NZ CFS L5 General Insurance cheat sheet

Financial advice is regulated under the Financial Markets Conduct Act 2013; a Financial Advice Provider must hold an FMA licence, and individuals give advice as financial advisers or nominated representatives.

The Code of Professional Conduct for Financial Advice Services sets standards for ethical conduct, client care, competence, disclosure, conflicts of interest and records.

Disclosure must cover the nature and scope of advice, fees and remuneration, conflicts of interest and material limitations, and must be clear, concise and timely.

Every Financial Advice Provider must belong to an approved dispute resolution scheme, such as FSCL, IFSO or Financial Services Complaints Ltd, and maintain an internal complaints process.

The Privacy Act 2020 requires lawful collection, notification, secure storage, access and correction rights, and notification of privacy breaches likely to cause serious harm.

The AML/CFT Act 2009 requires reporting entities to conduct customer due diligence, monitor transactions, keep records and report suspicious activities to the Financial Intelligence Unit.

The Fair Insurance Code is a voluntary industry standard for Insurance Council of New Zealand members and covers fair treatment, communication and claims handling.

The Human Rights Act 1993 allows insurers to differentiate risks using actuarial or statistical data and other relevant factors, but prohibited grounds still require justification.

Indemnity restores the insured to the pre-loss financial position, subject to sums insured, limits, excesses and policy terms, and does not permit profit from a loss.

Insurable interest requires the insured to benefit from preservation of the subject matter or to suffer loss from its damage.

Utmost good faith applies to both insurer and insured; the Insurance Law Reform Act 1977 limits an insurer's ability to avoid a policy for misrepresentation or non-disclosure in certain circumstances.

A material fact is one that a prudent insurer would consider relevant to accepting or pricing the risk; disclosure obligations are modified by statute and policy wording.

Proximate cause is the dominant and effective cause of a loss and determines whether an insured peril or an exclusion applies.

Subrogation lets an insurer step into the insured's legal rights after paying a claim; contribution allows recovery between insurers covering the same interest.

Risk pooling spreads losses across many exposures, and the law of large numbers improves predictability as the number of independent similar risks increases.

Moral hazard and adverse selection arise from behaviour and information asymmetry; underwriting, excesses and exclusions are used to manage them.

Reinsurance transfers some insurer risk to a reinsurer and does not change the insured's contract with the original insurer.

Personal lines typically include home building, contents, motor vehicle, travel, pet and personal liability cover; commercial lines include material damage, business interruption, liability and cyber.

Home building cover insures the dwelling and permanent improvements; contents cover insures movable household items, with special limits for valuables and items away from home.

Motor policies usually provide third-party liability and optionally own-damage cover; exclusions commonly include unlicensed drivers and intentional acts.

Travel insurance commonly covers emergency medical, cancellation, baggage and personal liability; pre-existing conditions are often excluded unless declared and accepted.

Business interruption cover responds to lost profit and increased costs following insured property damage, subject to an indemnity period and turnover basis.

Public liability covers third-party bodily injury or property damage from the insured's business; professional indemnity covers claims arising from professional services.

Statutory liability cover responds to fines and penalties where insurable by law and to defence costs for statutory offences; not all fines are insurable.

Cyber insurance can cover data breach response, cyber extortion, business interruption and liability; policy wording varies widely and exclusions apply.

Common exclusions include wear and tear, gradual deterioration, faulty workmanship, and intentional or illegal acts; war and nuclear exclusions are common.

The advice process starts with scope: identify the client's goals, needs, financial situation, risk tolerance, time horizon and existing cover.

Client information must be recorded accurately and kept current; material changes can alter recommendations and disclosure.

A needs analysis compares required cover with existing cover, considering sums insured, limits, excesses, waiting periods and exclusions.

Replacement analysis must compare benefits, costs, exclusions and exit costs, and any replacement must be justified in the client's interest.

Advice must be suitable for the client and presented clearly so the client understands the recommendation, costs and consequences.

Record keeping must allow reconstruction of the advice, including client instructions, analysis, recommendations and disclosures.

Reviews should be scheduled at agreed intervals or when circumstances change; a review is not a substitute for initial suitability.

Vulnerable clients require extra care with communication, capacity, undue influence and privacy; records should show how their needs were met.

Underwriting assesses physical, moral and morale hazard; factors include occupancy, construction, location, claims history and sum insured.

Premium is built from a base rate adjusted for rating factors, loadings, discounts, excess and optional benefits, plus GST and applicable levies.

Sum insured should reflect rebuild or replacement cost rather than market value; underinsurance can reduce claims under averaging or policy limits.

An excess is the first amount of each claim borne by the insured; a higher excess generally lowers premium but increases the retained loss.

The policy schedule records the insured, period, sums insured, excesses, endorsements and premium; the policy wording governs cover.

Endorsements amend standard wording and can extend, restrict or clarify cover; they prevail over inconsistent printed wording.

Disclosure of material facts at proposal and renewal affects acceptance and terms; non-disclosure can lead to reduced or declined claims.

Risk management measures such as alarms, sprinklers and maintenance can reduce premium or be conditions of cover.

Co-insurance and average clauses require the insured to bear a proportional share when the sum insured is inadequate.

The claims process is notify, register, check cover, reserve, investigate, assess cause and loss, document, settle or decline, and recover salvage or subrogation.

Cover is tested against the policy period, insured property, insured peril, exclusions, conditions and sums insured or limits.

If an excluded peril is the proximate cause, the claim may be declined even if an insured peril contributed to the loss.

Indemnity settlement may be by repair, replacement, reinstatement or cash, subject to policy wording and betterment.

Reserves estimate the ultimate claim cost including defence, adjustment and recovery, and are reviewed as information emerges.

Fraudulent claims can void cover and be referred for investigation, while genuine claims must still be handled fairly.

Subrogation and salvage recoveries reduce net claim cost; the insured must not prejudice the insurer's recovery rights.

Declined claims require clear reasons, reference to policy terms and information about complaint and dispute resolution options.

The Fair Insurance Code sets service standards for members, including communication and claim handling expectations.

Insurer operations include product design, underwriting, pricing, claims, reinsurance, capital management, compliance and distribution management.

Distribution channels include direct, brokers, agents, affinity partners, banks and online platforms, each with different duties and remuneration.

An insurance broker acts for the client, while an agent may act for the insurer; the capacity in which an intermediary acts must be disclosed.

Intermediaries must disclose commissions, fees and conflicts; remuneration can influence product choice and must be managed.

Binding authorities let intermediaries underwrite or issue policies within agreed limits, while the insurer remains liable under the policy.

Premium trust arrangements require client money to be held separately and accounted for; misappropriation is a serious breach.

Financial Advice Providers must ensure nominated representatives are competent, trained, supervised and meet Code standards.

Insurer and intermediary relationships are governed by agency agreements, service levels, data privacy and complaints accountability.