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Saturday, February 28, 2015

Assessing the ICNZ Revised Fair Insurance Code - Part 2

As we get further into the Revised Code the number of new issues raised slows down.

Where the Revised Code deals with straight-out mechanical areas it works better and there is more clarity about what an insurer needs to conduct it’s business.  Despite this the position of the customer does not improve.

Click on the link to read more nitty gritty.

 

Page 4 Your general responsibilities to us

Paragraph 13:

You must act honestly, fairly, transparently and with utmost good faith towards us

I doubt that this paragraph as a whole would pass a plain English test. A high level of education and/or exposure to legal matters would be required to grasp this fully.

“Honestly” is something most would understand although, as any insurer or police officer can tell you, it does at times seem to be loosely connected to the law. It is clear warning to the customer that lawful conduct is required. 

“Fairly” is an unusual word to encounter in a legal document. What does it mean? Surely the whole insurance process hinges on contract law and compliance with the terms of the contract.

What does “transparently” mean? It sounds like one of those jargon words some white collar middle class folk toss about to sound as if they know how the Prime Minister’s Office, EQC, CERA and Creative New Zealand should be run.

One could speculate, for instance, that it means if you are applying for car insurance and are due in court shortly for exceeding the speed limit, dangerous driving or excess alcohol, the insurer should be advised. At the moment of application you don’t have a conviction, your record is clean, so you may not think it dishonest to keep silent.  As that situation is likely to change it would be transparent to raise it with the insurer.

However insurers care to define transparency, it would be beneficial to give some definition or examples to help remove uncertainty or just not knowing – not every one is white collar middle class.

“Utmost good faith” we have dealt with before.

This paragraph disadvantages customers who don't have the education or experience to fully understand what lies behind the words. It needs to be expanded otherwise the insurer fails their own obligations of fairness (because they have made key elements of the document too hard to understand) and transparency because many customers will have to guess what is required of them because it has not been laid out clearly and in detail.

Paragraph 14:

You must take care to provide us with all material information about yourself, your partner, and others insured under your policy. That information must be complete and up-to-date. You must provide that information when:

  • you apply for insurance

  • you renew or change your policy

  • you make a claim

  • your circumstances change

This is key information for an insurer to be able to issue a policy and then continually renew it. The issue of understanding what is meant by material information will be dealt with elsewhere.

Customers too need to be kept up to date with issues affecting how they conduct themselves under the policy yet this is a one-sided obligation.

Why is there no similar obligation on the insurer to provide all material information to the customer and keep the customer updated e.g. areas to watch out for because there is a pattern of customers not meeting their obligations (such as notifying road traffic offences, cars without WOFs), findings of the ISO or Courts that affect how claims are handled, policies interpreted or what will now be considered material.

Paragraph 15:

Please ask us for help if you are not sure what information is considered to be material.

This is immensely problematic. On the face of it the responsibility seems a reasonable one. However it does presume a customer will have enough knowledge and experience with insurance policies to identify areas of uncertainty.

Can a customer ask for a detailed list of what an insurer considers material? Apparently not, according to item 8 in the FAQ at the end of the Revised Code.  Insurers need to be more courageous and forthcoming in being specific about what they need.

There are also Privacy Act issues associated with the collection of personal information and these haven’t been flagged e.g Privacy Principle 3 includes - disclosure about the purposes for which the information is being gathered, who will see it, the rights of access to, and correction of, the personal information provided.

There will be comments on FAQ 8 in a later post.

Page 5 What happens when you apply for or buy insurance from us

Our responsibilities

Paragraph 16:

We will ask questions that will allow you to fully disclose any prior claims and other material information which may affect your ability to take out insurance or make a valid claim.

On the face of it this looks reasonable but see the comments on Para 19. It will be included in the comments on FAQ 8.

Paragraph 17:

We will give you a clear summary of the key features of your policy.

In plain English (or Maori, or Samoan)? Will it be a written or verbal summary? What will be the status of the summary – a binding part of the policy or a non-binding explanatory note? This is important because some customers may understand the summary but not the policy in it’s entirety. A key discovery of the earthquake aftermath was the wide discrepancy between what customers understood their policies to mean and how insurers interpreted them.

Paragraph 18:

We will explain your responsibilities to us and what may happen if you do not meet your responsibilities to us. We will do this:

  • when you buy insurance from us

  • during the term of your insurance with us, and

  • when you renew your insurance with us

Good. In writing? However, referring back to the comments on Paras. 8 & especially 10, there is the issue of the quality of the advice being provided. In the absence of certainty that a staff member has received training in insurance and consumer law how well equipped will they be for the task?

Your responsibilities

Paragraph 19:

You must tell us any facts that may affect our decision to insure you and on what terms, whether we ask a specific question or not. You must do this:

  • when you buy insurance from us

  • during the term of your insurance with us, and

  • when you renew your insurance with us.

A very challenging responsibility that is in conflict with what is stated in Para. 16 above.

How is a customer to know what information influences a decision to insure or the terms that might be attached to the policy? If questions that point to the information required are not asked, how can the customer be expected to anticipate what is required? See the comments on Para 20.

Again, Privacy Act issues e.g Privacy Principle 4 – asking for more information than is necessary is “unreasonably intrusive”.

Paragraph 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.

This is not a customer responsibility, but a warning of the possibly extreme consequences of not meeting the obligations imposed by Para. 19.

It does inject the concept of an insurer responding “reasonably”, although there is no explanation of what is intended or meant by that term. Perhaps it is intended as a protection against actions of insurers' that, in the past, have been considered excessive (disproportionate).

The fairness, transparency and honesty of an insurer (Para. 7 above) will only become known once a claim is made. At claim time an insurer is potentially motivated to find fault with the claimant’s actions and so reduce or deny a claim. Insurer staff may be required to look for opportunities to do this.

ICNZ have said the concept of responding reasonably will be developed via independent Dispute Resolution Schemes. The problem here is the personal and financial damage to customers as they work their way through the stages of a dispute, and the long time it will take to build up a body of precedents.

Paragraph 21:

You must read your insurance policy and let us know if there is anything you want explained or corrected.

Can we assume that the policies will be written in plain English and not contain technical, unclear or ambiguous terms  or expressions?  See also the comments to Para. 17.

What if the customer has English as a second or subsequent language. Can it be assumed that insurance policies will be available in a range of languages and have the same legal standing as the English version? Maori is an official language of New Zealand, will Maori versions be available?

Paragraph 22:

You must tell us about any changes to your contact details.

Okay.

Pages 6 & 7 Facts you may need to provide to us

Paragraph 23:

Examples of relevant facts about you, your partner, and others insured under your policy may include:

For all applications for insurance

  • Any criminal convictions, subject to the Criminal Records (Clean Slate) Act 2004.

  • 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

Part of the utmost good faith obligation and essential in allowing the insurer to make a risk assessment. This paragraph sits over Para. 24 which is also essential to the utmost good faith obligation. 

Paragraph 24:

These don't need to be repeated here as they are common conditions and, subject to the few comments below, ought to be clear to anyone with or seeking insurance.

  • House and contents – Essential to allow the insurer to assess the risk.

  • Motor insurance – in the third bullet point the reference to “traffic violations” is inappropriate (been watching too many US TV programmes?). How about driving offences (which is used by NZTA) to ensure clarity and remove any grounds for dispute over a meaningless term?

  • Travel insurance – pre-existing symptoms implies a presumption of medical competence on the part of the customer.

  • Business insurance – not being in business it needs someone else to comment.

Paragraph 25:

These lists do not include everything that we may need to know. Please ask us for help if you are not sure what information is relevant. Giving us this information does not necessarily mean your application or claim will be declined. It helps us assess the risks we are insuring you for

This somewhat undermines the undertakings in the second bullet point of Para. 9, and Para. 16. Again the onus is being placed upon the customer, who is not an insurance specialist, to anticipate what information is material to the application for insurance. Failure on the part of the customer to have perfect recall and/or successfully anticipate what is required creates the situation discussed in Para. 20 above.

Again, Privacy Act issues.

 

The next post will cover the provisions involving making a claim and there will be increasing harmony.

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