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Diving deep into Marlborough’s booming seafood industry

Think Marlborough, and you might immediately think “wine”. Boasting some of the best-known and oldest vineyards in the country, the viticulture industry looms large in the region. But dwell on the stats for a moment, and it becomes obvious just how important a part the seafood industry plays in Marlborough’s economic successes as well.

Blenheim-based Crombie Lockwood Group Broking Manager, David Wing, is keen to remind those beyond the region that, away from the picture postcard vineyards of the Wairau Valley, there is another globally recognised industry doing the hard yards in Marlborough and contributing in a big way to New Zealand’s economy: aquaculture.

“It sometimes gets lost amidst the good news stories about our wine production, but the history of, current successes and future potential for aquaculture in Marlborough really are of deep significance to the country as a whole,” says David.

“Marlborough aquaculture is a major contributor to both the wider national seafood industry and New Zealand’s GDP. Our local wild capture and aquiculture producers account for around 60 percent of the seafood industry’s contribution to the national GDP. And seafood as a stand-alone category accounts for 11 percent of New Zealand’s GDP.

“Where mussels and salmon are concerned, Marlborough now has the highest marine farming output of any region in the country.”

The numbers are certainly impressive. Taken together, marine farming, wild capture and processing jobs account for 3.7 percent of Marlborough’s total labour force. The combined industry accounts for approximately six percent of Marlborough’s regional GDP.

The headline acts are undoubtably mussel and salmon farming. Mussels are New Zealand’s largest marine farming product by volume and value; of the annual tonnage produced, Marlborough’s output has accounted for between 60 and 70 percent of total ‘greenweight’ tonnage in recent years.

Not far behind mussels in the production and export stakes sits salmon. While Atlantic salmon is the predominant product on the world stage, New Zealand’s King salmon is free from the sea lice that has challenged this species in foreign waters, meaning that New Zealand is the dominant King salmon supplier internationally. And, as a rarer species on the global stage, king salmon farmed in New Zealand commands a higher price-per-ton than its Atlantic counterpart.

Marlborough accounts for the lion’s share of New Zealand farmed salmon, with operations on Stewart Island, in Akaroa Harbour in Canterbury, and in the Central Otago freshwater hydro-canals near Lake Ohau accounting for the remainder of national production.

The marine service industry – boat building, surveying and repair, equipment servicing and retail – is also a sub-economy in itself, helping to keep both local marine operators and Marlborough’s economy buoyant.

For Crombie Lockwood, involvement at every step of the way is a given. David says his team offers specialist underwriting services for fishing boat operators, along with insuring both farmed produce and wild capture seafood from the water to the processing plant, and even when in transit as fresh or frozen goods. Factory infrastructure and office space also need comprehensive coverage.

Vessels range in sizes, but all represent major investments to the many operators in the region.

“The future looks positive for the seafood industry in Marlborough, as internationally aquiculture is very much a growth sector,” continues David.

“Demand currently outstrips supply for mussels, salmon and other seafood stocks, which means high prices in most categories. Aquaculture New Zealand’s latest export stats [for the 12 months to May 2019] show that total mussel exports were up five percent on the previous period, amounting to over $300m in export revenue.”

Risks? David says that, while warmer water temperatures in recent years have contributed to higher fish mortality rates in some bays of the Marlborough Sounds, fish husbandry has begun to adapt to a changing climate; lowering stock density which in turn is helping reduce mortality rates and improve the quality of fish.

The bigger risk to the industry lies in the future consenting process and what knock-on effects limitations on new consents will have for the aquaculture industry.

Currently around two percent of the Marlborough Sounds is consented for marine farming (approximately 3000 hectares in a total of 150,000 hectares). After rapid expansion in the 1980’s and 1990’s, the total area farmed – primarily in Pelorus Sound, Admiralty Bay and at Port Underwood – has remained relatively unchanged in recent years after a moratorium was applied to new marine farms in the Sounds in 1996.

“The big risk for the local industry is that an estimated 56 percent of marine farms in Marlborough have consents that either expire or come due for renewal by 2025,” says David.

“The consenting process has been very carefully managed in recent times and, it’s fair to say, the process and operational guidelines aren’t getting any easier for operators. Mussel farms have their critics regardless of how much money they bring into the region.

“Possible changes of status for marine farming under legislation have increased uncertainty around how financially viable some operations will be in the future.”

Changes in the way the Sounds are zoned for industry could potentially cost aquaculture millions in future decades. Fewer farms or less tonnage of product being exported will of course have a direct impact on household wages and the overall economy in the region.

“The industry will carry on. But a lot of people are waiting to see what happens,” David concludes.

“It’s an industry set up for volume production. But it’s also a very well-managed industry, with some talented, globally recognised local operators at the heart of it. The wine industry remains vital to Marlborough’s successes, but I believe aquaculture is just as much the lifeblood of our community as well.”

 

Insurance consumers should welcome Fire and Emergency NZ review

The Insurance Council of New Zealand and Internal Affairs Minister, Tracey Martin, applaud government review of current levy funding regime.

From the ashes of a Fire and Emergency New Zealand (FENZ) restructure has risen significant merger costs that, under the current funding regime are recuperated through a levy imposed on all home, contents, and auto insurance premiums.

In March, the Government decided to review the funding system with an eye to seek alternative solutions that are fairer to the wider population and insurance buyers. The move has been overwhelmingly supported by the Insurance Council of New Zealand (ICNZ).

“The current levy is a grossly unfair tax that penalises people who try to do the right thing to protect their assets, lumping them with the cost of running FENZ while also supporting access to emergency services for those who choose not to insure,” said ICNZ Chief Executive, Tim Grafton.

“The Government has made the right call to review how to fund FENZ in a way that is fair to everyone, simple, low cost to administer and lines up with what happens in most other countries,” he continued.

The benefits of the levy are not in dispute, with Internal Affairs Minister Tracey Martin acknowledging the services FENZ provide. “The establishment of FENZ has gone well and New Zealanders are beginning to see the benefits of a modern, unified fire and emergency service,” said Martin. “For example, FENZ has responded admirably to the Nelson/Tasman fire.”

But she, like the insurance industry welcomes the review and potential alternative funding solutions going forward. “FENZ, like the fire service before it, is funded by a levy on property insurance and there are flaws in insurance-based funding: property owners that do not insure are able to ‘freeride’, as they do not pay a levy but still benefit from FENZ’s services; charging people on their insurance increases insurance costs and can reduce the incentive for them to properly insure their properties; and levy collection is complex to administer for insurers, and FENZ’s levy income may become uncertain as the commercial insurance market evolves.”

“The Government considers that there may be better ways to fund such an important organisation,” she concluded.

This article was originally published in Crombie Lockwood’s SURE magazine

The ‘Cloud’ without a silver lining

Many businesses are turning to the cloud for their IT services. The cloud provides reasonably priced access to the latest software and technology without the need for a business to make significant investments themselves.

There are numerous cloud suppliers including firms like Microsoft, Amazon, Apple, Xero, One Net, Spark etc. The list is huge and ranges from giant companies to quite small, niche operators. It’s estimated that by 2019 83% of data traffic will be cloud based (currently it’s at 65%).

But, while the cloud provides its customers with some huge advantages, there are also inherent risks that need to be considered along the way:

  • Typically cloud service providers will limit their liability through the contract their customer signs. Quite often this limitation will be very tight and will afford the customer little or no rights of recovery against a cloud service provider. In the event that a customer of a cloud provider suffers a loss because of a loss of data/operations then the chances of making a financial recovery from the cloud provider will be limited at best
  • Cloud customers are liable for their data irrespective of where it is stored. A breach of data stored on the cloud will still be the responsibility of the owner of the data and not the cloud provider. So any legal liability, fines, notification costs will be the customer’s irrespective of the cause or location of the data breach
  • Cloud service providers give customers access to the most up-to-date security. However; the weakest links in all IT systems are the operators. No matter what the level of security there is no software-based answer to human error such as sending e-mails to wrong addresses, inadvertently disclosing confidential information or passwords, etc.
  • In the event of a data breach caused by the cloud provider’s customer’s actions i.e. the negligence of an employee then the chances are the contract terms will exclude any liability at all on the part of the cloud provider
  • With the limited protection afforded under the cloud service contract it is unlikely that a customer would be able to recover costs incurred by their business if there was a cyber event or data breach

– even if it’s in the cloud. So costs such as business interruption, restoration of data and public relations are not going to be recoverable without resorting to litigation against the cloud provider and perhaps, not even after that

  • The cloud provides access to the latest editions of security tools such as fire walls and anti-virus software. However, the security can only respond to known threats. Hackers are discovering new software weaknesses every day and exploit what are known as zero day vulnerabilities to attack systems before any protection can be deployed. Even with their enhanced security cloud service providers are vulnerable to these attacks
  • Because of the success of the cloud it’s become a target for hackers. So while data in the cloud is often better protected, it is also more exposed because it’s seen as an attractive target for the bad guys
  • There are legal implications of where data is stored. Where a cloud provider hosts their data isn’t always disclosed and is quite often not in New Zealand. A breach of confidential data stored by a

cloud provider could expose their customer to the laws of the country where the data is hosted and these may not be as favourable as NZ laws resulting in extended liability

Most of the Cyber Insurance products in the market extend to cover the Insured for an event or breach on a cloud network. CyberSAFE defines a computer network to “also include a Computer Network that is under the operational control of a Service Provider”.

With CyberSAFE a breach occurring on a cloud based network would be an insured event and, subject to policy terms and conditions, will give the insured access to:

  • Cover for legal liability to third parties
  • Cover for fines & penalties for privacy breaches
  • Defence costs
  • Business Interruption costs
  • Public Relations costs
  • Data restoration/recovery costs
  • Ransom monies

Even if the cloud service provider is liable for the cause of the cyber event/data breach it is extremely unlikely that they will indemnify their client for any costs or liability and, even if they do, it may be for a limited amount and the management of the recovery/defence will be outside of the customer’s control.

Visit: www.crombielockwood.co.nz/cyber-insurance for more on CyberSAFE.

HAMISH KENT
GROUP BROKING MANAGER
+64 3 543 8693 |  +64 27 836 2553 | crombielockwood.co.nz
hamish.kent@crombielockwood.co.nz

Mainzeal – Directors & Officers Liability Insurance

The Mainzeal decision

Justice Cook in the High Court awarded $36 million damages against four Mainzeal directors including ex-Prime Minister Dame Jenny Shipley. The judge ordered Mr Gomm, Mr Tilby and Dame Jenny to pay compensation of $6 million each and Mr Yan, a shareholder of Richina Pacific which owned Mainzeal, $18m. The $36m awarded is approximately one third of the total loss to creditors which was $110m

The liquidators, Brian Mayo-Smith and Andrew Bethell of BDO argued the directors breached their duties and were negligent in allowing the company to continue trading while insolvent. The Judge agreed. In a statement following the release of a 178-page judgment, the High Court said the Mainzeal directors were “reckless [and] had adopted a policy of trading while insolvent”, and “used money owed to trade operators, particularly sub-contractors, as working capital”. Although “Mr Yan had acted honestly and was genuinely committed to Mainzeal, he had induced the other directors to breach their duties, including by making misleading representations to them,’” the judge said.

Mainzeal went into liquidation in early 2013, owing unsecured creditors about $110m. Some $45.5m of that amount was owed to unpaid sub-contractors including tradespeople working on Mainzeal projects. Richina Pacific (Mainzeal’s parent company) had extracted more than $42m from Mainzeal.

This is a watershed for directors’ obligations and duties even when acting in good faith. Perhaps unlike the failure of the finance companies after the GFC where directors’ behaviour was brought into question, the Mainzeal directors were acting honestly but ultimately were still held liable for their wrongful acts.

Directors need to spend appropriate time and attention on governance responsibility and management of risk – including scanning and focusing on the operating environment, particularly when complex risks are in play. Directors had to make sure that if they have an overseas parent company, those arrangements should not impact on their governance responsibility.

Directors & Officers Insurance Liability response

The ex-directors of Mainzeal had in place a Directors Liability Policy including Defence Costs, however we understand the Limit of Liability is considerably less than the $36m awarded. Therefore the directors are likely to be personally liable for any shortfall.

This judgement is a timely reminder of the need for adequate Directors’ & Officers’ liability policy protection both in terms of Limit of Liability and scope of coverage. The construction industry is particularly under pressure from financial failure at present as we have seen with recent high profile collapses, but every director of every company has duties, obligations and responsibilities which they need to be aware of and carry out diligently.

It is also worth noting that the litigation landscape in NZ is changing and we are seeing the arrival of litigation funders who are so prevalent in Australia. Litigation funders band together a group of creditors and fund their legal costs to bring a class action against either the directors and/or the company. If the plaintiffs are successful, the funders take a percentage of the award as their fee.

If you have any questions or require any assistance with Directors & Officers Liability insurance, please contact:

HAMISH KENT
GROUP BROKING MANAGER
+64 3 543 8693 |  +64 27 836 2553 | crombielockwood.co.nz
hamish.kent@crombielockwood.co.nz

Airbnb – sleepless insurance risks

Many New Zealanders are using accommodation websites such as Airbnb, Bookabach or similar to host guests in their homes for a little extra income or to assist with mortgage repayments. However, inviting strangers into your home can bring added risks, and insurers, and brokers alike, are encouraging property owners to make sure their home is safe and protected when listed.  

As has been widely reported in media and highlighted by the Insurance Council of NZ (ICNZ), “…people renting out their homes as Airbnb accommodation may not be covered by insurance if anything goes wrong”.

Personal and business policies have different limits; different ways of settling your claim; and generally cover different types of risk.  For example, your house insurance policy may cover temporary accommodation if you can’t live in your home after an event but it won’t provide any cover if you’re unable to continue running your Airbnb business.

Common home policy exclusions or issues

Understanding how your insurance policy will respond to a loss when you are running a ‘business’ from your home is crucial for the homeowner. Some common conditions found in New Zealand insurer policy wordings are:

  1. Home insurance policies do not cover malicious damage and Contents policies do not cover theft by anyone invited into homes. Clearly, when you are renting out your property to Airbnb or a similar service and property is taken from you by a guest, you would not be covered.
  2. The insurer must be advised when an unoccupied home is being let, such as for Airbnb. Keeping the property tidy and secure to maintain your insurance cover also needs to be considered. As one insurer, Vero, has said, ‘”…that just means doing simple things like keeping the gardens neat, locking doors and windows, emptying letterboxes and making sure the home is regularly inspected.” Not so easy if you live in another part of New Zealand.
  3. When you list your home on an accommodation site you are also taking on some added liability so you need to advise your insurer or broker to have the required protection in place. If a guest is injured in your home you may be required to cover costs of their medical care or compensate them for lost income.
  4. Airbnb sites are subject to the same health and safety rules, and enforcement by Worksafe, as businesses. That means any equipment provided to guests which proved to be unsafe could land the homeowner in trouble. A simple example is where kayaks or bicycles are made available but the owners have not provided safety equipment such as life jackets and helmets.
  5. Earthquake Commission (EQC) pay-outs, which cover damage to property up to $150,000 as of 2019, only apply if more than half of the house is used by the owner. If your Airbnb is larger than 50 percent of your house, then the EQC cover would not kick in.

It is strongly suggested that when you subscribe to accommodation services such as Airbnb you contact your insurer or broker for advice on what your existing insurance policies cover and what additional insurance you may need for your home-based business.

Alternatively, to find out more about what we can do for your business, talk to your Crombie Lockwood broker.

Crombie Lockwood are proud winners in the Nelson Tasman Chamber of Commerce 2018 Nelson Pine Industries Business Awards