Insurers rocked by poor earthquake response

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Dr Michael Naylor, a senior lecturer and
insurance expert from Massey University.

The high levels of dissatisfaction that most Cantabrians have with their insurance companies will damage the market share of some of the industry’s biggest players, says an insurance expert from Massey University.

Dr Michael Naylor, a senior lecturer within the School of Economics and Finance, says he is watching with interest the fallout from the increasingly bad publicity some of the major insurers are attracting. He predicts a decrease in market share for the worst performers, followed by a fall in share price.

“The latest InsuranceWatch survey has strong implications for the future market share of New Zealand’s general insurance sector,” he says.

“The survey asked 1000 Christchurch residents about their satisfaction with the response of their insurance companies since the earthquakes, and based on their results the IAG-owned group of companies, Banks, Lantern, NZI and State, as well as Suncorp-owned AA, Vero and SIS Group, could not be recommended as customer-friendly, quality insurers.”

The InsuranceWatch survey found that 78 per cent of Vero’s customers reported them as being “poor” to “awful”, while only 46 per cent of State customers had received a site assessment, and many described those assessments as partial, incomplete, or brief.

Overall, most insurers achieved less than two per cent of customers rating them as ‘excellent’. AMI-SR was the best of the large players at 3.2 per cent, and only the relatively small insurance firm Lumley was given the thumbs up with a 22.3 per cent excellent rating.

Dr Naylor says the negative impact of such bad publicity on the AIG and Suncorp groups will be felt far beyond Christchurch.

“The connectedness of New Zealand society means that a large percentage of Kiwis will be hearing bitter complaints about these two groups from disgruntled Christchurch friends and family,” he says.

“The decline will be drastic once affected Christchurch claimants are finally paid out and are free to switch. The companies cannot continue to claim to be excellent – as they still do – with their public reputations being continually shredded.”

Dr Naylor says that the big players were not prepared to “throw money at the task of dealing with claims”, but their lack of investment in extra resource was now likely to cost them. Experienced, quality assessors are not easy to find, he says, so the management decision of companies like Lumley to invest in additional resource early on meant they were able to secure the best staff.

He predicts the reputations of the worst-performing insurance companies could be damaged for a generation because of the deep emotional impact the Christchurch earthquakes has had on victims.

“International research shows that the impact on US general insurers of poor responses to natural disasters can be substantial and long lasting,” he says. “The current attempt by AA Insurance to disassociate itself from its sibling, Vero, is an indication of the level of concern the survey results are creating.”

The poor response of some insurance companies is also having a knock-on effect on insurance brokers and banks as New Zealander firms re-evaluate their insurance cover. Brokers who recommended tarnished insurers are finding their own reputations damaged.

“Prior to the quakes, businesses tended to go for the cheapest policy and not question their broker's recommendation. Post-quake, businesses are insisting their brokers explain the small print in detail and recommend a company that will actually support the business at claim time. Price is now less important than policy and claim quality,” Dr Naylor says.

Banks have also come under fire for recommending the poorest performers, with the exception of Westpac who encouraged its clients to use Lumley.

“The problem for banks is that, while they make respectable profits selling insurance, they do not service those clients or decide on claims, but their reputations are tarnished when the policies are poorly serviced,” Dr Nayor says.

“Banks are currently targeting insurance as a major growth area, so a damaged reputation will harm future profit streams and market share, forcing many to rethink which companies they use as their insurance partners, and probably dropping IAG-linked firms.”

He says there could also be an impact on the Australian stock market. “Given that the IAG brands of NRMA and CGU are also being heavily criticised in Australia over their poor response to claims relating to the recent Queensland floods, the negative publicity that IAG and Suncorp continue to receive in New Zealand could lead market analysts to downgrade their stock.

“The only possible response that IAG and Suncorp can make is to apologise to Christchurch customers and make urgent, large, and very public investments of time and staff to generate good news.”

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