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Insurance Contract Law Review - general background

General background on Insurance Contract Law Review is below. More detailed comments and exploration of the issues is available to subscribers to Chatswood's Quarterly Life and Health report.

The Insurance Contracts Law Review (ICLR) is an important process which has been on the legislative agenda for nearly twenty years since a Law Commission report in 2000 advocated for reform. Insurers, too, generally support many of the issues raised in the consultation document which has been circulated recently. You can find the document at this link: Submissions have closed, but if you haven’t read it already, you may as well add the document to your reading pile, to get a head start on the next load when submissions are released.

Consumer groups are lobbying for changes to disclosure rules, and other contract terms which they say will pay claims payments fairer. While insurers are concerned that if they lose the right to void a contract based on broad definitions of non-disclosure, they may be forced into the more difficult area of proving fraud. Some form of change is likely, but we need to keep working to defend our right to underwrite and manage claims effectively.

ICLR is a complex set of issues bundled together. Some affect general insurance more than life insurance. ICLR will take some years. That’s good – because it is very complicated, and some choices might pose a major threat to consumer ability to obtain insurance.

The recent claim decline case on Fair Go programme offered Minister Faafoi a good platform to launch the review, but it is an example of how simplification masks the real, difficult, issues in the review. It does not illustrate the central point around the duty of disclosure – that a client is required to disclose anything that might be relevant, even if they are not asked. They were asked. It now turns out that their medical records were incorrect (see this story). Insurers are frustrated by this, they want the right to rely on information they receive from either clients or doctors, which seems fair enough to me.

Reforms in other markets usually leave the applicant with the responsibility to answer questions truthfully, and do not usually require insurers to collect medical evidence in every case.  What most insurers want is to retain the right to underwrite, be fair, offer a good product efficiently. To do that we need to be able to ask questions and rely on the answers.

That’s just underwriting. But perhaps a bigger challenge comes from the review questions around contract terms. Many words could be offered on this subject, but I shall choose only these: unlike other aspects of insurance law, in this area New Zealand is relatively up to date, and Australia is contemplating using our approach as a model for their reform. I would argue to keep our approach.

Another important area is conduct of insurers. While conduct, and how it supports expectations of the community, has been given plenty of media attention there is some legal and regulatory plumbing missing. The RBNZ is the prudential supervisor, but arguably New Zealand lacks a conduct regulator for insurers. You might consider some recent FMA reports as an audition for the role.


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