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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

Insurer conduct

The Revised Code pays little attention to how insurers conduct themselves, and ignores areas that have proven to be crisis-causing for customers. The following is only a brief excursion into the way insurers conduct themselves. A lot more can be said but a few representative examples will make the point that the Revised Code does not satisfactorily address significant problems.

1     There is no real provision for insurers' employees to be properly equipped for the tasks expected of them. Para. 10 of the Revised Code states:

We will train our staff and our agents so they can fulfil their responsibilities to you. Their training will include the requirements of this Code and information about our products, and may also include principles of insurance and relevant consumer laws

Compare that with what Section 5.1 of the Australian Code has to say:

When our Employees or Authorised Representatives are acting on our behalf, we will:

(a) provide them with, or require them to receive, appropriate education and training to provide their services competently and to deal with you professionally, including training on this Code;

(b) only allow our Employees and our Authorised Representatives to provide services that match their expertise;

(c) measure the effectiveness of training by monitoring the performance of our Employees’ and our Authorised Representatives’ services;

(d) provide or require appropriate education and training to correct any identified performance shortcomings in our Employees’ or Authorised Representatives’ services; and

(e) keep our Employees’ education and training records for a minimum of five years and make them available to the CGC on request, and require our Authorised Representatives to do the same.

How can customers be confident that insurers are genuinely committed to provide the utmost level of good service when there is no commitment to equip staff for the work expected of them?

2      Employee conduct, and the conduct of those working on behalf of insurers or their PMOs, has been an ongoing issue.

No organisation is perfect, everyone has off days, but some people do not have the temperament, qualities or attitude to deal with customers post-disaster. Customers found that quite a number of such people were involved in some part of insurers' claims processes. Dealing with these employees or contractors was a bruising and demoralising experience from which there was often no escape. In the USA it has been reported that people with these attributes have been deliberately employed by some insurers to deter claimants from pushing their rights. That may, or may not, be the case here but some mechanism to remove bullies from the claims process should be a priority – if a customer goes too far the police can be called and a policy cancelled, if an employee goes too far there is no recourse. Again, an absence of fairness.

This is issue is not addressed by the Revised Code, despite it being raised during the Review and subsequently. The Australian Code referred to above has some provision for this [5.1 (c), (d)].

3      The New Zealand Code totally ignores the relationship between the insurer and customer on one hand, and the insurer and it's contractors on the other.

The insurer has a contract with the customer to return the customer to the position they were in prior to the event(s) that damaged their property. The insurer engages a contractor (or PMO's for earthquake damage) who does the work for the insurer. The problem frequently arising was and is that the relationship between the insurer and PMO appears to be a mutually advantageous (cosy) one which places the customer's rights and needs as a lower priority.

A crucial wellbeing factor for customers is the time taken to repair or rebuild. Their funds for alternative accommodation are limited, and a time over-run has many struggling with the cost of rental accommodation plus mortgage repayments.

How many insurers require their PMOs to put clauses into repair or rebuild contracts that penalise projects that overrun time? Surely that would be a prudent and fair thing to do on behalf of customers? Without a penalty clause contractors have the luxury of taking as long as suits them while they juggle resources, presumably to take on as many contracts as they can. The price for this is paid by the customer.

Looking at the continuing disquiet about the quality of work done insurers seem also to be motivated to keep their costs down by discounting what they will pay contractors. In turn contractors are taking short cuts and often re-work is required, but not necessarily performed until after much delay and with reluctance. Again, the customer pays the price.

None of this is included in the Revised Code. What about the Australian Code?

Section 7.20 REPAIR WORKMANSHIP AND MATERIALS of the Australian Code addresses part of the issue in this way:

7.20  Where we have selected and directly authorised a repairer, we will:

(a) accept responsibility for the quality of the workmanship and materials; and

(b) handle any Complaint about the quality or timeliness of the work or conduct of the repairer under our Complaints process.

Not great, but it would have been a modest start to include it in the Revised Code along with a provision covering work initiated or authorised by PMOs.

4     In a similar vein the Revised Code places no commitment on insurers to ensure they engage only suitably qualified and experienced people (insurance assessors, loss adjusters, project managers, project contractors). The prevalence of multiple damage assessments and scopes of work suggests that those working on them aren't suitable (or are insurers changing the rules?).

5      Insurers should have required the Review to encompass the work of the Insurance and Savings Ombudsman (ISO), as that is the last resort for disadvantaged or aggrieved customers and not entirely suited for the job.

The ISO has limited investigative powers and, while case managers can and do communicate with complainants and insurers, there seems to be no obligation to bring (or at least invite) the parties together as a matter of course. The ISO Scheme Complaints process is outlined here.

Three brief points regarding shortcomings to the way the ISO operates.

  1. It would benefit from being a more participatory process. The Disputes Tribunal would be a good starting point.

  2. The ISO is somewhat neutered by it's inability to look in any depth when there are differing views on what may, or may not have happened. As the ISO said in one of it's case studies:

In situations where there is contradictory evidence, the ISO Scheme’s ability to investigate was limited. Unlike a court of law, the ISO Scheme is unable to resolve conflicts in oral evidence. The ISO Scheme is an informal scheme and, therefore, unable to assess credibility. Because of this limitation, the Case Manager had to rely on the documentation provided.

Invariably it is the insurer who has their side of the paperwork and records of phone calls.

  1. There seems no compelling reason (other than cost) for the ISO to spend the whole year in Wellington, especially when there is a cluster of cases in one region. Consequently it could make itself more accessible. Money-wise, the insurance industry in New Zealand is highly profitable and could afford to enhance the performance of the ISO if it wished to.

Honesty

Do insurers act honestly? It is important to differentiate between the insurer as a corporate entity and those who work for insurers. What follows addresses only the corporate entities and is not a reflection on individual employees. Even in the cases of bad employees it was and is the corporate environment that permits such behaviour to exist and that has to be addressed.

Para. 9 of the Revised Code states: “We will act honestly, fairly, transparently and with utmost good faith towards you.” Do they?

Turning the question around, do insurers act dishonestly? Insurers might point out that crimes of dishonesty are set out in the Crimes Amendment Act 2003 and none of these crimes have been committed. That would be an irrelevance, as the Code is a document for the ordinary person and we need to look for an ordinary definition of honesty. Once again Oxford have an authoritative answer. For them to be honest is to be “free of deceit; truthful and sincere” and honestly as acting “in a truthful, fair, or honourable way”.

Lets take one of these terms: “free of deceit”. Deceit (concealing or misrepresenting something) has been a common practice. Post-earthquake some insurers went to significant lengths to conceal claim information from customers (personal information requests). Misrepresentation occurred when, for example, damage that necessitated a house being rebuilt was passed off as a repair and earthquake damage classified as pre-existing damage.

A form of conduct that could sit under a number of headings but, in my view, sits rather well here is that of establishing the value of claims when a customer is cash-settled. With either a repair or a rebuild the scope of works will establish a price for the job.

Because insurers have huge buying power they can negotiate a discounted price below that of the scope of works. As expressed in a case note from the ISO the insurer “... practice was to take into account actual building costs, moderated by an overriding competitive premium position”. In this instance moderation means reducing the amount.  What if the insurer then takes the position that this is what the work would cost them, so that is all they will pay out? The fiction in all this is that the customer will be able to get the work done for the same amount of money, which is clearly impossible because they do not have the purchasing power to negotiate the same price. Result? The customer loses out. Fair? Free of deceit?

Honest?

The answer to this can be found in the summation of all the topics discussed to this point. There are major failings in the areas of fairness, transparency and utmost good faith. Insurer conduct is inadequate and not acknowledged by them. Honourable is not a current term in the insurance world.

What do you think?

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