Insurers reject comparison with US disaster
The insurance industry is built on lessons learned. Should insurers, policyholders and the Government learn lessons from present-day case studies overseas?
The State of New York has cracked the whip over insurers it believes are not working quickly enough to pay out customers affected by Superstorm Sandy, which hit the eastern United States in late October.
Meanwhile, more than two years after Christchurch started shaking, surveys show many claimants are still frustrated by a lack of communication and progress.
However, New Zealand insurers and the Government say comparing a hurricane in America with quakes in New Zealand is comparing "apples and pears".
Last week, New York Governor Andrew Cuomo announced the state's Department of Financial Services was investigating three insurers which had "much higher than average" customer complaints. He cited:
- Failure to send adjusters in a timely manner.
- Too long taken to process claims.
- Inaccessible staff.
Cuomo said it was essential that people were reimbursed for their broken and destroyed homes quickly so they can start rebuilding.
The state government had been working with insurers and Cuomo thanked those insurers that had responded.
"But we won't tolerate insurers not doing what homeowners paid them to do - respond quickly in a disaster."
A pattern of policyholder complaints against one of the companies, Narragansett Bay Insurance, had shown some homeowners waiting "weeks" for appointments and, in some cases, adjusters cancelling appointments with little or no notice after homeowners had taken time off work to meet them.
Financial Services Department superintendent Benjamin Lawsky said such practices and the volumes of complaints were unacceptable.
"We know that the storm produced extraordinary circumstances, but we still expect insurers to live up to the highest standards."
Insurance Council of New Zealand chief executive Tim Grafton says a comparison between the two disasters would be unjust.
"It's an apples and pears comparison. The situation post Hurricane Sandy is quite different to the situation in Canterbury."
The co-insurance model of EQC had created a complexity unique to New Zealand and the scale of damage and geotechnical assessment work in Canterbury had intensified that, he says.
Delays stemmed from the need to gather solid information before acting, and insurers were keen to take the time to leave their customers in a good position, rather than cutting and running with cash settlements to their detriment, he says.
He accepted that many Cantabrians would identify with not being able to contact insurance company representatives and loss adjusters.
"I think insurers would readily admit that communications could have been much better over the last couple of years."
But he believed the idea of punishing companies was counterproductive.
Many insurers were now holding public meetings and had greatly improved their dialogue and other communications with customers, he said.
"At the end of the day, it's really the lessons learnt from having some things happen on a scale like this, it means in the future we'll be much better at responding."
When asked whether those lessons should have been learnt from the Napier earthquake in 1931, he said, in terms of customer communication, it happened so long ago no-one from that that era would be left to remember the lessons learned.
He disagreed that argument defeated itself, given that large quakes were usually once in a lifetime events.
"I'm not sure the lessons of Napier, in terms of communication, are ones that could have been retained and the world of today's communications are vastly different than they were back in 1931."
WorldClaim chief operating officer Andrew Fusco, of the US, has been running his insurance advocacy business in Christchurch since March 2011. He agrees that "lessons learned" is the bedrock of the insurance industry. However, insurance and disasters were not country specific, he says, and lessons should be learned from events around the globe, not just in the backyard.
He says insurers have not been allowing for the inevitable inflation of construction costs - "demand surge" of between 20 per cent and 75 per cent - that stems from disaster recoveries.
Insurers he dealt with were in many cases using prices from the time of the September 2010 quake, he says. Those lessons had been learned in the US and Australia, among other countries.
The inflation in Christchurch had hardly begun, because the property recovery had not started either, Fusco says.
Only 400 homes have been rebuilt over 2 1/2 years out of thousands.
He says a comparison between New Zealand's quakes and Superstorm Sandy in the US was valid to highlight the gulf between consumer protection in the US and New Zealand.
The US was probably too highly regulated, he says, but it protects the policyholder from the massive resources of the insurance companies.
The NZ Insurance Council's website boasts of being one of the most unregulated insurance markets because of its success in regulating itself, Fusco says.
He believes the average cost of handling Canterbury earthquake claims will be more than double what it has been in any other disaster, worldwide.
And because of the self-regulation, Kiwis had no recourse but the High Court for insurance disputes over $200,000, which was the limit for Insurance & Savings Ombudsman disputes, he says.
In every other country he had worked in, insurance contracts had arbitration language, but not New Zealand, he says.
Fusco left out the Financial Services and Complaints service: a small number of insurers - and none of the main ones - are members of the organisation as opposed to the ombudsman.
It has a similar process and the same $200,000 ceiling which is set for the limit of a district court jurisdiction.
"I could fill every page of your newspaper with stories upon stories upon stories of things that are wrong and continue to be wrong and I keep being fobbed off as a crazy American coming over here trying to sell his wares."
He pointed to the recent High Court ruling that told Japanese insurer Mitsui Sumitomo to pay the owner of Clarendon Tower for the indemnity claim immediately, rather than when the rebuild begins.
"To have to go to court to get the insurer to pay the indemnity in the first instance before a rebuild? That should never have been a tried case." Earthquake Recovery Minister Gerry Brownlee says Hurricane Sandy hit the eastern United States in a day and was over, while Christchurch was beset by numerous unpredictable events till as late as December 2011.
"You're not comparing apples and pears, you're comparing apples with a whole fruit salad."
More than 11,000 tremors struck Christchurch, with scores causing damage, and it was a massive task to apportion damage and liability between EQC, private insurers and reinsurers, Brownlee says.
Since the September 2010 quake, people had been advised against moving quickly with insurance settlements to make sure they were not left out of pocket, he says.
"It would be very easy for insurers to whip in with cash settlements and have a whole lot of carnage."
That would be good for claim advocacy services, but bad for property owners, he says.
Brownlee questioned the "bona fides" of World Claim saying there were complaints about the business online.
The Press found two such complaints from a worldwide Google search.
Fusco, of WorldClaim, says with such a large business, running in 17 countries over 30 years, covering thousands of claims, one or two complaints should be expected due to occasionally unrealistic customer expectations and the realities of business.
He would judge his complaints against those made about government agencies and private insurers in the 2 1/2 years since the quakes, he says.
EQC reinsurance, research and education general manager Hugh Cowan says an unusually high number of Kiwis were insured and the commission had a role in all residential claims.
More than 720,000 claims were on EQC's books - similar to the caseload of the entire insurance industry affected by the 2006 Hurricane Katrina disaster, he says.
And the United States had massive nationwide networks that could be called upon.
"It can be said that a disaster in the US occurs in an ocean of resources; a disaster in New Zealand occurs in an ocean."
NY companies must check within 15 days
Under New York State insurance regulations, insurers must inspect damaged property within 15 business days of a filed claim. They must then make a decision on whether to accept or decline claims within 15 business days of completing the investigation. Settlement can take much longer.
A New York register of insurance company performance showed Narragansett had 147 complaints or 1.3 per cent of its exposed claims.
A second company under investigation, Tower Insurance Company (unrelated to the New Zealand operation), had 249 complaints, or 1.5 per cent.
The third company, Kingstone Insurance Company was not listed in the register.
The Associated Press reported in November the storm damage would be in the order of US$30 billion to US$40b, although the insurers' share was likely to be about US$10b to US$20b. That total number has since risen to US$75b according to the National Hurricane Centre, although the insurers' updated exposure was unknown.
New York and New Jersey were worst hit, but states as far west as Wisconsin and south to the Carolinas were also affected.
The Christchurch earthquakes have caused an estimated $30b to $40b in damage, with insurers' bill likely to be about $15b.
NZ Insurance Council figures show $6.7b has been paid in settlements, $4.7b of that on commercial claims. The total bill for private insurers is expected to be at least $15b. EQC has paid out $4.9b of its total $12.5b bill.