Regulators are on the look out for rogue insurance advisers as weather claims soar.
The Ministry of Business Innovation and Employment and finance regulators are working closely with the insurance industry in an attempt to protect consumers from claims advisers who might do more harm than good.
Some advisers caused problems for homeowners following the Canterbury earthquakes with incorrect advice, and the Minister of Commerce and Consumer Affairs recently asked officials whether this group would rear up again in light of recent weather events.
Officials told Duncan Webb that following the Christchurch earthquakes some claims advisers were helpful – such as those linked to Community Law centres. Others “preyed on vulnerable consumers”.
These advisers charged fees of up to 30 percent of the total settlement. In some cases this meant the homeowner was left with insufficient money to actually rebuild or repair their property.
Officials also said advisers engaged “experts” with questionable experience, which delayed settlements and damaged clients’ relationships with their insurer.
“For example, filing court action without the knowledge of claimants, creating unrealistic expectations with regards to claim value, and advising claimants not to accept reasonable settlements that they would otherwise have accepted if an adviser was not involved,” a briefing said.
About 30 individuals and companies provided advice following the quakes, which were not captured under existing regulation.
Webb sought advice on whether a similar situation could occur this year and if there was rule changes that would help.
The public inquiry into Toka Tū Ake EQC, released in 2020, also recommended the Government consider regulating insurance advocates.
“The potential value and complexity of some claims may result in some homeowners seeking out unregulated third parties to help them to deal with any complaints or disputes that arise with their insurer.”
– MBIE officials
However, things have changed since the earthquakes, including the establishment of the Claims Resolution Service and before that the Residential Homes Advisory Service, which officials said would mitigate the likelihood of consumers turning to other advisers.
The number of claims for recent events is also well below what came after the Christchurch earthquakes, where a key driver of consumers looking elsewhere for help was the long waiting periods and uncertainty from EQC.
Data from the Insurance Council shows just over 100,000 claims have been received for both the Auckland Anniversary flood and Cyclone Gabrielle. After the quakes there were about 650,000 claims.
But the risk of vulnerable homeowners getting caught out remains.
“The potential value and complexity of some claims may result in some homeowners seeking out unregulated third parties (such as claims advisers) to help them to deal with any complaints or disputes that arise with their insurer,” officials said.
“We are aware that NZCRS [Claims Resolution Service] may not have the same budget and drive into communities the way private advisory services do, which could leave room for unscrupulous advisers to re-enter the market. While NZCRS may not eliminate demand for private advisory services entirely, we expect it will reduce it.”
Officials said regulation would make a difference.
“If the Government were to regulate claims advisers under the Financial Markets Conduct Act we expect the key benefit would be reduced risk of homeowners having to deal with poor quality advice due to claims advisers being required to prioritise the client’s interests and having to meet licensing and registration requirements.
“Regulating claims advisers may also have the benefit of deterring people from undertaking such roles where they are not willing to meet professional standards.”
But, they said “a lack of evidence” meant such an overhaul was likely to be overkill, particularly given the heavy reforms currently underway in the financial markets regulation space.
“This would impose licensing requirements on claims advisory businesses providing services to retail clients, amongst other obligations. However, licensing (as required under the FMC Act) is a significant regulatory intervention which we do not consider to be a proportional response to the issue.”
“We note that progressing this option would require input from insurers and affected homeowners amongst others, and may also distract from recovery efforts following recent weather events.”
Officials said an educational approach alongside insurers and financial regulators was a better option.
Consumer NZ was concerned advisers were not captured by the legislation but said in the meantime consumers could complain via the Disputes Tribunal and had rights under the Consumer Guarantees Act and Fair Trading Act if they have received a substandard service.
The Insurance Council urged consumers to seek advice through the new Claims Resolution Service if they were unsure about anything.
A spokesperson for the Ministry of Business Innovation and Employment said it was actively monitoring the insurance claims space and there were a number of other step being taken to improve outcomes for insurance claimants.
“This includes introducing the Natural Hazards Insurance Act; introducing new conduct legislation for financial markets… working on insurance contracts law reform in advance of introducing an Insurance Contracts Bill to Parliament by the end of 2023; and reviewing financial dispute resolution scheme rules to enable greater consumer access to these schemes.
“New insurance claims processes since the second quarter of 2021 mean insurance claimants only have to lodge one claim with their insurer, rather than separate Toka Tū Ake EQC and private claims.”