“As you are probably aware by now a protest is taking place on Sunday 21 Feb at noon in Cathedral Square. please read the flyer below and distribute it electronically far and wide. Many community groups have been informed about this protest and the word is going out EVERYWHERE. I am glad that many people on this page are getting somewhere at last with their Insurance claims. Indeed many of you are at long last, living in new or repaired houses and goodness knows you deserve it after the protracted struggles to finally get what you were always entitled to anyway.
However, YOU are still needed!
Although thankfully you may be sorted or on your way, there are still many, many fully insured homeowners who are still at the mercy of this ripoff and its multitude of lies. Many of these people are vulnerable and elderly, they are less able than some of us to fight for so long and have already endured the injustices of the last 5 years. Some still can’t come to terms with what their own government / IC is doing after years of diligently paying their premiums.
ENOUGH IS ENOUGH!
We ask you to join with us and many others for a short time at this protest to loudly voice your disgust, support your less able citizens and embarrass those entities who have branded these disenfranchised people as just a “few carpers and moaners”!(See http://www.stuff.co.nz/the-press/news/christchurch-earthquake-2011/7656654/Brownlee-fed-up-with-moaning-residents).
We must gather together and show them just how many of us there are, who think that the insurance debacle here in Christchurch was, and continues to be,
UNJUST ! The situation is so dire for some of these folk that it has now become our civic duty to Act! Please BE THERE IN THE SQUARE!” Percy Sugden
Here in Christchurch we have been struggling with our insurance companies for well over three years. Through the often heart-breaking stories of affected Cantabrians, as regularly reported in the media, people have become aware that the way insurance companies have operated post quakes has complicated the recovery and the lives of many. Political parties have woken up to the idea that something has to be done to prevent such a fiasco from happening again. New Zealand First and now the Labour Party, at its recent annual meeting (in Christchurch this week-end) has placed the way we organise our insurance as a major item on their agenda. After the Christchurch Insurance Aftershock, the recent damaging earthquakes in the Seddon area, and the side effects of those earthquakes on our capital, as well as the recent prediction of a “9 percent chance of the rupture of a major upper South Island fault that will likely result in a 7.7 magnitude quake” (http://www.3news.co.nz/Civil-Defence-emails-reveal-earthquake-risk/tabid/423/articleID/319849/Default.aspx#ixzz2jWNyR3qn, it has become clear that New Zealanders can no longer leave these matters “to the market”. Today, even our politicians are finally realizing that the private insurance industry will be neither capable nor willing to meet the needs of the population in the face of further disaster. When I wrote The Christchurch Fiasco: the Insurance Aftershock and its Implications for New Zealand and Beyond, it was uppermost in my mind that a sovereign nation cannot continue to manage disaster the way this Government has approached it. I wrote:
“The whole fiasco demonstrates very clearly that catastrophe insurance is too important to be left to private insurers. It represents a major conflict of ideologies. Corporate entities are about profit and returns to shareholders. It is a mistaken premise to think that insurance companies will act either altruistically or with compassion. Privately owned, profit-based corporations are not philosophically oriented to look after the welfare of a community confronted with a disaster on the scale of the Christchurch earthquakes. Insurers will always give priority to their financial bottom-line and seek to maximise profits and minimise payments to policyholders. The Christchurch experience demonstrates that ‘good faith’ is nothing more than a slogan”. Chapter 7, “Catastrophe Insurance: Why the Government Should Provide it”, page 169.
So I am gratified to note that at the recent Labour Party Conference, Hon. David Cunliffe announced his party’s intention to introduce a very similar version of my proposal (KiwiSure) which Labour has chosen to call KiwiAssure. Predictably, the Insurance Council chief executive Tim Grafton says that the policy is an ill-conceived step backwards. (see http://www.3news.co.nz/Labours-insurance-plan-panned-by-Insurance-Council/tabid/423/articleID/319857/Default.aspx#ixzz2jWRETvaG). His statement; “New Zealand already has a responsive, innovative and responsible private insurance industry and to suggest that further state ownership is the answer, begs me to ask what on earth is the question?” is of course, simply not true and would indicate that Mr Grafton has not been watching the news over the past three years nor listening to the people of Canterbury. The insurance industry (and the Government) have had ample opportunity to pick up their game and begin to deal with the people transparently and honestly- if you leave it to the market – the market will respond – Labour has responded and the industry will now reap its’ just desserts. Labour is to be applauded for a huge step forward and the foresight to realize that the Nation cannot rely on foreign owned corporate entities to keep our best interests in mind.
The major difference between my KiwiSure proposal and KiwiAssure as proposed by Labour appears to be the use of the existing KiwiBank facility, rather than a completely restructured Earthquake Commission. In this respect, I think Labour’s approach is both clever and efficient but it is not yet clear whether the proposal is a total disaster management proposal with continuous reinvestment into a national fund or whether it would be an amalgamated profit-centre with annual returns to the Government via KiwiBank? Kiwibank Limited is a wholly owned subsidiary of the state-owned enterprise New Zealand Post Limited. It is my personal conviction that any rational scheme must be financially compounded year on year under legislation which prevents any Government-of-the-day to co-opt the funds for any other purpose other than the management of disaster. In this respect the rapid growth of the fund is assured together with a reducing requirement for large premiums for government reinsurance. One of the problems in the past has been that respective governments have dipped into the Natural Disaster Fund whenever they have required additional funds – so the Natural Disaster Fund (read Earthquake Commission) was severely depleted at the time of the Canterbury earthquakes. Measures must be put in place to ensure that Governments are not able to use these funds for any other purpose than natural disaster. (See “Can New Zealand Afford another big quake?” http://www.radionz.co.nz/national/programmes/insight/20130616 ). If the scheme embraces the whole population and given that in the interim no major disaster occurs, then, within a relatively short timeframe, the scheme would be essentially self supporting and able to effectively manage even a very major event.
The likely election result of a, Labour, Greens and New Zealand First Coalition has an absolutely superb opportunity for Kiwis to truly run their own affairs in respect of both pre-disaster planning and post-disaster management without the interference of foreign corporates and private right-wing agendas. New Zealand First already appears to be on-side (See “New Zealand should Consider establishing a State insurer – Peters” http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11143113 –.) And I agree with his sentiments when he stated that Prime Minister John Key’s Government had not been “showing the leadership it should have shown, or has given the necessary directives to the insurance industry” since the earthquakes. It would now be encouraging to hear the Green Party comment favourably on Labour’s proposals.
From the point of view of disaster management, it seems unnecessary that KiwiAssure would initially waste both the effort and the finance on provision of motor and home contents insurance, although including these in the mix would provide for sufficient country-wide staff with the required skill sets ready to cope with a major catastrophic event. For the time being I would suggest leaving motor and content insurance to the market. The issue of catastrophe insurance is urgent and consequently it would be better to start by perfecting the management of our major concern, which is both commercial and residential real-estate insurance together with the coverage of business interruption insurance. When those aspects are fully operational and under control, an extension of the scheme might then be implemented.
On a personal note, now enduring my fourth year of tribulation at the hands of a foreign private insurer (IAG), it is my conviction that the only satisfactory solution will emerge when we Kiwis do it for ourselves and KiwiAssure is to be commended for taking the first steps toward this outcome. In my next blog I intend to address some outstanding issues of the Labour proposal and ask some of the questions that require further debate.
It seems to me that the main issue is the interpretation of ‘reinstatement‘ and reconciling the:
1. Earthquake Commission Act 1993;
2. Individual Insurance policies which in the main state that a property should be brought back to a condition ‘as new’ and;
3. The DBH ‘Guidelines’.
There are several sections in the EQC Act 1993 that are of relevance including sections 2, 18, 22, 27, & 30 for those of your who wish to look at the legislation for yourselves. But here I will concentrate on Schedule 3 of the EQC ACT 1993, which states:
9 Replacement of property • (1) The Commission may at its option replace or reinstate any property that suffers natural disaster damage, or any part thereof, instead of paying the amount of the damage, but— • (a) the Commission shall not be bound to replace or reinstate exactly or completely, but only as circumstances permit and in a reasonably sufficient manner; and • (b) to the extent that the damage is to residential land and consists of or results from ground-forming materials or other debris on the land (including as a consequence of a natural landslip), the Commission shall not be bound to replace or reinstate other than by removal of the debris. (2) If the Commission elects to replace or reinstate any property or wishes to consider whether it shall so elect, the insured person shall furnish the Commission with such plans, specifications, measurements, quantities, and other particulars as the Commission may require. No acts done or caused to be done by the Commission with a view to replacement or reinstatement shall be deemed to be an election by the Commission to replace or reinstate.
In my opinion s27 also makes it clear that EQC uses Schedule 3 as the justification for the use of the DBH Guidelines in the repair to properties. Upon closer reading of the EQC Act, where the property is found to have damage which is below the EQC caps, the Commission is entitled to enforce the Schedule 3 qualifications – which, in this instance, clearly include the DBH Guidelines.
If the damage is over cap then under s30 (3) of the Act – the wording and standards associated with the homeowner’s insurance policy apply – in most cases, this will be to the ‘when it was new standard’.
Consequently it would appear that the EQC Act is designed to offer a lesser level of damage repair to under cap properties and hence settlement. This also explains why there is so much pressure put on the industries working for EQC (engineers, quantity surveyors et.c.) to ensure the damage assessments fall under the cap because then the level of repair is to a lesser standard and the insurance liability is also less. It is also an explanation as to why there has been so much manipulation of the apportionment process – EQC and the private insurers have been in many cases, negotiating amongst themselves to achieve a situation whereby the properties always fall under the ‘caps’ – which means that the DBH Minimum Building standards can be justifiably used. This probably requires a legal challenge – and is perhaps, a perfect legal class-action scenario.
The question then becomes ‘is it reasonable that a Government has carefully manipulated its liability in terms of the kind of repair response post disaster that it will offer? Particularly that it has done this ‘after the event’! And it will continue to produce DBH Minimum Standard Guidelines. It smacks of doubtful and downright dishonest behaviour as the Government attempts to save itself money. Suddenly we find a situation in which insurers and EQC start negotiating the apportionment of damage per event. I have heard of many people who submitted more than one claim but have been told by these bodies that they have only one claim now, despite having lodged three. I myself have evidence in my own file of EQC and the private insurers negotiating amongst themselves as to which percentage of damage they would rather have apportioned to which event. Why are they doing this you ask? Well quite simply, where they can keep the damage under the EQC cap their liability for the repairs is considerably less – it saves them big bucks. Yet again it is the homeowner who is cheated.
Insurance Policy Wording
Where the insurance policy states that the building must be reinstated to ‘a condition as similar as possible to when it was new’ (or similar wording), a reasonable Court should interpret this in a clear manner, excluding the provisions made in Schedule 3 of the EQC Act 1993 – which also then excludes the DBH Minimum Standard Guidelines.
The statement in the document on ‘status’ of the MBIE document ‘Guidance: Repairing and rebuilding houses affected by the Canterbury earthquakes’ makes it clear that ‘ While the Ministry has taken care in preparing this document, it is only a guide and, if used, does not relieve any person of the obligation to consider any matter to which that information relates, according to the circumstances of the particular case’. We can safely assume, in my opinion, that a pre-existing insurance contract would be a ‘matter to which that information relates’ and would override the minimum standard guidelines.
Case law will ultimately determine that standard. But based on what we have seen in cases such as Turvey the Court has indicated that it has to be to the ‘when it was new’ standard.
(See https://thechristchurchfiasco.wordpress.com/2013/04/07/turvey-trustee-v-southern-response-earthquake-services-limited/) and the O’Loughlin cases (See https://thechristchurchfiasco.wordpress.com/2013/04/21/oloughlins-v-tower-insurance-limited-summary-of-findings-relating-to-the-red-zone/),
DBH Guidelines
The DBH Guidelines are therefore not consistent with the provisions of:
a) most insurance policies which require the building to be reinstated to ‘as when new’; or
b) Standard building ‘best practise’ within the licensed building practitioner obligations; nor
d) the Building Act 2004.
But they are consistent with Schedule 3 of the Earthquake Commission Act 1993 (See http://www.legislation.govt.nz/act/public/1993/0084/latest/DLM305968.html primary definitions). However they arguably do not override the Insurance policy wording once the damage is over the EQC threshold. Hence the guidelines had to state that the solutions are not mandatory as they do not override the provisions of our insurance policy.
When the size of this insurance ‘fraud’ is finally realised by the affected population, I suspect that the ramifications will be both political and legal.
There are also some interesting questions around the complicity of the Professional societies/institutions involved in the generation of the guidelines.
Simon Munro of law firm Anthony Harper has stated that “I do not agree with Duncan’s views regarding EQC’s obligations under the Earthquake Commission Act 1993.
The “as new” standard is set out in the Act (in paragraph (a)(ii) of the definition of “replacement value” in section 2 of the Act, which must be read in conjunction with section 18 of the Act). The part of the Act that Duncan refers to (taken from Clause 9 of Schedule 3 to the Act) appears to be relied on by EQC to the exclusion of sections 2 and 18, and as a general description of their obligations (which should only be applied if circumstances do not permit exact or complete reinstatement).
It is a fundamental principle of statutory interpretation that an Act must be read as a whole, and when the Act is read as a whole (rather than the words in Clause 9 of Schedule 3 being taken in isolation) our view is that:
1. The standard of repair provided for in the Act requires EQC to replace or reinstate the building to a condition substantially the same as when it was new, modified as necessary to comply with any applicable laws. The costs in doing so must be reasonably incurred.
2. The Act also contemplates circumstances that do not permit exact or complete reinstatement. This might arise, for example, where building materials or methods have evolved, or where products are no longer available, or no longer comply with current building standards. In such circumstances the Act states that EQC is only bound to replace or reinstate as circumstances permit and in a reasonably sufficient manner.
This is untested in the courts, and is therefore one of the issues that we are looking to resolve in bringing a group action against EQC.”
This is another view point. Not one I agree with. I think our Government knew what it was doing when it drafted the legislation and I know that Mr Gerry Brownlee sees the DBH Guidelines as sitting quite comfortably with the legislation. But there are many ways to skin a cat – either legal challenge is worth a go in my opinion.
~Future Proofing for a sustainable, participatory, democratic society.
If you are suffering or have suffered from dealing with your Insurance Company/ EQC as a result of the earthquakes, you have the opportunity of making a formal complaint to the Ministry of Business Innovation and Employment (MBIE) of the New Zealand Government about human rights violations by your insurance company / EQC.
Filling out this form will take only 5-10 minutes.
This complaint will also be forwarded by WeCan to the UN Office High Commissioner for Human Rights (OHCHR) in Geneva. The NZ Government also has an obligation to report annually to the OECD about Human Rights complaints it has received, so your complaint will help raise awareness at international levels (both at the OECD and UN) that things are not ok in Canterbury, that we need them to come out and see what’s happening, and that things need to change.
If you have more than one insurance company, or wish to complain about EQC as well as your private insurance company, you need to fill in a separate complaint form.
Why is it about Insurance companies & EQC? Because Insurance companies & EQC are defined by the OECD as multi nationals (as they get their re-insurance from other countries) this makes them obligated to follow OECD guidelines in respect of Human Rights.
What Human Rights violations can we complain about?
Insurance company & EQC decisions (or non-decisions) that impact your right to adequate housing (ICESCR art 11);
Living in an UNSAFE/ habitable house : e.g. leaky roof, leaky toilets, damp house, mould, no outside cladding, exposure to wind and rain, structural hazards etc.
Living in a house WITHOUT SERVICES (e.g. having no drinking water, heating, lighting, sanitation, washing facilities rubbish collection, food storage, site drainage)
NO SECURITY of ACCOMMODATION (no emergency accommodation, or it has run out and you have nowhere to stay, or you have to keep moving about etc.).
Insurance company & EQC decisions (or non-decisions) that impact your right to health (ICESCR art 12);
Living in an UNHEALTHY house: e.g. a big mice and rat problem, cramped living (because you are living with others or only one or two rooms are liveable); feel confined to home (can’t or don’t go out because of poor footpaths and roads or feel area is now unsafe); Cold house you can’t keep warm – lots of drafts because of holes or unevenness in walls, floors, ceilings, windows or doors.
The Insurance Council of New Zealand (ICNZ) have stated that Canterbury homeowners should contact their insurers if they are affected by creeping mould.
As winter sets in, “insurers are prioritizing residents for rebuilds and repair based on their vulnerability and are trying to provide flexible solutions to address immediate, serious needs”. “I’m aware some people are worried about seeking help because they think if they get support like this they will drop down the rebuild queue,” Mr Grafton, CEO of ICNZ said. “That is not true. The key vulnerability factors that prioritise rebuilds and repairs remain in place.” Tim Grafton said this during an interview with John Campbell.
Like many others our home was severely damaged during the September 4th earthquake. The house was racked and the roofing structure affected. Given the extensive settlement delays of almost three years and continual slow leakages into the property over those three years, we of course, have asked our insurer to take action in light of the mould issue. We have heard absolutely nothing. So last Thursday we rang our insurer, State Insurance, to place a content claim for additional damage because after three years of waiting for them to settle with us, mould has really set in. Serious amounts of mould have begun to be visible throughout the property and the odour that accompanies the mould is undeniable and it has already affected soft furnishings and art works. If we were living in the house, it would undoubtedly affect our health too. The insurer is fully aware of this fact as it was the insurer who sent round mould experts to assess the problem. The report made it quite clear- yes toxic mould present, humidity levels high and storage of items and sanitation of premises immediately required. All of this is a result of a badly racked home which has meant that the roof was compromised and water is entering the premises in many places throughout the entire span of the building.
Mould has a significant risk of reoccurring in multiple areas within the structure of a property and can pose the following health risks:
Allergic reactions
Irritation of tissues
Infections
Toxic effects due to mycotoxins
Some toxic moulds such as Aspergillus, Cladosporium, Penicillium, Stachybotris and Trichodermaproduce mycotoxins capable of causing severe health problems and even respiratory cancers.
So we rang to submit a content claim – and you guessed it – we were told it was ‘hidden gradual damage’ and therefore outside the remit of our policy. Well surprise, surprise – why is it I’m not surprised!
Even a half-wit can deduce that damage such as this is proximate enough to the main event or consequential to the main event to constitute falling under the policy. The attempts at denying content claims because of delays for which the insurers are responsible, is just another fine example of the lack of good faith within the industry which they will have difficulty in defending.
Meanwhile the industry is telling Canterbury homeowners that they should contact their insurers if they are affected by creeping mould caused by the earthquakes. For those with liquefied soils, As winter well and truly sets in, as the Man said, “insurers are prioritising residents for rebuilds and repair based on their vulnerability and are trying to provide flexible solutions to address immediate, serious needs”.
So very reassuring – Good faith abounds!
~Future Proofing for a sustainable, participatory, democratic society.
I sat and watched Tim Grafton on John Campbell Live two nights ago. I wasn’t sure whether to laugh or cry. (See http://www.tv3.co.nz/tabid/3692/MCat/2908/Default.aspx#disqus_thread). I was left once again feeling that this man Grafton is either completely naive or the perfect insurance poster boy.
Mr. Grafton comes from a market research company and previously was a political reporter, political adviser and chief adviser to former Prime Minister Shipley – so one cannot but help wondering whether his appointment was not a ‘politically arranged’ one. Do you not find it more than a little interesting that the Insurance Industry has chosen to put in this critical role, someone without an insurance industry background, someone who essentially is unfamiliar with the workings of the industry – someone who is no doubt carefully guided by others within the industry as to what and how to convey the desired messages – a political front man if you will. I don’t envy Mr. Grafton his ‘grubby’ job for one moment. His naivety comes through loud and clear with statements such as “every insurer wants it to be quicker”. There are thousands of people in this city who have been dealing with purposeful delays on the part of insurers – we know what’s going on. Whatever he says, you only need to do the maths to know that the delay is deliberate and extends profits.
It was certainly clear during his recent address during the Seismics in the City Conference on the 21 March 2013, that he had little understanding of the problems facing Cantabrians and the enormity of the issues and numbers of people involved and I noted the other night, that not much has changed. We are not talking about one or two isolated cases, but tens of thousands of people – around two hundred thousand people still experience the daily predicament of unresolved earthquake issues.
During his address in the Seismics in the City conference he went on to say that there was ‘misunderstanding in the community’. I am personally offended by this statement, which attempts to trivialise and deny Cantabrians’ experiences with the insurance industry these past two and a half years. Some of us, after all, have insurance backgrounds ourselves. To dismiss our experiences as ‘misunderstandings’ is both arrogant and uninformed. There is plenty of evidence of ‘venal, money grabbing’ going on in this region – suggesting that it is all a ‘fiction’ is to deny the obvious. It is in the interests of insurers to delay settlement – even with the added building costs etc.
Grafton intimates that 3% interest is the rate they get. Obvious rubbish – you can get 4% even with a simple bank deposit – but you can be sure that they will be getting more than that on ‘our’ invested dollars. Their actual interest on Reinsurance payments of billions (known as the ‘float’) amounts to a very significant sum – far more than the cost of a few repairs here and there and multiple inspections, time wasters etc. Why do you think that they delay the ‘big ticket’ repairs until last of all??
John Campbell suggested last night that the insurance industry was either “Cynical, too slow or incompetent”. Well, I have to tell you – it’s all three!
If it does not benefit any insurer to delay claims because of double digit inflation or having to employ people for longer or because of the ever growing list of unhappy customers (which are the reasons he cited on Campbell’s program) then the only explanation can be pure incompetence on behalf of the industry.
I also listened to Mr. Grafton say that there was a $20,000 provision for accommodation allowance in people’s policies- he said this with some pride. Did he forget that the people had also paid for that?
Listen Mr. Grafton, we’re close to three years on from the event and the $20,000 ran out many months ago for most – people are now eating into their savings and steadily going broke. What have you been doing these last months since your appointment?- clearly not spending enough time in Christchurch talking with the affected population. If you really believe what you say, your talk is the talk of a wide eyed idealistic teenager who has absolutely no idea of the real events taking place here nor of the industry for whom you are now the ‘frontman’. I have to say that it is not an industry that I would be proud to represent.
What was it you said? – “we have stuck with them”. So what else could the insurers have done? Walk away? The truth of the matter is that this is exactly the problem. ‘Sticking with the policyholders’ is exactly what has allowed the industry you represent to delay two and a half years, when insurers could have simply assessed and paid out at an early stage and left the people to pick up their lives, organise their repairs and rebuilds themselves and move on.
As I see it there can be only two explanations why that was not done:
Did the Government say ‘don’t pay them out – they will simply take the money and leave the City’?
Or is ‘Sticking with the repair’ not only a good delaying tactic, but also a controlling way of ensuring which other corporates, eg. Fletcher, Arrow, Hawkins etc. get to keep their nose in the trough and certain shareholders do very nicely?
One thing is certain – there is Government complicity either way………… and you are just not helping, Mr Grafton.
Anyone for shares in Fletchers, boys?
Resources: Meme by Bron Williams.
~Future Proofing for a sustainable, participatory, democratic society.
I was reading the “Insurance Regulatory Landscape in New Zealand” published by the Reserve Bank of New Zealand (19 March, 2013). (See http://www.rbnz.govt.nz/speeches/5188991.html). There were a couple of statements which made me sit bolt upright. The first – “….Our basic premise is that insurers, reinsurers and property owners should rightly bear the risks of a catastrophe, rather than government whose costs are ultimately borne by all taxpayers.”
And the second statement – “So what does the regime not do? It does not provide for a zero failure regime. It remains possible, if unlikely, that a licensed insurer will fail and policyholders’ claims will not be met in full. If that happens, there should be no expectation of recourse to either the taxpayer or the Reserve Bank.” Well Christchurch has proved categorically that in the event of a major disaster the failure of an insurer is quite possible – AMI and Western Pacific are cases in point.
The New Zealand government has in recent times implemented a financial regulatory regime which has also changed the rules of engagement for insurers in New Zealand. The Insurance (Prudential Supervision) Act 2010 (IPS Act) establishes a legislative framework for the prudential regulation and supervision of persons carrying on insurance business in New Zealand. The Act imposes prudential requirements on insurers and sets up the Reserve Bank of New Zealand as a prudential supervisor. Prior to the implementation of the Insurance Prudential (Supervision) Act, the insurance industry was essentially self-regulating. Can you believe that! Insurers were only required to be members of the Insurance Council (their club) and have capital worth 20 per cent of their annual premiums.
Yet thoughts about the new IPS Act suggest that it will still only:
“adopt a comparatively light touch regulatory approach that will enable a largely self-administering approach for compliant insurers. The Bill contains a strong emphasis on director and senior officer obligations and accountability, and also has a degree of reliance on external input sources such as ratings agencies and actuaries. The model will be one of a risk-based supervisory approach based largely on a principles-based regulatory model, albeit that the approach to statutory fund rules and solvency standards necessarily carry a clear rule-based flavour” (Navigating Uncharted Waters? Prudential Regulation for the New Zealand Insurance Sector, A presentation to the New Zealand Insurance Law Association Conference 2010 Christchurch Town Hall, 5 August 2010, Richard Dean, Manager, Insurance Policy, Reserve Bank of New Zealand).
So the message is – if your insurer should fail in the future you could quite easily find yourself ‘up the creek without a paddle’ i.e. totally unprotected. And interestingly the greater the chance personal protection is needed the more likely you are to find yourself in this position. Nor will the Banks or the Government bail you out.
Understanding how things are, goes toward convincing me even more that removing private corporate property insurance in favour of a public insurer, is the only way to go. Spending thousands of dollars year after year on premiums that provide no certainty and only heartbreak in the case of a claim, is not the kind of insurance system I want. And yet we are told that our insurance regime is designed to underpin confidence in insurers. New Zealand has one of the least regulated insurance frameworks in the world. The spin we are led to believe with respect to regulation goes something like this: “The regulatory environment that we enjoy in New Zealand is successful because the insurance industry has been proactive in developing its own self-regulatory framework“. (See http://www.icnz.org.nz/about/). Yes, the regime is ultimately about ‘insurer self-discipline’, loosely translated as ‘insurer self-interest’… We have been experiencing a lot of that in Canterbury post earthquakes to the detriment of policyholders, haven’t we?
The regulatory environment places reliance on the insurer’s board, senior management and the appointed actuary. “The board and chief executive have to satisfy themselves, and attest to us as part of the licensing process, that the business is being run prudently and that they operate a satisfactory risk management programme….All solvency margin calculations must be either prepared or reviewed by the insurer’s appointed actuary“. No conflict of interest here of course.
To date there have been several insurers fail in New Zealand. The life insurer failure (ACL Insurance) who was placed in judicial management in 1989 with life insurance liabilities of NZD 12.5 million at the time. Then recently there was AMI and Western Pacific Insurance immediately following the earthquakes.
Reserve Bank of New Zealand, Financial Stability Report, November 2011 produced a graph that shows that the private insurance industry picked up only 5% of the costs of damage as a result of the 2010-2012 earthquakes. “The reinsurers …generally have strong financial ratings and the ability to absorb the elevated level of global reinsurance claims from a series of recent natural disasters around the world…” (See http://www.parliament.nz/NR/rdonlyres/44931AD1-8783-405C-9C25-89D1A17C6976/207929/InsuranceandreinsuranceafterCanterburyearthquakes1.pdf.
The reality is that the Christchurch events have not had a massive impact on reinsurance business. In fact according to Aon Benfield in the Reinsurance Market Outlook June and July 2012 Update ,”Reinsurance capacity, measured by capital, returned to its previous record high of UAD470 billion by the end of Q1 2012 -back to 2010 peak level. Lower than average global catastrophe losses through Q1 and increased premiums at January 1 renewals assisted reinsurers in increasing capital. Low catastrophe loss activity in Q2 is expected to result in further increases of capital for half year 2012 results and capacity for global regions renewing at June and July 2012 remained stable.”
The report goes on to say that the New Zealand insurance market has responded very strongly with underwriting changes post-event. “Primary premiums have increased significantly, with fire premium rates increasing approximately 20 per cent for small commercial risks and 40 per cent for large commercial risks. Natural peril premiums have increased approximately 100 percent for small commercial risks and in the order of 150 percent to 200 percent for some large commercial risks. These rates do vary based on geography and perceived natural peril risk. For homeowners’ policies, private insurer premiums have risen between 25 percent to 50 percent from February and the EQC premium rate has increased threefold [to 15 cents per $100.00 insured]. Combined with these price increases, insurers have implemented significant changes in cover, including increased deductibles and sub-limiting some coverages.” (See http://thoughtleadership.aonbenfield.com/Documents/20120706_june_july_renewals_update.pdf). I predict that New Zealand will see a continual increase of premiums from here on in.
So is Government ensuring that New Zealand policyholders have the best protection available? With the introduction of the Insurance (Prudential Supervision) Act, the Reserve Bank said that its analysis showed that about four insurers went into runoff or liquidation resulting from the new regime. (See http://www.stuff.co.nz/business/industries/6576507/Most-insurers-join-new-regime).
In New Zealand, the Reserve Bank is the regulator of insurance companies. The task of prudential supervisor is not to be taken lightly. European experience shows that bank failures in different EU-countries have increasingly led to liability claims being directed against supervisory authorities for alleged negligence or improper conduct in the course of exercising prudential supervision over banks. There is no reason why this could not also extend to the insurance industry. It will be the public, as well as a broad array of other domestic and international observers who will ultimately be the real judges of the new regime.
Overseas based insurers, such as the Australian insurers IAG, Vero and Tower, avoid a double up of compliance obligations in New Zealand as the law and regulatory requirements and nature and extent of prudential supervision in Australia are considered ‘at least as satisfactory’ as those in New Zealand. Otherwise the insurer must abide by New Zealand’s standards. Regulation 5 of the Insurance (Prudential Supervision) Regulations 2010 confirms that “Australia and the United Kingdom are such satisfactory jurisdictions for the purposes of the Act”. So one makes the assumption that the large insurers are not so closely monitored on shore but rather more from across the ditch, which, of course, is also where their profits go.
So, we have no real assurance that if (when) our insurer fails, that either the Government or the Australian/British/whatever parent company will bail us out. We’ll just smack the hands of the Prudential Supervisors and get them to stand in the corner, and perhaps fine them a couple of hundred thousand each, while we contemplate another fifty billion dollar bill to rebuild another city, which no-one is covering. The ‘Banker mentality’ could fix it however. Can’t you hear it?
I know – let’s take 25% of everyone’s savings to get things started – at least with the CBD. We can legislate it. Worked in Cyprus. No need to worry about the suburbs. No one cared about the suburbs in Christchurch, did they.? …….etc.
But seriously – there is a solution which would not cost anyone a penny more than they pay in premiums today, which would cover the whole of the property spectrum and assist New Zealand to build a huge disaster fund and eliminate the repatriation of corporate profits overseas. We’ll look at that in a following post……….
Is the insurance Industry aware of its duties to the people of Canterbury under The Guiding Principles on Business and Human Rights? These principles, known as the Ruggie Principles are endorsed by the UN Human Rights Council and later incorporated into OECD Guidelines for Multinational Enterprises (2011), ISO 26000, the new Sustainability Policy of the International Finance Corporation, and the European Commissions’ new Corporate Social Responsibility Strategy. The principles are designed to ensure that insurers do not violate human rights in the course of business transactions and the principles provide redress when infringements occur.
Under the Ruggie Principles the State has a “duty to protect against abuse by third parties i.e. insurers through appropriate policies, regulation, and adjudication. The second is the corporate responsibility to respect human rights, which means that business enterprises should act with due diligence to avoid infringing on the rights of others and to address adverse impacts with which they are involved. The third is the need for greater access by victims to effective remedy, both judicial and non-judicial“. A typical example of this would be the establishment of a mediation programme in Canterbury. “Each pillar is an essential component in an inter-related and dynamic system of preventative and remedial measures: the State duty to protect because it lies at the very core of the international human rights regime; the corporate responsibility to respect because it is the basic expectation society has of business in relation to human rights; and access to remedy because even the most concerted efforts cannot prevent all abuse”.
The Ruggie principles establish standards of behaviour with which States are expected to conform. And though the State may not be directly responsible for human rights abuses of private actors, they may be held to have breached their human rights obligations if they fail to take appropriate steps to prevent, investigate or punish such abuse.
According to the Human Rights Commissioner David Rutherford in a recent speech (The IASC Operational Guidelines and other tools and learning that can assist Ombudsmen to respond constructively to a natural disaster) delivered to the 10th World Conference of the International Ombudsmen’s Institute in Wellington, 12-14 November 2012, if insurance companies “engage in ‘blue-washing’ (put simply, committing to human rights standards for publicity value but not backing that up in business operations) risk punishment by both capital markets and consumer markets”. He goes on to say that “human rights compliance is seen as a non-negotiable pre-condition for investment in reinsurance or insurance markets by many government, or government-related, funds and by many privately held funds. Many of these funds will withdraw capital from downstream companies that breach human rights. Social media also makes it possible for customers to expose and highlight human rights hypocrisy“. Presumably so should mainstream media.
David Rutherford goes on to say that “The New Zealand Human Rights Commission is watching the activities of insurance companies involved in the Christchurch recovery. If it emerges that claims management practices are exacerbating psycho-social harm beyond the normal levels experienced in earthquakes, then there is potential for human rights abuse. International human rights law requires that everyone has the right to the highest attainable level of health and to adequate housing as a component of the right to an adequate standard of living. ”
The United Nations Environment Programme (UNEP), Finance Initiative Principles for Responsible Investment (PRI) was signed up in Rio de Janeiro, 19 June 2012. Almost 30 leading companies from the insurance industry, worth over USD 5 trillion in total assets, representing over 10 per cent of world premium volume, together with insurance associations from different regions around the world, joined a UN-backed process to promote a set of Principles for Sustainable Insurance that aim to green the sector and provide insurance tools for risk management in support of environmental, social and economic sustainability. This group was initially co-chaired by AXA and Insurance Australia Group (IAG) and is currently chaired by Munich Re. Most NZ insurance companies have not signed up to the Un Global Compact and the PSI, though many of the reinsurers operating in New Zealand are signatories. The insurers IAG and Sovereign have signed. Here are some of their promises relating to their participation:
Michael Wilkins, CEO and Managing Director of Insurance Australia Group, said: “IAG is delighted to be a founding signatory of the Principles for Sustainable Insurance. The insurance industry plays an important role in the economy and it is critical that we take account of the changing and complex risks that we and our communities face. Through education, sharing insights, working with government, regulators and through community partnerships, we will continue to focus on the proactive management of risk. At IAG risk matters; it doesn’t just matter to our business, it matters to our economy, to our communities and it matters to our way of life. That’s why it is at the heart of why we exist and is core to our purpose.”
Charles Anderson, CEO of Sovereign, said: “Sovereign routinely protects people’s lives with policies that will remain in-force for 50+ years and a long term view is critical if we are to deliver on the promise we make to our policyholders. By adopting the Principles of Sustainable Insurance, we aim to embed sustainability throughout our business – from core operations to engagement with civil society. We believe that the Principles for Sustainable Insurance establishes a framework for establishing a global insurance industry that will be stronger, healthier, better adapted to the needs of society and the environment, and which will make a more positive difference to people’s lives.”
Robert Whelan, Executive Director and CEO of the Insurance Council of Australia, said: “After a year in which the world has experienced an unprecedented number of natural disasters and where ever increasing numbers of communities are exposed to these unpredictable and devastating events the importance of a sustainable insurance industry has never been more relevant. So it is for these reasons that the Insurance Council of Australia is in full support of the Principles for Sustainable Insurance as the foundation towards a more engaged and socially relevant insurance industry.” (See http://www.unep.org/newscentre/Default.aspx?DocumentID=2688&ArticleID=9183)
I don’t know whether to laugh or cry when I compare these statements with the actual situation in Canterbury. We really need to be aware of the difference between ‘fact’ and ‘spin’. Cantabrians need to ensure that the statements above are not simply hollow promises but that we hold them to account. Not only is the rest of New Zealand watching but the world is also watching.
Resources
John Ruggie, Report of the Special Representative of the Secretary-General on the issue of human rights and transactional corporations and other business enterprises.
John Ruggie: The Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework”.
The Christchurch Fiasco: the Insurance Aftershock and its Implications for New Zealand and Beyondwas presented to Dunmore Publishing a few months ago for printing prior to the year’s end.
The book was launched last Friday evening at the New Brighton Public Library- a fitting venue as New Brighton really represents the worst of earthquake affected areas and a community struggling to get back on its feet after the devastating earthquakes of 2010-2012.
Friday was an appalling day weather-wise. In fact it rained cats and dogs for the best part of an entire day. We picked the publisher of Dunmore Publishing (Sharmian Firth) up in town, she had travelled down from Auckland to celebrate the occasion. Unfortunately the weather was so bad it was hardly worth driving her round to show her what Christchurch looks like these days. Though we did manage to drive down town briefly which was enough to give her an idea of the devastation that has taken place. You realize when you show people round that it is not until they see the place for themselves that the reality and enormity of what has happened here can be fully registered.
Luckily by five o’clock the rain had settled somewhat. There was a good crowd present – friends and invited guests. The publisher opened the event followed by the Hon. Lianne Dalziel and Rev Mike Coleman. Clips of their speeches can be seen via these links:
My husband and a representative from Insurance Watch, David Stringer, also spoke.
It is now Thursday, the launch is over and a new kind of normal begins- phone calls, interviews, meetings with locals with more incredible insurance stories to hear and share. It is time these stories were shared and discussed and the truth about the industry as we’re experiencing it – told.
My focus is not just about events happening in Christchurch on a day to day basis but the realization that Christchurch will form the model for the next major catastrophe in New Zealand- it is for this reason too, that it is critical that we discuss the events that have transpired here, talk about how we can do it better and create a model that will adequately protect the property interests of the citizens of New Zealand going forward- lest we have a repeat of the Christchurch Fiasco.
the insurance fiasco 