The Canterbury earthquakes stress tested NZ’s fair insurance code (FIC) and it was “found wanting”, ICNZ CEO Tim Grafton told the NZILA Conference.

He had been initially optimistic a new FIC would be released last July, but it would now be delayed at least until after ICNZ’s November board meeting.

The revised code would replace a very short document that established a “high-level set of responsibilities for insureds and insurers”. It was binding on ICNZ members, but few in the public were aware of its existence.

The code was scheduled for review every three years, but there were “more pressing reasons” for the 2014 review in the wake of the Canterbury quakes.

The review had to consider issues like the meaning of “quickly” for claim settlements. “There is no benchmark for what ‘fast’ means [in the context of] the immensity of the Christchurch situation.”

It was fundamental for insureds to have trust and confidence in the industry, but the industry’s reputation was affected when insureds thought they had been treated unfairly. “There is always disenchantment if claims are not paid or settled fast.”

NZ legislators had made “a hash” of insurance legislation, “because they don’t understand the industry”. There was “a near-disaster” with unfair contract terms and the Fair Trading Act offered lower standards that the industry had already set.

Mr Grafton said fairness was about good faith, honesty, transparency and the ability for someone who thought they had been unfairly treated to be heard.

He likened creating a FIC to the theory of justice – “If you didn’t know if you were to be an insurer or an insured, what would you design?”

“Fair does not mean equal. Insurers pay for dispute resolution systems and decisions are binding only on insurers, but that’s fair, because it restores balance.”

The review began in November 2013 when ICNZ sought submissions, but it received only 10 from organisations and three from individuals. There was no submission from the NZ Law Society or some of the industry’s “most strident critics”.

Former Labour cabinet minister and lawyer David Caygill oversaw all stages of the review and iterations of the code.

While Mr Grafton said he could not reveal what the revised code would include, he outlined some areas of concern, not all of which had been accepted.

• Should the FIC be broadened to include all dealings, not just claims;
• An obligation to keep insureds updated regularly on their claims’ status;
• A need to be clearer about insurers’ obligations to insureds and avenues to pursue disagreements;
• Qualified, independent assessors and builders;
• An external body to review code breaches;
• Insurers’ communications to be clearer on critical elements like disclosure and coverage;
• Clarity of communications, particularly for online acceptances;
• A deeper understanding of customers’ perspectives;
• Should utmost good faith be specifically included; and
• Should there be time frames for parties’ responses.

 

Mr Grafton said time frames were problematic, because “informing a homeowner of progress with their claim is vastly different from a long-tail liability claim for a corporate customer. Perhaps we should focus on the most vulnerable?”

The argument for change to non-disclosure requirements in NZ was “compelling”, and the review examined the different regimes in Australia, the United Kingdom and north America. But the FIC review was not charged with changing NZ law or “parachuting in another country’s legislation”. “What is fair under the circumstances? Should we align NZ with international practice?”

Mr Grafton said the special circumstances of major disasters and catastrophes needed acknowledgement. “Insurers rely on other agencies to progress claims, so you can’t set time frames in concrete.”

While insurers should strive to meet business-as-usual standards, a prolonged recovery meant prioritising those most vulnerable.

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