Fair insurance code to 'lift bar'

New Zealand’s fair insurance code (FIC), which starts on January 1, 2016, will “lift the bar” for insurers, forcing them to be more accountable in service delivery, Insurance Brokers Association of NZ (IBANZ) president and Crombie Lockwood legal head Duane Duggan told the NZILA conference.

He expected “better consistency” in claims handling. In a FIC panel session, Mr Duggan said there was not a lot of consultation with brokers. FIC was “good”, but had limitations, including it was not applicable to life and health. Asked whether IBANZ brokers were unprepared, he said that was “fair to say”.

Insurance Council of NZ (ICNZ) CEO Tim Grafton said he had written to IBANZ’s CEO and NZ’s five largest brokers and ICNZ would soon launch a webinar to educate brokers. Mr Grafton said FIC was introduced because the existing code needed to be more consumer-centric and had no time frames. The existing code was required to be reviewed every three years. It was “out of whack” with changes made to Australia’s equivalent general insurance code of practice on material non-disclosure.

Asked by moderator Samson Samasoni, a consulting partner with SenateSHJ, why the code was not be included in insurance contracts, Mr Grafton said an insurance contract was a legal document with precise wording, where as FIC was to inform insureds.

DLA Piper partner Crossley Gates said FIC effectively had contractual force because ICNZ members were bound by it. FIC provided “a greater menu of remedies”, rather than the “blunt” common law instrument of avoiding contracts ab initio for non-disclosure.

Mr Samasoni asked whether there was “still too much room for interpretation”. Mr Gates said “objective and fair” were the criteria for interpretation. Reasonableness would be judged “through the lens of proportionality”.

“Some nondisclosures are minor and it’s too harsh to avoid the whole contract.” Insurers would be able to refuse a claim in part or impose a higher excess.

NZ’s Financial Services Complaints Ltd case manager Carl Schreiber said he was “excited” to see reasonableness included in the code. He defended dispute resolution processes against any alleged lack of transparency, saying consumers were involved in dispute resolution schemes and received confidential, written decisions.

Mr Grafton said the $NZ100,000 penalty for significant FIC breaches was “not a wet bus ticket”. However, it would “offend justice” had FIC included lower fines for smaller insurers.

He defended the two-year exemption for Lloyd’s, saying it was for risks written directly into the London market, not by coverholders. He also defended FIC’s suspension when disasters occurred because insurers were reliant on third parties, like the Earthquake Commission (EQC), and the suspension did not absolve insurers of responsibility.

Mr Grafton hoped the NZ Government’s EQC review would consider EQC’s role as first responder. “One of the great stressors in catastrophes is not knowing the progress of your claim. If insurers had first response to claims, they would have to make progress reports.”

He said the community groups in Christchurch thought FIC did not “go far enough”, but “you can’t design a code for the exception”. “It must be workable for insureds and insurers on a business as usual basis.”

Mr Grafton said a proposed Insurance Contracts Bill, drafted in 2006, was “not on top of the [political] agenda”. But there was “no burning need” for legislation in the fire and general area. Life and health was “more significant” in terms of complaints.

Mr Gates wanted the Bill “brought back to life” because the existing duty of disclosure test was “archaic”. It was “very difficult” to determine what a prudent underwriter would have decided if they were aware of undisclosed facts.