General Insurance Issues 

What is insurance?

Insurance is a kind of protection. You can take out insurance to protect (cover you) against losses you might incur as a result of unexpected negative events (such as fire, theft, ill-health, job loss etc). There are many different types of insurance policy. 

Insurance policies protect only against financial loss  - that is, to put you back in the financial position you enjoyed before your loss occurred.
 
When you take out insurance, you pay an annual ‘premium’ to the insurance company and they agree to accept the risk of covering your financial loss if a defined event occurs. For example, if there was a fire in your home that destroyed all of your worldly possessions, and you had contents insurance, you would be compensated for the loss of all of the belongings covered by the insurance (the actual amount you get would depend on the policy).

Before you take out an insurance policy, make sure you understand precisely what it covers. Read on for more information about insurance policies.

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How should I go about getting an insurance policy?

First you need to decide exactly what it is that you want to insure (e.g. your income, health or house).

There are many different types of insurance and each insurance company will offer different amounts of cover, so it’s a good idea to shop around. You may have to choose between a policy that is more affordable and a more expensive one which gives you more complete cover and greater peace of mind. There are online tools that allow you to compare insurance products from participating providers – just search “insurance compare” on Google to find them.

When thinking about getting insurance, it is important to ask the insurer about:

  • exactly what will be insured, for how much, and in what circumstances you can claim; 
  • what is exempt from the policy cover;
  • whether any of the cover a particular policy provides is duplicated by cover from a policy you already have; 
  • what kind of proof you’ll need to provide when you make a claim; 
  • what kinds of information you must give them when you draw up the policy (e.g. if you are getting health insurance, what do they need to know about your health history?); 
  • under what circumstances the policy can be cancelled, either by you or by the insurance provider
  • any terms or clauses you do not understand in the policy. It’s a good idea to get their explanation in writing, in case there’s a dispute about it in future. A helpful glossary that explains the meaning of insurance terms is available online at the Insurance Council of New Zealand (ICNZ) website.

You could look at the policy information on the insurance provider's website, to help you think of questions to ask them. It’s also worth browsing the Insurance & Financial Services website for tips – they deal with many disputes between insurers and consumers, and know about the common mistakes that insurance consumers make.

Dealing directly with an insurance company is generally cheaper than going through an insurance broker (see the next question). However, if you want to be sure of getting the most suitable insurance cover and don’t want to go through a broker, you may need to spend some time researching the various insurers and the types of policies they offer.

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What can an insurance broker do for me?

Insurance brokers are financial advisers who have links with a range of insurers and can help you find the best deal. Brokers will assess your insurance requirements and tailor an insurance solution to fit your needs. It might be worth engaging a broker if you need several different types of insurance or have complex insurance needs.

If you need to make a claim, you may deal with the broker's claims team or the insurer's, depending on how the broker operates. For everything else, you will deal solely with the broker.

The Insurance Brokers' Association of New Zealand (IBANZ) is the governing body for insurance brokers, and its members operate under the IBANZ Code of Practice. You can look for a member broker by searching their website.

Insurance brokers operate on a commission basis  (i.e. the earn income based on the value of any insurance policies they sell). Usually their commission is paid for by the client (that’s you), either as a set fee or as a percentage added to your premium. If you are choosing an insurance broker be sure to find out how they calculate the commission that you’ll be charged, and whether the insurance companies also pay them a commission.

If you are unhappy with the service you are getting from your insurance broker, and they are a member of IBANZ, then you could lodge a formal complaint with IBANZ. Another option, if you have a complaint or dispute regarding an insurance broker, is to go to the appropriate financial disputes resolution scheme.

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What is in an insurance contract?

An insurance contract, or policy, is made up of three main parts:

  • a statement describing exactly what is covered by the insurance policy. It will specify, for example, the address of the building or the registration number of the vehicle to be insured. It also details what level of cover applies on the policy - for instance, whether your vehicle insurance is third party or comprehensive; 
  • your personal details, based on the answers you’ve given, to questions which help the insurer assess the insurance risk factor. This information tells the insurer anything in your personal history that might affect the agreement - for instance, how many insurance claims you have made in the last three years or whether or not you have a criminal record; 
  • the policy document details exactly what compensation (i.e. how much money you can claim for) is available under the policy and the exact circumstances under which this compensation will be available.

You are only covered for the specific events listed on your insurance policy. It is very important that you understand the terms of your policy and how your insurance cover is provided, because it is a binding contract. If there is anything in the policy that you are not sure about, ask your insurance company to explain it to you.

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What do insurance companies mean by 'Utmost Good Faith' and 'Duty of Disclosure'?

The duty of 'utmost good faith' requires both parties to observe and honour the contract conditions. Any information you exchange with your insurer must be absolutely truthful to the best of your knowledge, and vice versa.

As the customer, your duty of disclosure is to inform the insurer of any facts (referred to as ‘material facts') that could affect their assessment of the risk they are taking in insuring your property. If you fail to disclose relevant information it can invalidate your policy and cause your insurance claim to be denied.

For the insurance company, it means that they must tell you of any situation in which your property will not be covered, and provide information to you about how your insurance works. The Insurance and Financial Services Ombudsman has information explaining these concepts in more detail.

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What factors affect how much I pay for my insurance premiums?

Insurance premiums are calculated using a variety of factors.

Factors which lessen your insurance risk (the likelihood of you making a claim) will lower your premiums. For example, if you don’t smoke, health or life insurance will probably cost you less than if you do smoke.

Factors that increase the risk will result in higher premiums. For example, if you work in a dangerous job such as mining, health or life insurance will probably cost more than if you work in an office.

Ask your insurer if you are getting all the relevant discounts - for example, if you have installed a new burglar alarm to protect your property, you could be eligible for a lower premium or excess due to the decreased risk of burglary.

Another factor which can influence the amount of your premiums is the size of the excess.  

A good time to discuss your premium with your insurer is when the policy is coming up for renewal (see the next question).

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Why is 'renewal time' important?

Most personal insurance policies have to be renewed each year (except for the short-term policies such as travel insurance for a holiday), and the premium is what you pay in advance for each year’s insurance cover.

Your insurer should give you advance notice of the renewal and this includes telling you what your premium will be for the next insurance year. The renewal document will ask you to confirm that the details you have provided about the risk are still correct. It is very important to advise your insurer if any details relating to the cover have changed.

This might be a good time to consult other insurers to see whether you can get better cover and/or a lower premium elsewhere. When you get alternative quotes you should make sure that the quote is on the same basis so you can compare quotes correctly - don't just concentrate on the price offered, as another policy could be cheaper but offer less cover.

You will probably need to increase your cover from time to time - for example, if you have increased the value of the contents in your home.

It’s important to ensure you renew your insurance (or get new cover from another insurer) before the renewal date – if you don’t, you will find that you are not insured during the time period in between.

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When would I have to pay an excess?

When you make an insurance claim you will probably have to pay an excess. If, for example you have a $400 excess on your car insurance and the car is damaged in a motor accident, you would have to pay the first $400 of the cost of repairs. Usually, excess is used to offset risk. This means that, if you're considered at high risk of making a claim, you might pay a higher excess. You can also choose to have a higher excess on a policy in order to have lower premiums.

If the amount of the repairs would total no more than the amount of your excess (e.g. the $400 on your car insurance), then it would make sense to just pay for the repairs yourself instead of making a claim. (Another incentive to avoid making claims on your insurance policies is the 'no claims bonus'.)

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I made a claim but my insurer says I'm not covered because of some fine print in the contract. What can I do?

If you don't meet all of the requirements in your insurance policy, the company has the right to refuse your claim. This is why it is essential to read all your insurance documents (including the stuff in the really small print), and have explained to you anything you do not understand.You should always check what cover is provided by a policy before you sign up to it. Likewise, make sure you know exactly what will breach your insurance agreement, so that you can avoid doing so inadvertently.

If you believe that the insurance company's refusal to accept your claim is unjustified, you can make a complaint (see the next question).

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My insurance company declined my claim because my son who lives with me has a criminal record - can they do that?

When you apply for insurance you are obliged to give the insurance company any information that will be relevant to your insurance - especially information which, if the insurer knew about it, might lead them to decline your application (e.g. criminal convictions, previous rejections by another insurer/s, previous claims made). You also have to let them know if there’s any change to the relevant information (e.g. a family member or friend with a criminal record has moved in).

You have to tell your insurer about any convictions held by you or anyone else covered by the policy, except for convictions which are covered by the Criminal Records (Clean Slate) Act (this Act allows you to withhold information about your convictions if you meet a number of conditions - you can request a copy of your criminal record from the Ministry of Justice to check what (if any) convictions you would have to disclose).

If your insurer learns that someone in your household has a criminal record they can reject any claim you make on the policy and may also choose not to insure you anymore – it will probably depend on the insurer and what kind of convictions that person has had.

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I'd like to make a complaint about the conduct of my insurance company - how do I go about it?

If you have a complaint about your insurance company you can contact your insurance broker (if you have one), or contact the insurer directly to use their complaints process.

Every insurance company and insurance broker must have a complaints process, and must also belong to a financial services disputes resolution scheme.

When you're talking to an insurance company about a problem it's helpful to:

  • state exactly what the problem is and what you'd like your insurance company to do about it (putting it in writing may help to clarify the issues)  
  • keep a note of dates and times of any conversations you have with insurance staff 
  • record the name of each person you speak to, and their role or position in the insurance company  
  • record the outcome of each conversation, for example any action the insurer said they would take, and when  
  • keep any correspondence you receive from the company  
  • keep copies of any correspondence you send

If you have fully discussed the problem with your insurance company and come to the end of their internal complaints procedure, and still have not reached a solution, then you have reached what's known as 'deadlock'.

If it gets to this stage, you can lodge a complaint with the financial services disputes resolution scheme of which the insurer is a member. For most insurance companies this will be one of: