it is reasonable for the insurer to avoid the policy. [Note: in some cases the premiums might be refunded to the customer].

This seems quite enlightened, compared to the New Zealand Fair Insurance Code, and one wonders why it was not adopted in full and published in the Revised Code.  In light of this, the ICNZ view that the Revised Code is “effectively moving towards the legislative changes elsewhere” seems just empty words – more puffery?

It is also interesting that ICNZ have made no mention of the U.K.’s  Consumer Insurance (Disclosure and Representations) Act 2012 which has replaced the concept of utmost good faith. It is a much more fair and reasonable approach to information disclosure, the obligations of the parties, and how non-disclosure is to be handled. ICNZ have not mentioned this in association with their desire to keep utmost good faith as a mainstay of their Fair Insurance Code, Where is the transparency?

  4     The way the insurers' independent review authorities conduct themselves lacks transparency (and capacity). Taking the ISO as an example, once a complaint reaches them their review process is done behind closed doors. The customer cannot go to the ISO and explain the issues, the ISO just looks at the paperwork, checks what has happened against the policy document and makes a decision. The customer has no idea what was considered, how well the ISO understood the complaint, and had no opportunity to put their case.

Utmost Good Faith

Much has been said about this. Perhaps all that is left is to repeat that practically all of the utmost good faith disclosure requirement falls on the customer. Insurers, meanwhile, enjoy a great advantage from minimal obligations, taking comfort and protection behind the highly evolved predatory aspects of the utmost good faith principles.

As in the U.K. this concept needs to be replaced with statutory provisions that are fair to both parties, and provide a transparent mechanism for dealing with disputes about disclosure.

Changes are needed, and insurers cannot be entrusted with this. Following the U.K. lead with their Consumer Insurance (Disclosure and Representations) Act 2012 would be a very good place to start.

 

Next post: insurer conduct and honesty.

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