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Friday, February 20, 2015

Comments on the ICNZ Revised Fair Insurance Code - Part 2

The whole viability of the insurance industry depends upon utmost good faith which, according to ICNZ on their website here, means:

An insurance policy is a contract of ‘utmost good faith’ between the insurer and the customer.

The insurer is required to observe and honour the contract conditions. The customer is required to disclose to the insurer all material facts that could affect the risk. For example, a person who travels overseas and leaves their house empty needs to tell their insurer, as an empty house is more risky to insure than an occupied one.

Failure to tell your insurance company everything they need to know to assess your risk accurately may jeopardise your insurance cover. If in doubt about what you need to declare, ask your insurance company.

A rule of thumb is that you should declare any information that would make the insurer alter the terms and conditions of your contract.

As is easily seen, the weight of the so-called “utmost good faith” obligation falls entirely on the customer who has to be sufficiently familiar with insurance practices to be able to anticipate what an insurer needs to know.

The obligation of the insurer is not one of “utmost good faith” at all, it is merely an empty statement that they will observe and honour contract conditions - a standard practice and legal requirement with all forms of contracts in all types of business. There is no requirement for insurers to fully disclose to the customer all the insurer needs to be able to agree and continue a policy. Nor must they disclose what the key terms of a policy mean, and how they will be interpreted should a claim be made. The insurer is offering nothing in return for the customers utmost good faith.

All this might be acceptable if contract conditions were fair and reasonable. Customers won’t know if this is the case unless the wording is clear and fully explained in plain English (and the equivalent in other languages). However, contract conditions are written to suit the purposes of the insurer, using words and expressions that are usefully (wilfully?) vague and can mean different things to different parties. Post-earthquake, many customers found words no longer meant what they thought and expressions (e.g. like-for-like) could be interpreted in ways that defied common sense. 

So, if you, the customer, fail to disclose or understand something, that action is likely to be held against you and jeopardise your claim. What if you didn't know something was important, might cause the insurer to alter the terms and conditions of the contract, misunderstood or just didn't know? You are at the mercy of the insurer who, in signing up to the Revised Code, now agrees to being “reasonable” when dealing with you. As there has been an absence of reasonableness with many claims to date this is not a cause for optimism.

Utmost good faith, which underpins insurance, appears to be a one way street – customers are obliged to act in this way, insurers are not. This in itself is evidence the Revised Code has fallen well short of what would be a reasonable minimum – that both parties be required to be equally responsible to act in utmost good faith.

The next post on Monday will pursue the shortcomings of the Revised Code as a whole.

Thursday, February 19, 2015

Comments on the ICNZ Revised Fair Insurance Code - Part 1

An initial reading of the Revised Code creates the impression of it being a reasonable document. If you were not familiar with what had happened with insurance claims post-earthquake a second glance would seem unnecessary.

To not take a second look at the words used, but bask in the warmth and comfort promised by the publicity hype, would be a dangerous oversight. Dangerous because post-earthquake insurance claims created an environment which highlighted both new and existing problems, and these have not been dealt with.

Disasters bring about the unexpected, create new problems, and put people on the spot. The major initial problem was the scale of the work facing insurance companies. As with EQC and the Christchurch City Council, the scale of the problem was beyond both their organisational ability to respond and also the adaptive capacity of most of the leadership.

Adding complexity to this was was the rapid involvement of re-insurers whose sole interest was reducing their exposure to costs. The spectre of re-insurers extending their influence, and demands for minimising costs at the level of individual properties, haunted many waiting for their claims to be assessed. It seemed to explain a lot of unexpected and unwanted behaviour on the part of insurers (staff, agents and contractors). However, not every problem can be laid at the feet of international avarice (more about these guys in a later post).

Insurers continued with their pre-earthquake procedures, this time on an incredibly larger scale. For the first time enough problems affecting customers were apparent to see that there was a pattern in insurer behaviour: not all insurer employees (or agents or contractors) were suitably trained, qualified or competent, some had behavioural or inter-personal deficiencies and treated customers badly, on occasions in a bullying or threatening way, there was a pattern of insurers attempting to minimise claims, reinterpreting policies, changing assessments or positions (sometimes frequently), making decisions on behalf of customers that did not adequately protect them, refusing to volunteer or denying or delaying access to claim information, delaying access to dispute resolution.

When considered in this light the question to ask is: does the Revised Code remove these problems? The answer is no.

Some of the content of the Revised Code is dubious, and there are instances where it seems self evident (blindingly obvious?) that the intention is to maintain a situation that acts against the interests of customers to ensure insurers continue their disproportionately dominant position during claims processing.

Basically, as discussed in the next post, the Revised Code represents a lack of good faith on the part of insurers.

Tuesday, February 17, 2015

The Revised Fair Insurance Code

There has been a flurry of insurance related developments this month. Recently EQC covertly released a Customer Interaction Review on how they had performed and on Monday Vero released a report about Canterbury four years on, outlining Vero's experiences, the improvements made to it's processes and how it envisages future disasters should be handled.

The most significant release has been that of the Insurance Council of New Zealand (ICNZ) who announced their Revised Fair Insurance Code. The Fair Insurance Code is the code of conduct all major insurers have signed up to and, in general terms, it outlines how an insurer is required to behave.

Despite the glowing terms with which ICNZ have described their Revised Code a close reading of it shows they have produced very little in the way of a fair, transparent or customer friendly way of doing business.

The effect of much of what was raised by submissions has been changes to treat some of the surface issues, but not address important underlying problems caused by the way insurers carry out their business in New Zealand. This is not a healthy situation for customers of insurance companies, and continues to validate the proposition that the insurance industry is not a suitable candidate for self-regulation.

The next few posts will start with a summary of how the Revised Code reads (recommended reading for everyone) followed by a commentary on the Code and the accompanying FAQ and finish with a look at all the important bits ICNZ decided to leave out.

Click on the link for the rest of this post …