Getting help when you have difficulties with your insurer or financial services provider

The Insurance & Financial Services Ombudsman office (IFSO) was established in 1995 to help consumers who were in dispute with their insurers or financial services providers.

The IFSO[1] is a free, independent entity to which you can lodge a complaint regarding the conduct and decisions of insurance and financial services providers, once you have exhausted that provider’s internal complaints procedures.

In the 2017–18 year, the IFSO received 3,357 enquiries about its services, and investigated 320 formal complaints – 304 of which related to insurance.

Of all complaints investigated by the IFSO in 2017–18:

• 2% were upheld
• 5% were settled through negotiation, conciliation and mediation
• 2% were partly upheld
• 3% were withdrawn, and
• 8% were not upheld.

Although this may seem like a small success rate, this data is a reflection of the strength of the IFSO regime in keeping its members in check. The majority of genuine complaints are dealt with by providers before the complainant approaches the IFSO.

 

How does it all work?

The IFSO’s mandate is to ensure the major players in the banking, insurance, investment and financial advisory services (called ‘providers’) act in accordance with fair trade practices and in line with their policies.

The IFSO’s role is to:

• Provide a dispute resolution service for insurance, loan, investment and financial advisers, and
• Resolve disputes with a range of providers, including major banks, insurance companies, KiwiSaver schemes and brokers.

 

Situation where the IFSO can help you

Here’s an example of a situation that could escalate to where you could have a valid complaint about your insurer or financial services provider.

You and your partner consider yourselves fairly adept at home DIY, and you’ve decided to upgrade some existing wooden-framed windows to aluminium with double-glazing. You pick a seemingly sunny afternoon to remove the existing windows, expecting the glazier to deliver the new windows that afternoon.

By late afternoon the new double-glazed windows are nowhere in sight and, unexpectedly, the weather starts to turn. Luckily you were prepared for this, with building wrap on hand to provide a temporary seal over the hole in the exterior wall. But during the night, the wind increases and the building wrap is ripped off. The next morning you wake to find that your carpet, curtains and furniture are ruined from the wind and rain that have got inside your house.

Although devastated, you are comforted that you have up-to-date insurance. Unfortunately, when you make a claim with your insurer, you find your claim has been turned down. How can that be?

Way down in the fine print is a clause stating that damage resulting from major building works is excluded under your policy.

You protest and say that the building works were only minor. You had checked with your local authority; no building consent was required for upgrading window frames. You thought the temporary seal would have been sufficient; it didn’t seem possible that the wind could rip off the seal.

The insurance company simply states that their policy is clear on this matter and refuses to process your claim.

Annoyed, you decide to approach your bank asking for a loan to repair the damage from the wind and rain to your house contents. Unfortunately, the bank turns down your loan application, saying you have an unpaid credit card that had accumulated fees and interest of which you weren’t aware.

You approach your lawyer, as the damage to your property, and associated costs, could be in the thousands. It seems so unfair! Your lawyer writes to the complaints officer of your insurance company, formally requesting a resolution to this claim. Likewise, an email is sent to your banker identifying that you are unhappy with the fees applied to your credit card, and that you would like to make a complaint. You do not receive satisfactory replies from either provider.

The next step is to ask the IFSO for help.

 

Lodging a complaint with the IFSO

To lodge a complaint with the IFSO, you will need a ‘letter of deadlock’. In the above scenario, two letters are needed, one from each provider. These letters indicate to the IFSO that you have made all efforts to resolve this matter through these providers’ own complaints processes.

Once you have these letters of deadlock, you complete the application form and send it to the IFSO’s office; the IFSO office will begin to make its own enquiries. This will include speaking with the bank/insurance company/adviser, looking at your policies, and any terms and conditions that you have agreed to. Has the provider interpreted the terms and conditions in a fair and reasonable manner?

The IFSO will also check that you have been provided with copies of these terms and conditions, and that you were given the opportunity to consent to them or to cancel the agreement before being charged additional fees.

In our scenario, after reviewing the various aspects of your complaint, the IFSO identifies that the definition in your insurance policy was sufficiently clear – stating that ‘major’ work included any exterior work that could impact on the weathertightness of the building. The IFSO did advise that the wording on the policy may be difficult for a consumer to find, and that it contained technical jargon that may impair their interpretation.

While the insurance company was not required to accept your claim, it offers a settlement of $2,000 acknowledging that the wording in their policy should be clearer and provided in a more accessible format.

The matter with your bank has also proved positive. The IFSO found that the unexpected fees and resulting interest were the result of policy changes introduced after you signed the agreement and these changes were not disclosed to you. The bank agrees to reverse its fees.

This story had a successful outcome for the complainants. It’s worth knowing, however, that a provider does not have to accept the IFSO recommendations as that is a commercial decision for that provider.

If you are not sure about a decision made by one of your providers and would like further information on what your next steps could be, go to www.ifso.nz and search ‘information sheets’.

If you cannot resolve a dispute between your insurer or financial services provider yourself, please talk with us about contacting the IFSO to discuss your options.

 

 

Capital gains tax

Tax Working Group proposals

The much-anticipated final report of the Tax Working Group (TWG) was released on 21 February and, unsurprisingly, recommended the introduction of a broad-based, realised capital gains tax (CGT) regime.

A summary of the recommendations is below.

 

What will be taxed?

• All forms of land (except the family home), shares, intangible property and business assets. The TWG recommends excluding personal use assets such as cars, boats, jewellery, fine art, collectibles and other household durables
• Only gains arising after ‘valuation day’ would be taxed, and
• Taxpayers would have up to five years to determine the market value of assets as at valuation day. If a valuation is not obtained, a ‘default rule’ would apply. This would impose an estimated $4.5 billion compliance cost on affected taxpayers.

 

When will it be taxed?

• CGT would apply on a realised basis only but would be subject to a number of concessions/exclusions referred to as ‘rollover relief’
• Rollover relief would apply to all inherited assets, assets donated/gifted to donee organisations (charitable entities), certain involuntary events where the proceeds are invested in a similar replacement asset, eg: an insurance event/natural disaster, certain business restructures, small business rollover where funds are reinvested in a replacement business
• In terms of gifted assets, rollover relief would apply where the gift is to the person’s spouse, civil union or de facto partner but otherwise would not qualify for relief
• CGT would be imposed at the person’s marginal tax rate. The TWG recommends against adjusting for inflation or discounting the tax rate
• The cost of an asset including capital improvements can be deducted against sale proceeds to arrive at the taxable capital gain. Holding costs such as interest or rates would not be claimable against personal use assets, and
• Subject to limited exceptions, capital losses should generally be capable of set-off against both ordinary and capital income.

Transitional rules

A number of transitional rules for assets held on valuation date are also proposed including:

• Flexible and default valuation rules for valuation date assets mandated by Inland Revenue
• A median rule for assets held on valuation date where the ‘cost’ to be deducted from proceeds to determine the capital gain amount will be the middle value of actual cost (including improvements), valuation date value and sale price. The intention is to stop artificially high valuations being adopted at valuation date, and
• Transitional rules for immigration/emigration, and changes in use.

 

Who is taxed?

New Zealand tax residents will be subject to CGT on worldwide assets. Non-residents will be subject to CGT only on New Zealand-sourced capital gains.

 

Company matters

In a nutshell, there is some discussion dedicated to the potential for double taxation and double deductions for gains and losses in the corporate context. For example, a company is taxed on realisation of an asset and the shareholder may be taxed again on the same underlying gain via the increased share value.

Imputation continuity rules: The TWG recommends the continuity rules governing the carry forward of imputation credits be removed.

Foreign shares: The current regime dealing with interests in foreign investment funds (FIF) is to be retained with some possible refinements. However, CGT will be imposed on foreign shares which are not currently subject to the FIF regime.

There is also some discussion around portfolio investment entities including KiwiSaver funds. At a very general level, the proposal is that these entities will also be subject to CGT on investments not dealt with under the FIF regime.

 

Dissenting views in the TWG

Three of the TWG’s 11 members disagree with the TWG’s recommendation to introduce a comprehensive CGT regime. Their collective view is that the costs of introducing the proposed CGT regime would clearly outweigh the benefits.

They suggest an incremental extension of the tax base over time, ie: extending the tax base on an asset-by-asset basis. In their view, an extension to the taxation of residential rental properties is the most obvious starting point.

Our thanks to nsaTax for writing this commentary.

 

 

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