As a former insolvency insurance broker, taking on the insurance manager role at the Insurance Council of New Zealand (ICNZ) 20 years ago was a leap into the unknown for John Lucas.
But given he’s clocked up an impressive two decades now, it was clearly the right move, and now he has the added bonus of an ample vantage point to consider the changes he’s noticed while being in the role.
One of the biggest, he said, is the role of the Council itself.
“One of our main roles was to maintain self-regulation in the early days. We don’t do that now, that’s driven by statute, but we are driving for better transparency for consumers and we issued the new Fair Insurance Code in January this year.”
Lucas said he was ‘a little bit surprised’ at the lack of regulations governing the industry when he first joined.
“We didn’t have any requirements for insurer licensing, we didn’t have any externally imposed requirements for insurer solvency either and the insurance industry functioned well and it had low compliance costs.”
One of the biggest business interruption claims Lucas encountered before Canterbury was the Mercury Energy power crisis that hit Auckland’s CBD in 1998.
With shops and businesses out of action for five weeks, the claims cost (updated for inflation) is put at $14.9 million.
“It was a great disruption and there were a lot of big claims and a lot of technical claims as well. So that tested a lot of insurance company policy wordings,” Lucas said.
The prudential regulation regime was introduced in 2010, and then the earthquakes hit.
“The Canterbury earthquakes showed up a couple of problems,” Lucas said, adding it was ‘probably good luck’ that things had gone so well previously with no situations arising where insurers couldn’t pay claims because they’d run out of money.
As awful as the earthquakes were, Lucas said he feels lucky to have been involved in such a historical event and reveals his two big learnings.
“It’s about working with people.
“From my perspective you can see what should work better in the future, and we try to get that change because we can see it would work well for the industry and for our customers, but to get that out there with the Government is quite political and quite difficult. But hopefully we will get to that point.
“The other thing you take on board is the plight of individuals with claims and you see how hard it is for those people who are affected whose homes are destroyed. You see that more at a big event. So the human factor comes in quite a lot.”
Lucas said the disaster recovery management system the Council used when he first joined would ‘never have worked’ during the earthquakes.
“We used to pool all insurers resources, with insurance staff involved in collecting claims for all insurers for a call centre that the Council used to run in 1996.
“Within a couple of years we could all see that wasn’t going to work. Insurers were really there to look after their own customers so that was eventually phased out.”
The Council’s role following a disaster is now to assist the industry, make representations to local or central government if there are problems, and ensure there is a forum for insurers or claims people to talk to one another and share issues.
While the Council’s regulatory role has decreased, one aspect has gone entirely.
“When I first joined, the Council had been the controlling body for fire sprinklers for nearly 100 years. We used to have a dedicated fire sprinkler department and a sprinkler engineer in our office.
“We maintained the standards and were the approvals organisation as well.
“It was then decided that it wasn’t ICNZ core business and it is now run by the fire protection industry and that’s been successful.”
Fire service funding, on the other hand, and the bid to remove it from insurance policies, is a matter still being discussed two decades later – another highly political and difficult-to-resolve issue.
“We’ve been wanting to remove that for decades, and we’re still fighting for that, and the current fire service reforms don’t appear to support that and it’s unlikely to happen in the near future whereas Australia has successfully been able to remove it.”
Lucas said he’s seen the Council’s outlook widen from being fairly NZ-centric to a more global one, especially on matters such as climate change.
He cites the big scare of the late 90s – known as the Y2K bug – as being a surprisingly useful precursor in this scenario.
“We were concerned about computer bugs in the switchover to the year 2000 and everyone was running around making sure their systems were right and of course it never eventuated.
“But that was actually a learning in itself, we were being prepared.”
He said the preparation part of his role regarding climate change is talking to local councils about what they’re doing for their built environments and their constituents and property owners to reduce the effects of flooding and inundation by the sea caused by climate change.
“We’re saying to them there’s a limit to what insurance can do and here’s the gaps that you’re going to see shortly where there is no cover.”
The organisation has also beefed up its position as a source for education and information.
“We’re busy developing a lot more information for consumers on products and product lines; and we’re doing a lot more education work with our members, for example I’m putting together a marine claims workshop in August involving brokers and our members.”
This expanding role is reflected in the number of technical committees ICNZ now and is another demonstration of how the Council has moved from being fairly generalist.
“Today the detail is far greater so we’re more specialist in what we look at now.”
In the old days there was just marine, personal lines, finance, commercial and motor committees.
Now, there is also travel, liability, communications, regulatory and a number of sub-groups that form as the need arises. For example, one for cyber risks, a motor assessor technical working group who look at smash repairs, an engineering discussion group, and a number of committees set up for specific areas of the Canterbury recovery.
The growing impact of meth contamination, and the effect of crime or fraud were things that might prevent insurers from operating effectively in the market and warranted closer examination, Lucas said.
While the number of committees has grown, the number of Council members has shrunk – from 37 to 28 – as the industry has rationalised.
That’s not just a New Zealand trend, Lucas said, but a global one.
“Some of the old traditional UK names such as Commercial Union, General Accident and Sun Alliance are now owned by the big Australian companies, Suncorp and IAG
“Those insurers were all competing and had fairly small market shares, whereas now there’s a smaller number of insurers with very dominant market shares.”
While Lucas said he’s seen boards and insurance companies come and go, it is often the same issues that come up time and time again.
“History does repeat and our memories are short. We often have to look back on our notes to see what we did back then, so that we don’t have to reinvent everything again.”
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