Source: New Zealand Parliament – Hansard
Dr DUNCAN WEBB (Labour—Christchurch Central): Tēnā koe, Madam Speaker. Look, first of all, congratulations to Mr Smith for having his bill drawn, and good on him for recognising the struggles that people face when dealing with insurers. Unfortunately, this bill does not come close to addressing those issues. They are issues which faced Cantabrians for a decade, and they have struggled to resolve them, and the Government of the day did pretty much nothing about it. This bill is a bill which is well-meaning but it’s utterly misplaced, and what is needed is a far wider review of some of the obligations.
I am concerned that the key section in the bill actually doesn’t do anything at all. The key clause is clause 9, and to look at it, it’s got three key points. One, it says that this bill relates to houses that are uninhabitable. Well, we know for a fact that in a disaster, many houses are significantly damaged, many are not as good to live in—they’re colder, they’re draughtier, they’re crooked, things don’t work as well—but they pass the threshold of inhabitable. So this would only touch on a tiny fraction of the damaged houses.
Then in terms of clause 9(1)(a), the insurer must “take all reasonably practicable steps to ensure that the claim is processed as promptly as possible;”—that’s existing law. That changes nothing at all. There’s already an obligation to act reasonably, in good faith, and promptly, so that’s a meaningless clause.
Then the real problem is the most important clause here: “decide whether to accept or decline a claim”. That’s actually step one of about five steps in an insurance process. The very first thing that happens is a claim is made. So the homeowner says, “I’ve got damage, and it falls within the policy.” The next step is for the insurer to look at that question and say, “Yes, it does fall within the policy, and there’s no reason not to pay the claim. Your premiums are up to date. It’s not a fraudulent claim.” It’s actually a very simple and very much a preliminary question. The next question is: what is the extent of the damage? The next question is: how do we propose to resolve the claim? And the final step is the actual settlement of the claim.
In my experience in Christchurch, over many years dealing with insurance claims, I had probably two or three issues of there not being an acceptance of the claim, and there were only two reasons for that. One was fraud, where the claimant had told lies, and the other was the insurance premiums were not up to date. So it’s not the problem. The problem is the tortuous process of assessment and, ultimately, the negotiations around settlement, and, unfortunately, this bill does absolutely nothing to address those.
Since Labour has got into Government, we have done a whole lot of things around disaster insurance. We have addressed the Earthquake Commission (EQC) issues. The other thing I’ll note in respect of this bill: it does nothing in respect of EQC. It, in fact, says the six-month time starts to run only once EQC has resolved its claim, and under the National Government, EQC would take years and years. In fact, when I entered Parliament, six years after the earthquakes, there were still unresolved initial EQC claims. That’s no longer the case, and the reason is that this Government, under the then Minister Megan Woods, sorted out EQC, reviewed it, and got on with it. We also set up the Greater Christchurch Claims Resolution Service (GCCRS) to speed up claims and to assist homeowners in resolving those issues, and we also set up the earthquake tribunal to make access to justice quick, affordable, and effective—things which that Government on the other side never did. It sat on its hands for years and years.
So, yes, Stuart Smith, you are right that we do need to help and put systems in place to expedite insurance claims, particularly around disaster insurance. We’ve been doing that, and it’s something which we are committed to keeping doing.
So this bill, well-meaning though it is, actually does not correctly understand the framework for insurance settlement. If we’re going to go down this road, it’s a much more detailed and comprehensive revision that we need. So simply to say that a claim must be accepted does nothing. Even in the speech of the member, he talked about prompt settlement of claims, and you’re right: the prompt, accurate, and fair settlement of claims is what we should be aiming for. But in this piece of draft legislation, it does not address settlement of claims; it addresses acceptance of claims. The question this bill actually seeks to answer is whether the claim actually gets in the front door, not whether it is ultimately resolved.
It really just illustrates a lack of understanding. I’m not surprised the Insurance Council isn’t too worried about this bill, because it does pretty much nothing. This House should not indulge in pretty much futile legislation. So the legislation looks good, dresses up nicely—and good on you for letting your constituents in Kaikōura know that you’re a busy MP—but it does nothing at all.
In terms of the obligation to take all reasonably practicable steps—in fact, the concern I have there, clause 9(1)(a), is it arguably dials down the obligation, because, in fact, an insurer has an obligation, which approaches a fiduciary obligation, to act in good faith, to put forward, to take into account, the interests of the homeowner. Now, don’t get me wrong, I saw many insurers who didn’t do that. The problem wasn’t that the rules weren’t there; the problem was that there was no way to enforce those rules, and that for a homeowner to take that dispute to some dispute resolution process was pretty much impossible, whether it was the insurance ombudsman—it was usually over their jurisdictional limit—or whether it was through the courts—it was pretty much too costly, too slow, and too complex to go through the courts. And that is exactly why the earthquake tribunal was put into place.
Can I just say that that tribunal is a real model for how we should be addressing disputes of this nature—disputes where there is a massive imbalance of power. Yes, in insurance cases, we need to equip insured parties—consumers and homeowners and others—to effectively and quickly resolve those disputes in a way which is compliant with the policies.
Of course, the other kind of thing which doesn’t come out of here is the policies themselves. The policies are often written in such complex terms that it’s pretty much impossible to know beforehand whether you’re going to be covered or not. No one actually reads their policies; they simply trust that the insurer has given them a fair deal. And what we found out in these disasters was that in many times, what the insurers had promised was less than what they had given rise to expect. Then, of course, when it went through the assessment process, the insurer would dial back, would cut back, would slowly chip away at the entitlements: whilst it might have said it was an as-new policy, all of a sudden the brick wall became a brick veneer, the polished wooden floors became a wooden laminate—all of those kinds of things. They’re the kind of things we need to be looking at, not simply “We will accept your claim. Get in the queue. Wait for six years whilst we think about how we’ll settle your claim. We’ll get back to you. Trust our experts. Trust our quantity surveyor. Trust our engineer.”—no.
The GCCRS is another fantastic model where there are independent experts which can run a peer review, a good-sense check on the pretty much self-interested approach of some of the experts who provide reports to insurers.
Look, I’m not going to pretend there’s not work to be done in the insurance sector. There is. And I don’t want to suggest that Stuart Smith isn’t well-meaning and doesn’t have his heart in right place here. He clearly does, and good on him. But this bill is too little, too late, ineffectual, futile, and it’s not something we can support on this side of the House, because we want to do more and better. That’s what this Government has done with the review of EQC, the Greater Christchurch Claims Resolution Service, the earthquake tribunal, and really turned around what’s gone on in Christchurch and in Kaikōura as well. So to the member, I’m sorry—good on you for doing it, but it’s not something we’ll be supporting over here.