Understanding Insurance
Risk is part of our everyday lives.
We make decisions involving risk frequently, often without even thinking about it. Many things we do create risk, including:
- Crossing a road
- Going on holiday
- Driving a car
- Mowing lawns
- Working with power tools
- Lighting fires
- Moving house
It is typically accepted that there are four ways to manage the risks we face:
- Minimise - putting on a seat belt in a car or attending a driver safety course.
- Eliminate – choosing not to holiday in a country that is on travel advisory notice or arranging recommended vaccinations when traveling overseas to ensure you don’t get ill.
- Accept – participating in adrenaline activities such as sky diving, canyoning, ice climbing or base jumping.
- Transfer – entering into a contract to transfer risk to another party.
Insurance is a form of risk transfer. When you insure you hand the risk of certain things happening over to the insurer. For example, accidental damage to your car, house, or business premises, or damage or loss that you cause to another party.
Purchasing insurance cover is a way to manage the risk of something happening to the things you own so that if damage or loss occurs, you receive a payment from the insurer which will then help you to fix or replace it.
If you take out a loan or mortgage over an asset, often the lender will require that you have insurance in place to provide cover if something happens to that asset like a fire at a business or an earthquake or flood that damages a house. In these instances, your agreement with the lender will likely require that the insurer pays them directly when damage occurs.
Insurers typically either sell their policies and products directly to their customer or through intermediaries such as brokers. Banks, travel agents and car dealers can also be insurance intermediaries.
If the insurer sells directly to their customers, you can contact them for a quote and place cover with them yourself.
You are unable to place cover directly with insurers that sell only through intermediaries. For you to access those insurers you need to appoint an intermediary to act on your behalf.
Some cover is considered complex and therefore only available through certain intermediaries who possess the expertise to help you navigate these complexities and match you with the product best suited to your needs.
Whilst much has been done to simplify the wordings over the years, including the use of plain language, insurance policies are legal documents and as such continue to be confusing to those outside of the insurance industry.
Considering the above there are many reasons why people choose to appoint a broker. From helping them understand the risks that they face, to gaining access to covers and insurers that they would not otherwise have access to. Appointing a broker can also help people have greater confidence in their decisions about the choices they need to make.
A broker will help you review your risks and recommend ways to protect against them. They typically provide advice tailored to your needs and offer solutions from a range of insurers. They have an in-depth knowledge of the insurance industry and are able to advise you why a particular insurer, policy or product is right for you.
Following are some frequently asked questions.
Frequently Asked Questions
General:
What are the benefits of placing my insurances through an insurance broker?
It is commonly believed that the policies and cover offered by insurers are similar, or the same, and that pricing is the only obvious consideration. In reality, insurance policies can be complex and the cover available from insurer to insurer differs.
An insurance broker (broker) uses their experience to guide you through the differences in cover and to provide you with advice that is tailored to your needs.
In the event of a claim, your broker will also assist in managing the claims process and advocating, with the insurer, on your behalf.
My broker has not charged me for their services, how do brokers earn income?
Typically, brokers earn a commission from the insurer(s). This is a percentage of the insurance premium paid by their client (you), for the policies placed with the insurer(s).
It is becoming more frequent for some brokers to charge a fee to their client for their service and advice rather than receiving commission from the insurer.
For retail clients (which includes those that are consumers who purchase domestic covers including house, contents, private motor vehicle and pleasurecraft), the broker is required to disclose their earnings to you for the advice they provide, whether it be by commission or fees. This information should be presented within the quote you receive from your broker. If you are unable to find it, you can ask how they are paid and the amount they receive.
I am unhappy with an aspect of the service provided by my broker, can I make a formal complaint?
Yes, you can. In the first instance we recommend contacting your broker (the person you deal with) to advise them you are dissatisfied. This gives them an opportunity to understand your concerns and respond.
If you are uncomfortable talking to your broker, you can contact their manager or the principal of the broking company you received the advice from.
All insurance broking companies are required to have and follow a complaints process. Information about the complaints process should be available on their website under a heading such as “complaints” or “disputes“. If they do not have a website, you can ask for the complaints process to be sent or emailed to you.
Once your formal complaint is received (as set out in the complaints process) they will review it internally and respond to you.
If the matter is unable to be resolved to your satisfaction, you will have reached a “deadlock”. You can then escalate it to the brokers Disputes Resolution Scheme. This scheme is independent of the broker and broking company. They will review your complaint and aim to find a way to resolve the matter. This is at no cost to you and details of which scheme your broking company belongs to will be on their website or can be sent to you by them.
Can my broker make changes to my cover without my knowledge?
No, a broker should act in accordance with your instructions. A broker is an intermediary between you and the insurer. Appointing a broker to place your insurances makes them your agent. This means they can act on your behalf and must follow your instructions. It does not give them authority to take any action on your behalf, unless directed by you to do so.
If a broker considers that there is an issue with your instructions or they are not in your best interests, they can advise you of this. If you continue to disagree with their advice and they feel strongly that your instruction is not the correct course of action, they may resign as your broker.
Do brokers need to be formally qualified in New Zealand?
Yes. As of 15 March 2023, brokers (as financial advisers) are required to have completed a New Zealand Certificate in Financial Services (Level 5) in order to provide regulated financial advice.
In addition, all brokers must either be registered as a FAP (Financial Advice Provider) themselves or be employed by a FAP on the Financial Service Providers Register (FSPR).
You can confirm that your broker, (the individual) or FAP, is registered on the FSPR by searching here on the New Zealand Companies Office website. As well as showing the FAP, and which individual brokers/financial advisers operate under the FAP, the FSPR also lists the details of the Dispute Resolution Scheme they belong to.
Claims:
I need to make a claim on my insurance policy, what should I do?
The first step when dealing with an unexpected event which has caused loss or damage to your property, or loss or damage to another party, is to contact your broker. They will guide you through registering a claim with the insurance company and assist throughout the claim, negotiating and advocating on your behalf.
What information about my claim will my insurance company require?
Along with the completed claim form, you will need to provide evidence of the loss, damage or event.
This may include:
- Photos of the damage
- Proof of ownership for the item/s being claimed on, such as receipts.
- A copy of the Police Acknowledgement Form, if applicable for example theft, burglary, malicious damage
- Quotes for repairs/replacement
- A letter that holds you liable or responsible for loss or damage, alleged to have been caused by you to another party
Further information may be required in addition to the above, your broker will be able to advise you about that if it is needed.
Your insurer may also appoint a specialist, such as a motor vehicle assessor, loss adjuster or investigator to be involved in or review the claim.
Do I require permission from my insurance company before undertaking any repairs?
Yes, you must not incur any costs without authorisation from your insurer to do so.
The exception to this is when you need to incur costs to mitigate further damage. For example, a water pipe that has been punctured and is now leaking water everywhere and requires a plumber to come and repair the leak to prevent the water damage from escalating, or a window has been smashed and requires urgent replacement by a glazier to ensure the building is secure.
Your broker will be able to help you with this.
I am unhappy with the outcome of my claim, what can I do?
If you are unhappy with a claim decision or settlement you should initially discuss it with your broker to find out more about what led to the decision made. Sometimes this can help you understand and accept the outcome.
If you continue to feel the claim decision is unjust you may request your broker advises the insurer you are dissatisfied and the reason(s) for that. This will trigger a review of the claim through the insurer’s complaints process.
Like brokers (as set out in FAQ 3 above), insurers are required to have in place a complaints process which includes an internal review and then escalation to an independent Disputes Resolution Scheme if you continue not to be satisfied with the outcome and are deadlocked.
The Disputes Resolution Scheme will review your complaint and aim to find a way to resolve the matter. This is at no cost to you and details of which scheme your insurer belongs to will be available on the insurers website, can be sent to you or will be advised by your broker.
My home has been damaged by landslip. I have been told it will be handled by the EQC but I have never purchased insurance from them.
In New Zealand, when you purchase insurance for your house an Earthquake Commission (EQC) levy is automatically included to provide cover for claims arising from natural disasters.
The EQC acts like an insurer and covers damage to your home, or to the land immediately surrounding your home, in the event of one of the following natural hazards:
· an earthquake
· a natural landslip
· a volcanic eruption
· hydrothermal activity
· a tsunami.
The EQC cover for damage to your house is limited to $300,000. Find out more about the cover and restrictions that apply to EQC cover here. Your House insurance should cover amounts in excess of $300,000 up to the limit under that policy. Please check with your broker so you understand the cover you have in place.