Financial Markets Authority shares report looking at weather events and insurance, says insurance sector needs to tailor and review claims processes to meet consumer needs

The next significant insurance event isn’t a matter of 'if' but rather 'when', and it's important insurers review and tailor their claims processes to make sure consumer needs are met, the head of insurance at the country’s financial markets conduct regulator says.

The Financial Markets Authority (FMA) released its Weather Events Claims Insights report on Wednesday.

The report looks at the effectiveness of New Zealand’s fire and general insurers’ claims processes during the Auckland Anniversary Weekend Floods and Cyclone Gabrielle in 2023 (also called the North Island Weather Events).

The FMA sent seven fire and general insurers a self-reflection survey.

“This covered six key areas that we believe facilitate best practice for claims settlement: communication, project management and oversight, consumers in vulnerable circumstances, resourcing of claims handling, complaints handling and business continuity planning,” the report says.

The report also includes responses from five large brokers and three dispute resolution schemes involved in complaints related to these extreme weather events. They were sent a separate survey.

The focus was on domestic insurance claims - for this report, that means house, contents and private motor vehicle policies.

The FMA put together this report after receiving feedback not only from the insurance sector but also wider consumer data on overall satisfaction with insurer response following the North Island Weather Events.

The FMA's head of insurance Jane Brown says the Auckland Anniversary Weekend Floods and Cyclone Gabrielle resulted in 118,000 insurance claims and close to $4 billion in damage to insured property. 

“It is clear that the sector rose to meet an overwhelming challenge using learnings from the [Canterbury] earthquakes, and has done further work to improve," Brown says.

“Following the events, however, we also became aware of consumer concerns relating to delays, complaints, and the experience of the insurance claims process generally."

What the FMA found

While insurers provided general information on what to do and shared the claims process on their websites and social media platforms, feedback from the brokers surveyed found the amount of information made it hard for them to navigate.

“So it was likely not easy for consumers to understand," the report says.

Brokers also pointed out there wasn’t a consistent approach by insurers on what was allowed when it came to site clean-ups. “The inconsistency when interacting with different insurers created flow-on confusion regarding requirements for proof of loss and formal loss assessment.”

The FMA report also found only 43% of insurers had details in the claim confirmation about how people would receive progress updates.

The regulator suggested allowing greater access to repairer portals - this could help reduce traffic to insurer contact points and delays in people getting status updates.

The report says dispute resolution schemes identified that “claimants provided with cash settlements weren’t told about their ability to claim for further amounts, meaning some may not have received the full amount they were entitled to”.

And while insurers have oversight of the overall progress of claims, they do not always oversee aspects of the claim outsourced to third parties, the report says.

As consumers expect insurers to manage their entire claims, the report says there was dissatisfaction due to “insufficient oversight of insurer-appointed third parties".

Loss assessment was a particular problem area.

“Feedback identified that loss assessors were hard to get hold of, didn’t respond to enquiries and didn’t always display expert knowledge of insurer policy documents. These factors resulted in a frustrating experience for many consumers.”

The report says some situations were created where the financial vulnerability of some consumers was not adequately recognised.

While it was necessary and appropriate for insurers to have experienced handlers focus on the extreme weather events claims, feedback from brokers found there was a negative impact on business-as-usual claims handling, with some handlers providing the wrong information and contributing to delays.

“There was a severe shortage of specialised resource in the areas of loss assessment, valuation and geotechnical expertise. Insurers should consider how these areas might be differently resourced or how expertise could be better shared across the sector.”

One insurer told the FMA that 43% of North Island Weather Events complaints were related to dissatisfaction with the speed of progress on claims.

Feedback from dispute resolution schemes found that the communication of timeframes and expectations did not meet consumers’ needs, the report says.

The more complex home claims had the highest level of dissatisfaction, according to the report. 

This was due to:

• issues with timeliness and clarity of communication
• frustration with claims assessment and processing
• misunderstanding and low knowledge of Natural Hazards Commission (NHC) land cover
• confusion over claim ownership relating to multiple points of contact across the insurer, assessors, builders and other specialists
• confusion around the role of the insurer in the council land categorisation process

When it came to business continuity plans, the report found some insurers don’t conduct the required annual test of their business continuity plans.

Business continuity plans help identify potential risks to important parts of a business and also is a way for businesses to prepare and figure out ways to recover.

“Some insurers indicated the severe weather events impacted their ability to provide services to their consumers, in either a material or limited way, but this did not trigger their business continuity plan.”

Only 43% of surveyed insurers include “reporting material incidents to the FMA” in their business continuity reports.

“Licensed financial institutions are now required to notify the FMA of events that materially impact the operational resilience of their critical technology systems, so this will need to be incorporated into insurers’ processes going forward.”

The FMA's recommendations

While the FMA acknowledged the work done by insurers to improve consumer experience following the Canterbury earthquakes and again with the North Island Weather events, Brown says the regulator still sees areas where improvements can be made: 

1. Insurers should provide claimants with a clear understanding of the claim lifecycle and outline the roles and responsibilities of third-party providers involved in their claim
2. Insurers should have adequate oversight of all third parties involved in a claim
3. Insurers should continue to improve processes for the identification and treatment of consumers in vulnerable circumstances so they are not disadvantaged during severe events
4. Insurers should prioritise the use of technology to reduce administrative burden and facilitate the allocation of trained staff into both event and business as usual claims
5. Insurers should continue to develop their processes for dealing with dissatisfaction and complaints. There should be clear pathways for consumers to raise concerns and ask questions during severe events
6. Insurers should prioritise tailoring their business continuity plans to manage major events and incorporate annual scenario testing

In the report, the FMA says it expects insurers to be reviewing their product offerings and services - including claims processes.

“With New Zealanders facing increasing risks and extreme weather events, maintaining confidence in the insurance sector is more important now than ever,” Brown says.