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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.

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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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Thursday, March 12, 2015

Summarising the Revised Fair Insurance Code and its shortcomings – Part 1

The Fair Insurance Code serves two purposes: operational and political.

Operationally the Code exists to briefly sketch how insurance processes work, to make customers aware that both insurers and they have rights and obligations, and that failure to fulfil the obligations carries penalties. In practice the Code places wide, strict and complicated obligations upon customers and narrow flexible obligations upon insurers.

Politically the Code exists to create the appearance of a fair and robust self-regulating regime. Creating and promoting this appearance is a defence against attempts to regulate the industry and reduce the power and enormous advantages insurers have in their dealings with customers.

Criticising the Code

Finding fault with the Revised Code has attracted the criticisms of being ill-informed and not understanding the 300 year old history of one of the cornerstones of the insurance industry: utmost good faith. At a superficial level these criticisms appear to have validity.

It would, for instance, be unusual for those working with, aligned to, or paid for by the insurance industry to criticise the narrow obligations placed upon insurers. The fact that insurers make only a small contribution to the utmost good faith requirement is the result of minimal and preferential regulation and favourable court decisions over a long period of time. As that is a comfortable and defensible position to be in, those aligned to insurers find nothing wrong with it.

What is ignored by the insurer camp is that the evolution of legislation and case law has created a situation considered draconian by others because of it's one-sidedness. In Britain there are some working to have the utmost good faith provisions removed from insurance, and replaced with something more equitable. That approach may be appropriate here if insurers do not accept the need to contribute more as their part of the utmost good faith requirement.

While ICNZ may be genuinely perplexed at criticisms of a well established and long accepted status quo, that is a narrow and excessively self-serving position to take. Pre-earthquakes, when insurance injustices were fewer, small, and smothered by the complexity and cost of court action there was no evidence of a need for change. The magnitude of the post-earthquake insurance disaster with it’s lack of fairness, honesty, transparency, and appropriate conduct shows there is a need for significant change.

The operational Fair Insurance Code.

Operationally it is a self-serving industry code rooted in commercial and legal conservatism that has evolved as little as possible over time.

This 2015 revision of the Code represents the insurance industry's best effort at improving it's performance and image, after the negative publicity arising from bad to abysmal post-earthquake claims handling. As the posts on this blog have shown the improvements are small, and don't address fundamental problems.

Some procedural changes have been introduced to provide a clearer understanding of what will happen when a claim is made. These changes also add more process and information on how differences and disputes between insurers and customers will be handled, and the consequences for insurers who fail to comply with the Fair Insurance Code.

In practice the changes are small and avoid substantive issues that can be summarised as falling into the categories of fairness, utmost good faith, honesty and insurer conduct.

The Revised Code is significantly deficient in not placing an appropriate range and depth of operational obligations on insurers, and needs much additional work to fix these failings.

Politics and the Fair Insurance Code

Wherever large corporations encounter criticism of their business model they, and their political supporters, lobby strongly for self-regulation rather than have laws passed to enforce appropriate corporate behaviour.

Once self-regulation is allowed it then becomes an exercise in allowing as much latitude as possible to business while conceding minimal rights to the customer. At the same time publicity is generated to create the impression that self-regulation is working well and is as effective as, or even more effective than, government intervention.

This practice is happening now with insurance. The bulk of the Revised Code involves imposing wide ranging obligations on customers while minimising insurer obligations. By calling it fair, and ignoring the widespread post-earthquake failings, insurers hope to be able to carry on business without conceding any of the opportunities they currently have and profit from.

To have a successful Code insurers don’t need one that provides great improvements for customers, they need only have something that their business and political supporters will feel comfortable backing. With this backing they can then avoid legislation to curb their behaviour.

 

In the next post there will be a summary of the Revised Code's failings in the areas of fairness, utmost good faith, honesty and insurer conduct.

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Monday, March 9, 2015

Fair Insurance Code Questions & Answers – Part 3

In the previous post, covering FAQ 7, it was stated that an underlying purpose of the Code was to pre-empt any external control on how insurers carried out their business. The point was also made that as far as interpreting insurance policies is concerned, insurers are very strong advocates of the Humpty Dumpty Position:

"When I use a word," Humpty Dumpty said, in a rather scornful tone, "it means just what I choose it to mean - neither more nor less."
(Through the Looking Glass – Lewis Carroll )

FAQ 8 is where they excuse themselves from attempting to clarify what is meant by what they say.

Saturday, March 7, 2015

Fair Insurance Code Questions & Answers – Part 2

Why is ICNZ so keen on having a Fair Insurance Code, and prickly over criticism directed at the Code?

At an operational level the Code is a useful means of providing a standard approach to offering, selling and administering insurance. This has benefits to insurers as they want customers to have a feeling of ease and security in buying and keeping insurance. It works quite well, with New Zealand having an extremely high uptake of insurance which, in turn, means significant revenue for insurance companies.

At the political level the Code is one of the means used by insurers as they work to prevent or obstruct legislation to regulate the insurance industry. Unrestrained self-regulation is their on-going goal, and the Code is the part of the public face of how they go about it.

Prior to the earthquakes insurers operated without public scrutiny and there seemed to be no shortcomings (unless you dug deep). Should the fairness and suitability of the Code now be successfully challenged then the future of the current level of self-regulation becomes uncertain, and the preferred form of business-as-usual threatened.

The loud and frequent post-earthquake requests for more legislative change and oversight of the conduct of insurers is the crux of much of what is motivating insurers in this revision of the Code. They fear legislative change will put limits on their freedom to operate in a way that is highly favourable to them.

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