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Review of Fair Insurance Code - Submission to the Insurance Council of New Zealand [2014] NZHRCSub 7 (1 March 2014)

Last Updated: 28 June 2015

REVIEW OF FAIR INSURANCE CODE

Submission by the Human Rights Commission to the Insurance Council of New Zealand

1^st March 2014

1. Introduction

1.1 The Human Rights Commission (‘the Commission’) appreciates the opportunity to comment on the review of the Fair Insurance Code (‘the Code’).

1.2 The Commission’s interest in insurance matters stems from the exemption for insurers in the Human Rights Act 1993 (‘HRA’) and its involvement in the situation in Canterbury following the earthquakes several years ago. Although we address these issues separately, they have certain themes in common. For example, the need for greater clarity and better understanding about the information that needs to be provided in order to obtain satisfactory redress in the event of an emergency.

1.3 The Commission’s submission addresses:

1. The Human Rights Act 1993
2. The Commission’s complaints’ process
3. Issues arising out of the Canterbury Earthquakes
4. Business and human rights
5. Recommendations

2. The Human Rights Act 1993

2.1 The HRA makes it unlawful to discriminate in certain areas. The areas include the provision of goods and services. “Goods and services” is defined as including “facilities by way of insurance”. Insurers cannot refuse to provide people with insurance, or treat them less favourably, by reason of any of the prohibited grounds of discrimination in the HRA. There are exceptions for sex, disability and age if those grounds are rationally related to insurance underwriting criteria.

2.2 In order to help insurers and consumers understand their rights, meet their responsibilities under the HRA and encourage best practice, the Commission published guidelines on compliance with the Act in 1997. When the guidelines were reviewed and updated some years ago, the concerns most frequently expressed by submitters were a need for greater transparency and communication by the industry and better promotion of the Commission’s complaints process.

2.3 The need for greater clarity - particularly the nature of insurance contracts - is also reflected in complaints received by the Commission. A number of complaints indicate a misunderstanding of the conditions under which (and the reasons why) a contract of insurance may be voided by the insurer.

2.4 The present Code refers to this in very general terms and includes a non-exhaustive list of the facts an insurer may consider relevant. There is an obligation on a person seeking insurance to ask the insurer whether further information is necessary. If an applicant does not understand the implications of non-disclosure or what may amount to a material factor, they can inadvertently sacrifice the opportunity to make a claim.

2.5 Given the weighting in favour of the insurer in ss. 5 and 6 of the Insurance Law Reform Act 1977 about what will amount to an “incorrect statement”, there could be a greater onus on insurers or brokers to explain what information is relevant. To be clear, the Commission is not against imposing a responsibility on customers to provide accurate information but there should be a more robust requirement on insurers to indicate what information is necessary and the consequences of not providing it. For example, we note in this regard that a British Code of Conduct^[1] explains the relationship as follows:

We will explain your duty to give the insurer information before cover begins and during the policy, and what may happen if you do not.

2.6 In our view including a similar provision in the Code would be more use than effectively leaving it up to the customer to identify what information is relevant.

3. The complaints process under the HRA

3.1 The Commission administers an alternative disputes resolution process. It aims to resolve complaints in a timely, informal and cost effective manner. The service is free, confidential and impartial.

3.2 The Commission is unsure how well known the Commission’s complaints service is in the insurance context. For example, the reference to dispute resolution providers under the Financial Services Providers (Registration and Dispute Resolution) Act 2008, perhaps understandably, doesn’t refer to the Commission’s service.

3.3 Some reference to the Commission’s service and how to access it could usefully be included in the Code.

4. Issues arising out of the Canterbury Earthquake

4.1 The Commission has an ongoing involvement with people affected by the Canterbury earthquake. Late last year the Commission published Monitoring Human Rights in the Canterbury Earthquake Recovery which examined the human rights challenges that had emerged during the recovery phase. Many of those who approached the Commission identified issues relating to insurance as a concern.

4.2 Most of the insurance complaints that the Commission receives relate to health and life insurance (which we recognise as not within the parameters of this inquiry) and are spread relatively uniformly throughout New Zealand. In relation to Canterbury, however, there have not only been a disproportionately large number of complaints from the Canterbury region but they are not the typical complaint received by the Commission.

Insurance complaints by region (2013)

4.3 Among the matters relating to insurance raised with the Commission were:

1. Inconsistent interpretation of terms in contracts - for example, minimising costs by the use of “reasonable equivalency provisions” or changing views on whether a property needed to be repaired or rebuilt^[2]
2. Deferring or delaying decisions, leading people to settle on less favourable terms;
3. Miscommunication between insurers and EQC and homeowners;
   4. Need to obtain independent advice when there is disagreement with EQC assessments;
   5. Stress relating to dealing with insurance issues including communication and information about policies^[3].

4.4 The Commission recognises that the purpose of the Code is not to deal with the minutiae of insurance contracts but is aimed at behaviours. We also note that there is no reference to situations that can arise in an emergency

4.5 Given our experience with the situations that have arisen in Canterbury, we consider that there should be an obligation on insurers to provide information in a clear, accessible format (by accessible we mean a format that makes it accessible to people with disabilities)^[4]and to act in a principled and timely fashion in the event of an emergency.

5. Business and Human rights – the Ruggie Principles

5.1 Since the 1970s member States of the United Nations have struggled to discharge their duty to protect human rights in the face of increasing corporate mobility, complexity and power.

5.2 Between 2005 and 2011 John Ruggie, Professor of Human Rights and International Affairs at the Kennedy School of Government at Harvard University oversaw the development of a “Protect, Respect Remedy” framework for business and human rights. He then developed guidance on steps that States, businesses and other actors can take to implement the framework. The “United Nations Guiding Principles on Business and Human Rights (UNGPs)” were unanimously endorsed by the United Nations in late 2011.

5.3 The foundation of the framework and the UNGPs are three complementary and interrelated Pillars:

1. The duty of the State to protect against human rights abuses by third parties, including businesses, by taking appropriate steps to prevent, investigate, punish, and redress such abuses through effective policies, legislation, regulations and adjudication.
2. The corporate responsibility to respect human rights. Companies are expected to avoid infringing the human rights of others and to address adverse human rights impacts with which they are involved.
3. Access to a remedy requiring both States and businesses to ensure that the victims of business related human rights abuses have greater access to an effective remedy, both judicial and non-judicial.

All businesses should apply due diligence to prevent and/or address the involvement of a business in human rights abuse^[5].

5.4 Business has led the way in developing understanding of its responsibility under the “respect” pillar of the UNGPs. However until 2013 comparatively little work was done on understanding a State’s obligations under the “protect” pillar of the UNGPs. That is changing rapidly. In June 2012 the European Council required all member states to develop National Plans of Action to implement the UNGPs by the end of 2013^[6]. In a move particularly significant for insurance businesses (because it is the domicile of significant reinsurers) Switzerland’s Parliament has also required work be done on developing a national strategy to address the UNGP’s.

5.5 In April 2013 the United States Government published the “US Government Approach to Business and Human Rights” and in August 2013 the International Corporate Accountability Roundtable (ICAR) and the Danish Institute for Human Rights launched a joint project called National Action Plans: State Strategies for the Implementation of the UN Guiding Principles and Human Rights. In December ICAR published “Knowing and Showing – using US securities laws to compel human rights disclosure.”^[7]

5.6 Investors who subscribe to the “United Nations Principles of Responsible Investment” are also increasingly exercising due diligence in deciding where to invest which may affect how securities and other finance market regulators respond. Sophisticated processes are being developed to screen investments for risk of human rights abuse and businesses deemed to have unacceptable human rights practices are proving less attractive to investors - the New Zealand Superannuation Fund being a leader in this area^[8].

5.7 The Commission considers that the UNGPs should be reflected in the Code of Practice.

6. Recommendations

6.7 The Commission recognises that circumstances differ from case to case but considers that the Code could be improved if:

• Insurers were obliged to tell consumers more specifically what information was necessary to ensure satisfactory cover and the consequences of not providing it
  • A specific reference to the Commission’s complaints service and information on how to access it was included in the Code;
  • Plans are developed for dealing with future emergencies that ensure information is timely and provided in a clear, accessible format given the important role that insurance can play in ensuring the delivery of basic needs - such as housing - in the aftermath of the Canterbury earthquakes;
  • The implications of UNGPs are taken into account in developing the Code.

^[1] General Insurance Standards Council Code of Conduct available at: www.solarnavigator.net/marine_insurance/general_insurance_standards_council_code_of_conduct.htm.

^[2] For example, the situation in Rout v Southern Response Earthquake Services Ltd.[2013] NZHC 3262 (6/12/2013)
^[3] CERA wellbeing survey
^[4] While the Commission recognises that the review is about the content rather than the form of the Code, it is worthwhile pointing out that everyone needs access to information and that the Code should be available in a variety of formats – including plain language and Braille.
^[5] Many of the world’s largest businesses, including reinsurance and insurance businesses (including some operating in New Zealand) are leaders in understanding and applying the UNGPs. Some have gone further and bound themselves to the principles of the United Nations Global Compact, the United Nations Principles of Responsible Investment, and/ or United Nations Principles of Sustainable Insurance. Section 7 of the Commission’s report contains a fuller explanation of the UNGPs along with other principles and an example of their application by one insurance company, IAG, operating in New Zealand.
^[6] It is expected that over 25 member states will have plans in place by the end of 2014 The United Kingdom’s plan was released in September 2013 see https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/236901/BHR_Action_Plan_-_final_online_version_1_.pdf
^[7] ICAR considers that the Securities and Exchange Commission (SEC) should specifically require issuers of securities to disclose their human rights due diligence processes and findings even though ICAR believes that issuers of securities may already have an obligation to disclose human rights risks and impacts related to their operations and that the SEC should provide guidance on how issuers of securities can allow investors to effectively consider the human rights risks and impacts related to investing in issues.
^[8] The Fund’s standards require that any companies it invests in must abide strictly by New Zealand law, international law, the United Nation's Principles for Responsible Investment and any global agreements to which New Zealand is a party.