The History of Insurance

Insurance as a concept has been around as long as humankind in some form or fashion. Insurance at its core is about the distribution and management of risk, and as thinking animals, man has been doing so for thousands of years. Whether it was hunting in a group to minimise risk of injury or splitting vital goods among different carriers on a dangerous trail through the wild, both things are at their essence about the distribution of risk. They are 'insurance'.

As a more formal enterprise involving money, insurance has been with us since the ancient world. The 1750 BC Babylonian Code of Hammurabi included reference to a debtor not having to repay a loan if some horrendous unforeseen event should befall them. These events included natural disasters, disability or death. Early Mediterranean naval merchants received loans to fund their shipments. When they did so, the merchants paid the lender an additional fee in exchange for a guarantee from the lender to cancel the loan if some woe should befall their shipment at sea.

The ancient enscription of the 'Code of Hammurabi'.

In medieval Europe, insurance was carried out in the guilds. The guilds with more money behind them set aside coffers of gold and currency that were used as an insurance fund. If a guild member's house burned down or they were robbed, the guild would compensate them using money from this fund. If a master was disabled or killed, this fund would go to support their widow and any family they may have left behind. In this way, the guilds offered forms of home insurance and life insurance.

The first known insurance contract was from Genoa in 1347 AD, and from there maritime insurance developed widely, including contracts that had scaled costs based on the differing risks of certain routes and voyages. Moving into the enlightenment and Early Modern Europe, the process of underwriting first came to be. Wealthy investors and those who wished to invest would take on responsibility for certain ship's cargo in voyages to the new world. If that cargo were lost or destroyed, refunding would be their financial responsibility. In exchange, these investors (the first underwriters) would be promised a share of the riches, crops or precious metals the voyages discovered in the Americas (which were believed to be teeming with them). The main appeal for these underwriters was the acquisition of new world tobacco.

Tobacco was just as addictive in the Early Modern Era, as it motivated the first underwriters to 'insure' voyages to the Americas.

Formalised property insurance came into being in the aftermath of The Great Fire of London in 1666. The unprecedented devastation of the fire was estimated to have claimed the properties of up to 70,000 of the city's 80,000 population. Groups of the underwriters mentioned previously, who had up until this point only dealt in maritime insurance, began to see the need for fire insurance, so they formed companies and offered to the general public at a price (the 'premium'). The development of insurance was also contributed to by the development of mathematics. The Frenchman Blaise Pascal discovered a numerical way to express probabilities, and this was applied to risk of certain events. In the wake of this discovery, it became possible to assess and give costs to various categories of risk based on their prevalence or probability of occurring. This is why today, when you go to purchase life or health insurance, your premiums will be higher if you are older or in more infirm health (you present a higher probability or 'risk' of a claim).

Whilst the insurance business began to thrive in Europe, overseas it was a different matter. In America especially, colonial life was deemed to be far too fraught with risk for any prospective insurer to even touch, lest they find themselves rapidly bankrupt. As a result, it took almost a century for insurance to become widespread in America after its initial colonisation. When it finally did however, more recent developments from Europe were incorporated into its design. At this time, all the hallmarks of modern insurance were in place and whilst insurance continues to change and develop to this day with the technology and the times, the core bedrock remains the same.

It's safe to say that insurance will always be part of society in one way or another. The process of distributing and managing risk seems to be engrained into our social being and our rational minds, as does the desire for profit and protection which informs both sides of the insurer/policy holder relationship.

Bali volcanic ash sends crucial message about travel insurance.

Mount Raung in Bali has recently erupted, spewing tons of volcanic ash into the air and wreaking havoc on flights. The eruptions began on June 29th, and their impact has been felt on unfortunate travellers trying to get home for over two weeks now. Those with comprehensive travel insurance, purchased before the cut-off date, will likely find their accomodation, transport and meal costs reimbursed. Those without it find themselves in a sticky situation - having to pay the costs out of their own pocket. Many of these unfortunate travellers will have budgeted on their trip lasting the planned length of time and will be left considerably out of pocket by the eruption.

Impatient travellers wait for flights out of Bali.

Estimates show that 40% of Kiwis that travel to Bali on a weekly basis have no travel insurance. Those who were stranded there could be facing thousands in unexpected costs that could hugely affect their finances and life (after all, lots of us don't have huge cash reserves behind us for a rainy day). 

The lingering Bali ash saga sends a clear message that we all need to be more vigilant about our travel insurance and going without is probably a risk that's not worth taking. I myself discovered this fact on a trip to the United States where my connecting flights were cancelled and I found myself stranded in Los Angeles for two extra days waiting for a new flight home. Being covered ended up saving me close to $1,000 in flight alteration costs and extra accomodation. Those stranded in Bali face far worse due to this lingering and unexpected natural disaster. A secondary message from the disaster is that the lower costs of a basic policy may be tempting, but a comprehensive option may be worth the extra investment. Those with just basic cover stuck in Bali may only receive limited reimbursement, if any.

For those that do have a comprehensive travel insurance policy and face delays while overseas, it's crucial that you get everything possible in writing. This includes confirmation of delays or cancellations from the airline, transport receipts, hotel bills and meal receipts. If in any doubt at all, get it in writing. Also, read your policy carefully (including the fine print) and know exactly what you're covered for before you make decisions so that you won't face any unexpected surprises on your return home.

If you have any questions about travel insurance and what's the best option, you can talk to our travel insurance experts at Hood Insurance Brokers. Above all, be vigilant, know the conditions and be safe. Take the smaller cost of insurance beforehand just to be safe. Travel policies also cover far more than unexpected delays, including lost luggage, theft and medical costs while overseas.

A member of Spratt Financial Group.

Financial News (July 2015)

1. Dunedin flood insurance bill found to be $28 million. - Radio NZ News

When South Dunedin experienced 3 months worth of rain in a single day, the damage was extensive. There were 2,000 domestic claims and 170 claims for damaged vehicles with claims totalling $28 million.

2. Westpac loosens apartment lending rules. - Good Returns

Changes have been made to make things easier for borrowers and first home buyers, by increasing the LVR maximum from 80% to 85% with certain conditions and limitations.

3. Options discussed to improve Kiwisaver. - Good Returns

Options are being discussed at a workshop on IRD's annual kiwisaver day on August 10th. Many proposed initiatives include better education for the general public about the key positive features of kiwisaver  as well as ensuring savers are in the most beneficial choice of fund.

4. Advice: Being vigilant about financial abuse. - Fisher Funds (NZ Herald)

Financial abuse can happen, from both untrustworthy advisers and fund managers as well as from members of one's own family. People are urged to be vigilant about who they trust with their money and look out for members of their own family when they make big financial decisions.

5. Expert: Financial skills among the general public prove to be poor. - NZ Herald

Whilst most people are good at looking after their money on a daily basis, they tend to make poor decisions for their future, according to a financial advice expert.

6. Kiwis see economic issues as the biggest problem for NZ. - Scoop.co.nz

44% of surveyed New Zealanders declared economic issues as the biggest problem facing the country. A growing 14% of Kiwis also view the housing shortage as the greatest concern (up 4% from March 2015 figures).

7. Auckland housing market 'continues to go mad' - NZ Herald

In the wake of Labour's controversial release of housing data highlighting the possible impact of foreign investors, Auckland's property market continues to increase 10 times faster than the remainder of the country according to the most recently released data.

For Insurance, Investment and Lending Service visit our official website here.

Staying Healthy: The Health Benefits of Sleep

Our staying healthy series aims to give you helpful tips and advice to keep you in tip-top shape, because staying healthy is an insurance policy all of its own. In previous additions we have discussed how to reduce stomach fat, general weight loss tips and if chocolate can help prevent obesity and diabetes. In this installment, most people already know that we need sleep. But sleep (and the right amount of sleep) has even more practical benefits to your health than you think.

1. Improving Memory.

Sleep is crucial to processing and consolidating information in your mind, which is why a good night's sleep before a test or exam is often a far better idea than burning the midnight oil studying. Studies have shown that if you're trying to learn something, a good night's sleep is crucial to keeping your precise mental functioning intact.

2. Improving weight issues.

Research conducted by the University of Chicago found that subjects that were well rested lost considerably more fat whilst on a diet than subjects that were sleep-deprived. The subjects in the first category lost approximately 56% than the sleep-deprived group. The same areas of the brain are responsible for both sleep and metabolism, so good sleep can help maintain a healthy and not excessive appetite.

3. Sleep can reduce stress.

Sleep refreshes your mental processes and regulates the level of hormones in your body, both of which can become askew through considerable stress during a hard day. It also provides better control of your blood pressure. Health experts recommend attempting to get into a routine of going to sleep and awakening at around the same time each night, whilst giving yourself some wiggle room for a late night or two every once in a while. If you are over-stressed, do your utmost to get yourself a good night's sleep.

4. Sleep lowers your risk of heart disease and diabetes.

A somewhat shocking study investigated the effects of disturbing the sleep patterns of 10 previously healthy young adults with shift work. After only four days, three out of 10 had blood glucose levels that would qualify them as pre-diabetic. Many other studies have testified to good sleep lowering the risk of heart disease and heart attacks over the long term.

5. Improving reaction times/preventing accidents.

A bad night's sleep or, even worse, no sleep at all, is the equivalent of one or more alcoholic beverages in terms of its impact on your driving. Lack of sleep means that your reaction times are slowed and your decision making is impaired. In the Unites States, the National Highway Traffic Safety Adminstration found in 2009 that tiredness accounted for the highest proportion of fatal single car crashes, even higher than alcohol. For the safety of yourself and other road users (as well as avoiding vehicle insurance problems) a good night's sleep is essential.

Sleep affects almost every tissue in your bodies, including hormones, your immune system, your appetite, blood pressure and the health of your heart. A good sleep schedule maintained well is crucial for your functioning, and will definitely help you in staying healthy.

The hidden benefits in your life insurance policy.

Many of us have insurance policies, but not many of us know just how much we can get out of the policies we already have. What many people do not know is that there may be clauses in your policy that allow you to react to changes in your life to become better protected than you are. Having to make changes to your cover or getting new insurance entirely can be an onerous procedure. It can be more than a bit of a chore having to fill out application forms and go and have blood and medical tests.

Even so, there are times when making changes to your insurance is necessary and extremely beneficial. For instance, to cover an increase in borrowing for your business, doing renovations, taking out a home loan or covering a new addition to your family. Changes can be necessary sometimes, but the hoops you have to jump through to make them can often deter people from making them. But if you didn’t have to go through all the forms, paperwork and medical screenings, it could be a lot more tolerable.

Excessive forms and screenings do not have to be an obstacle to changing your life cover.

The good news is that in your current life policy there very well could be built in guarantees that allow you to increase your cover by certain amounts, without having to supply current medical information, in the event of specified events such as:

·         Having a child (by birth or legal adoption).

·         Becoming married or entering into a civil union.

·         Becoming divorced or the dissolution of a civil union.

·         Financially supporting a dependent child through a first course of full-time tertiary education.

·         Taking out or increasing a home loan.

·         Becoming responsible for the full-time care or payment for long-term care of a close relative;

·         The death of a spouse or partner.

·         Significant salary increase of 10% or more, at least $20,000.

If you have gone through any of these changes recently, then updating your insurance coverage might be an easy task, as well as a necessary one. Take a close look at your policy wordings or give us a call any time, and we can have a look at your existing policies and give you a summary of what you can do to get the most out of your insurance.

Use our contact form and send us an enquiry.

Visit our official website for more information.

Breaking News (June 2015)

1. Do you have a plan for who will manage your money if you can't? - NZ Herald

If a family member suffers a severe illness or accident and can't continue to manage their affairs, you don't want legal wrangling and financial stress added to your burdens. It's always best to make sure you have a written plan and/or legal will in place so that you and your dependants will be okay if the worst happens.

2. AIA announces profit growth. - Good Returns

One of New Zealand's premier insurers has announced an underlying growth of 21% in profits for the year for the 12 months to November 30th 2014.

3. Self-driving cars: Insurers sceptical about impact on business. - Insurance Business Online

84% of business executives surveyed in the US did not expect the self-driving car to impact business until 2025 but are they ignoring the speed of a revolution? Industry insiders saying Self-driving vehicles could completely revamp the structure of Vehicle Insurance worldwide.

4. Humor: Insurance Fraudster tries to cash in a claim on a fake dead cat. - Insurance Business Online.

An American man has demanded an escalating amount in successive claim requests for emotional damage inflicted by the death of his cat in a car accident. The problem: There is no such cat and the pictures he supplied were of two different cats from Google.

5. Average Auckland house price up $100,000 in a year, but available listings down. - Interest.co.nz

Auckland housing boom continues as New Zealand's largest real estate agency sold a record number of houses in May, showing no sign of the usual winter downturn.

6. Flooding: Insurance claims reach towards $10 million. - Stuff.co.nz

Insurers have received close to 2,000 claims after severe flooding in the lower North Island over the weekend of the 20th June.

7. Annual health insurance payouts rise by $38 million. - NZ Herald

Following on from a previous story posted on the blog, the annual health insurance payout figure has been revised upward yet more. This is the first time since the statistics have been kept that $1 billion has been paid out in claims nationwide.

8. Cold snap hits New Zealand: Could we see record low temperatures? - NZ Herald

Ice and snow covers South Island roads and last week, Queenstown airport was forced to cancel a day's worth of flights. The record low tempearture recorded in New Zealand of a shocking -25 degrees may be under threat if the cold continues. Drivers are urged to stay safe on the road and to keep alert and warm.

Visit our official website at www.sprattfinancial.co.nz.

Common Insurance Mistakes to Avoid (Part Two)

Read Part One here.

4. Be aware of pre-existing health conditions.

If you have to cancel your health insurance, please be cautious about any medical conditions that you have developed while your policy was in force. If you need to transfer providers or get insurance at another time in the future, those medical issues become 'pre-existing conditions'. Having a pre-existing condition, depending on its severity, could mean much higher premiums or in the worst case scenario, it could prohibit you from being covered at all. Make sure you bear this in mind and ask a professional before cancelling your policy or before buying your first insurance. Many people have unfortunately let their policy lapse or cancel it entirely, believing that they will be able to re-acquire the same cover at the same prices at another time if they need to. This may not the case.

5. Make honest and full disclosures on your application.

Insurance providers are nothing if not thorough. Lying or omitting information on your application in hopes of getting a better deal on your premiums or thinking that some information is unimportant could have dire consequences. When you have to claim on your policy, the insurance provider can legally deny you your claim if you have found to have misrepresented or omitted information. For instance, if you have a pre-existing medical condition or injury and you fail to provide details on the application forms, the provider could very well not pay out your claim. Similarly, if you check non-smoker on the application and it is later discovered that you smoke, your claim could be reduced or cancelled to make up for the increased premiums you would have been paying if you had made full disclosure. The bottom line is that it is far better to be safe than sorry. Make all necessary disclosures, be truthful and if you're at all unsure about anything, ask a professional adviser for a consultation before proceeding.

6. Don't leave it too late.

When we are young, often purchasing insurance is the last thing on our minds. We're young, healthy, full of life and at very low risk of needing our lives, our health or our debts covered. Ironically, the time when we perhaps least need insurance is the time we should be thinking about buying it the most. If we leave it too long, until we are older, we are also going to have more pre-existing conditions and have to pay higher and higher premiums. In my personal experience, I was lucky enough to have a medical policy before I was diagnosed with Crohn's Disease in my early twenties. If I had left it longer, I would have had to pay over $30,000 of medical costs out of my own pocket. Think about getting your life and your health covered before you need it. It will benefit you in the long run.

7. Review your policies regularly.

Spratt Financial reviews our clients' insurance policies on a yearly basis for a very good reason. Things can change, both in your life and in the insurance marketplace. It is likely that you will be in a different financial situation with different needs a year from today, and it is essential that your insurance plan covers those current needs. Basic life cover with a sum assured of $50,000 may work when you're 20 with no dependants, but it won't be enough after your first child comes along or after you and your partner secure a mortgage. Review regularly, and make sure your cover fits your current circumstance.

Read Part One Here.

Got a question? Need a free review? Ask our team of professionals through our contact form.

Visit our official website.

Follow our Twitter feed @SprattFinancial.

Common Insurance Mistakes to Avoid (Part One)

Buying insurance can sometimes be a much more difficult thing that we want it to be. Unfortunately, if you really want to cover the bases and make sure your insurance works the way you need it to, there are some things you need to be aware of. This article will list out some common mistakes people make when buying their insurance and how best to avoid them.

1. Don't rely on assumptions.

One of the most important considerations when looking for insurance is just how much cover you need. When looking at this, there are some things you can very easily overlook. For a life, total permanent disability or trauma insurance policy a sum assured that only covers your existing debt or that is just an arbitrary figure may not be enough. Factors such as inflation, growing cost of living, interest and more need to be considered thoroughly otherwise yourself or your beneficiaries may end up with a payout that isn't enough to support them in their most difficult time. For disability and long term insurance, the situation is even more complicated and very difficult to work out just how much money your beneficiaries would need. This is where talking to an adviser before you get your insurance becomes essential. You will most often need more than your current income to maintain your current living conditions in the future so don't make assumptions of how much you'll need.

2. Cheaper is not always better.

Often the primary consideration when choosing insurance is the cost of premiums. Understandably, people are extremely motivated to pick the policy with the cheapest monthly premium but in the insurance industry, this can be a dangerous choice. For example, as a rule in general for health insurance, the higher your premiums the less you will be paying when you have to claim for healthcare. The company's reputation and amount of coverage you'll get also needs to be thought about carefully. If you're going to encounter problems at claim time, your savings in premiums are going to pale in comparison to the consequences if you won't get paid out in full. A qualified adviser can inform you of the differences between insurance providers and it's something that definitely needs to be taken into account.

3. Not knowing what is covered.

Make sure that you don't gloss over the details of what specifically is covered by your insurance. For health insurance, policies can cover GP visits, surgical costs, dentistry and optical. Your policy can cover one, all or a combination of them. General insurance policies such as home or contents insurance can cover certain events, but it can also not cover them, leaving you in a costly hole if certain circumstances should ever come to pass. Not knowing exactly what's covered beforehand is a bad mistake and could cost you hugely in the long run, so either ask an agent or go over your policy fine print thoroughly before making any decisions.

Read Part Two here.

Got a question? Ask our team of professionals through our contact form.

Visit our official website.

Follow our Twitter feed @SprattFinancial.

Breaking News (May 2015)

1. Tower Insurance makes a game out of safe driving. - Stuff.co.nz

With their new smartphone app, families finally have a way to settle all those arguments about who among them is the better/safer driver. Good feedback and points are accumulated for safe braking, smooth acceleration, good cornering and driving at safe speeds under the speed limit. Once every journey is complete, the app gives your score as well as feedback on how to improve next time. This has led 74% of drivers to improve their scores over time.

2. NIB launches new travel insurance. - Scoop.co.nz

NIB is partnering with global travel insurance provider World Nomad Group to offer travel insurance to Kiwis along with their current health and medical insurance business. This marks NIB's continued expansion in the NZ marketplace after purchasing TOWER medical in 2012.

3. Rise in amount of Insurance and Superannuation Jobs available. - Scoop.co.nz

The latest data from SEEK has revealed a month to month jump of 40% in the amount of insurance and superannuation jobs available, much of the growth coming from Auckland and Canterbury.

4. Health Insurance Claims hit $1 billion for the year. - Good Returns

The milestone was reached in the March quarter with insurance funded healthcare in NZ passing $1,000 million. The number of policy holders over the age of 65 continued to grow with the number reaching 150,000 in March.

5. NZ Government asking for everyday Kiwis flag suggestions - Standfor.co.nz

Submissions for new flag designs and what we stand for are being requested by the NZ government. What do you stand for?

6. Health: Study links long car commutes to weight gain. - NZ Herald

People who have changed from their routine of driving to work to walking, cycling or using public transportation lost significant amounts of weight. The research was led by the University of East Anglia in the UK. The longer the commute, the more the weight loss as commutes over 10 minutes leading to a loss of 2kg and a huge 7kg on average for journeys of more than 30 minutes.

7. Opinion: Is Auckland a housing bubble and will it burst? - NZ Herald

Every month we read news about soaring Auckland house prices, with the figures just becoming more and more bloated and out of reach of everyday Kiwis. Is this a permanent trend or a housing bubble that is set to burst?

Visit us at www.sprattfinancial.co.nz. 

Timelapse of the Giant Poppy Project - Video

Further to our previous post on the Giant Poppy in Auckland Domain for ANZAC Day, here is an amazing timelapse video of the poppy being assembled and filled in over time with thousands of messages of support and remembrance from New Zealanders.

Click here to see the video now.

Remember that the Poppy is available to view until tomorrow, so if you haven't done so, we highly recommend you get down and see it for yourself. Definitely a great project and one that Spratt Financial Group is proud to have supported.