The AUT Law School lecturer says the point of insurance is to pay a benefit if an uncertain event actually happens.
“So, if the customer catches Covid, that is uncertain. When [insurers] say ‘we can’t pay for this’, [what they really mean is] ‘we don’t want to’ or ‘if we do, it’s going to be too expensive’.”
Insurers are looking for ways to start selling policies again. But just because insurers issue new policies doesn’t mean they’ll be worth the paper they’re written on.
When the go-to insurer for many Kiwis, Southern Cross Travel Insurance (SCTI), resumed domestic cover in September, Covid-19 cover was excluded.
That ruled out the very things Kiwis are currently most worried about when booking travel: Covid-19- related cancellation costs, curtailment, travel delay, missed connections and related additional expenses.
“The motivation to sell [junk insurance] could be simply a need to sell something rather than nothing,” Whitehead says, although not commenting directly or specifically about the SCTI policy. “To keep [companies] afloat. They are not products to serve an actual need.”
The customer isn’t always front and centre in the insurer’s mind, says Whitehead, who worked as inhouse counsel for insurance companies in France before becoming an academic. In the Nordic countries, the fair dealing concept of “Kulanse” means insurers go one step further than ex gratia and as a result are held in high regard by the public.
Whitehead questions the oft-cited doctrine that people need to read the policy and ensure it meets their needs. “I don’t know how anybody could know what their needs are in advance,” he says. “Comparing two policies is almost impossible. They can be very similar but you can write a whole thesis on how they are different.”
Likewise, travellers didn’t understand the government intervention clauses, says Stevens. “I don’t know that many people would have anticipated something like that happening. Even if they had read the policy, they wouldn’t have understood what it meant.”
Whitehead adds that there is a failure by insurers to understand that customers don’t want the exclusion to be there in the first place. “They want their insurer to be there to help them when they need it.”
He says the issue is a lack of imagination by the insurers. “At the very least, the insurance industry should ask ‘can we actually do this?’ Do we think it’s important enough to stop doing what we’re used to doing and do things differently?’ That’s what innovation is.”
The words “public-private partnership” are starting to be heard around the concept of Covid-19 insurance cover for travel and, more importantly for many economies, business interruption insurance as well.
In New Zealand we have ACC and EQC, which show it’s possible. “It’s a question of political will [and] industry will,” Whitehead says. France, the UK and other countries have working models of such partnerships in other areas of insurance.
Whitehead points out that in other countries such as Canada, insurers cover pandemics. “Provided that the event such as a pandemic is actually random or uncertain, then the technique of insurance can actually cover it,” he says.
“The question is how much is it going to cost. If a product is too expensive it might be difficult to market. It might be legitimate to say, ‘we don’t want to cover this’. But saying ‘we can’t’ – I’m not sure that’s accurate.”
Whitehead argues that the regulators should take a more hands-on approach in New Zealand, as is happening in countries such as the UK.
For example, standard policy forms would prevent some of the ‘ordeal by insurance’ that many Kiwis suffered in the wake of the Christchurch earthquakes. Insurers would have to price in risks they weren’t normally inclined to cover. “The FMA could say ‘you need to have Covid cover in it’,” he says. “The government and insurers can work together to make it happen.” Insurers would then compete on price and service.