The last 10 years have seen significant changes in the New Zealand insurance market. These changes are largely positive, but give rise to issues that need to be managed.
On the broking side, the first indication of major change came with the move towards consolidation in the industry with the 2014 purchase of Crombie Lockwood by New York Stock Exchange listed broker Arthur J. Gallagher & Co. That resulted in five brokerages with global reach: Marsh, Aon, JLT, WTW and Crombie Lockwood. Fast forward to 2019 and Marsh’s 2019 merger with JLT reduced that number to four. That very nearly reduced to three with Aon’s proposed takeover of WTW in 2020.
By 2021, the market had consolidated further with two large international brokerages, Marsh/JLT and Aon. WTW remained in the mix, with Crombie Lockwood staying locally focussed, albeit with international connections via Gallagher. Other New Zealand brokerages, such as PIC and Rothbury, retained largely New Zealand or Australasian networks.
Two new global players then joined the New Zealand market in 2021 – Lockton in March and Howden close behind in September. Lockton’s entire New Zealand team joined from WTW during 2021 and Howden’s genesis was similar, with most of its New Zealand team coming across from Marsh. Both are significant international brokers, albeit start-ups in New Zealand. Lockton describes itself as the world’s largest privately-owned insurance brokerage with over 100 offices worldwide. Howden also has a global footprint “with offices in 45 countries as well as a network of partners which increases our reach to 95 territories worldwide”.
Anecdotally, both Lockton and Howden established New Zealand offices to better respond to global pitches involving international clients’ New Zealand businesses. They certainly bring a more international flavour to the market, but it remains to be seen whether the nimble outpost model will thrive. Competition may benefit clients as new brokers attempt to establish themselves with a minimum viable business, although personnel movement in the market gives rise to heightened legal risk as the incumbents defend their positions. There will need to be an increased focus on restraints of trade and a need for care when safeguarding confidential information gained in former roles. These issues could come to the fore in the near future as the new entrants work to solidify their positions in the market.
On the underwriting side, despite a continuing tough global market, there is word of an increase in offshore capacity via managing agents such as Delta Underwriting. Furthering this trend, Dual, a sister company of Howden Broking, purchased International Underwriting Agencies or IUA. And Pen Underwriting, which writes business covering some insureds with New Zealand operations, is a subsidiary of Gallagher. Munich Re is also reportedly increasing its primary insurance offering, a further expansion from its traditional focus on reinsurance.
As brokers are branching out into underwriting, they are reporting more capacity in the global underwriting market. This is good news for insureds, but New Zealand-based policyholders need to be aware of the nuances of offshore cover. One potential advantage is that policy proceeds are less likely to be subject to an asserted charge in favour of claimants under the Law Reform Act 1936. Where that can be established clearly, insureds may decide to structure their insurance arrangements to omit separate defence costs cover.
Less helpfully, enforcement of a foreign policy can prove more challenging if a policy dispute arises, with truly offshore cover often subject to dispute resolution forums outside New Zealand. This may affect enforcement through the courts and also access to regulators and statutory dispute resolution forums such as the Insurance and Financial Services Ombudsman in New Zealand. Insureds and their brokers should therefore look for governing law and jurisdiction clauses that require claim disputes to be resolved in New Zealand under New Zealand law.
Another issue of which insureds should be aware is that New Zealand levies, such as Fire and Emergency NZ levies, may be payable upon policies that insure assets in New Zealand notwithstanding that they are arranged by overseas brokers with foreign insurers. Overseas brokers and insurers may not be aware of the regulatory regime in New Zealand and the penalties for non-compliance are substantial.
These developments in the broking and insurance industries will produce opportunities for clients as a result of changes and developments in the way that many policies are arranged and underwritten. However, these changes are not always without risk, and insureds and their advisers will need to be aware of the possible consequences.
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