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Insurance contract law options paper also brings advisers into scope

The Ministry of Business, Innovation and Employment are looking to revise the current insurance contract law. As part of their revision process, MBIE is looking to get insight on what suggested changes to insurance contract law should be progressed. 

Reading the options paper the first surprise comes with the addition of a new objective. Objective four for the review states that: Consumers’ interests are recognised and protected when participating in
the insurance market. 

In the explanation they explain the intention bring interactions between clients and advisers into scope. This may be developed further in the areas of trying to ensure that customers understand what they buy. It is likely to be a strong link between changes to contract law and regulation of conduct of insurers. Yet it is probably the areas where options need the most development. That is where we can help, and MBIE needs your help too.

An overview of the options paper: 

The need for a revision of the current legislation is focused on MBIE wanting to ensure that:

• Insurers and clients are well informed and able to transact with confidence

• Interactions are fair, efficient and transparent

• Barriers to insurers providing insurance are minimized

• Customers are protected

Through the amendment of the insurance contract law, MBIE are looking to improve the initial information sharing process, MBIE have stated that individuals often do not understand what information is required to be disclosed. To improve this process, MBIE are looking at implementing  one of two potential solutions:

  1. Change the current law to ensure that clients only have to answer insurer questions truthfully and accurately
  2. Change the current law so that clients have to disclose what a reasonable person would know to be relevant

Regardless of the change that is implemented, there are two additional changes that will be implemented.

  1. Life and health insurers will need to obtain and base their underwriting process of third part records 
  2. Changing the severity of consequences for innocent disclosure failures while fraudulent and deliberate disclosure failures are handled seriously

The change in law is also looking to address unfair contract terms. As stated in the Fair Trading Act, unfair contract terms are prohibited. Terms in insurance contracts that can't be ruled out as unfair are stated in the Act. The changes regarding unfair contract terms is not intended to shield customers from the terms of the Fair Trading Act. To limit the implementation of unjust terms, MBIE are looking at implementing  one of two potential solutions:

  1. Removing the insurance specific exemptions to the unfair contract terms rules in the Fair Trading Act
  2. Removing the insurance specific exemptions but change the unfair contract terms rules in the Fair Trading Act so that it is easier to understand how the rules apply to insurance contracts

Through the suggested change, MBIE are looking to simplify the process of reading and comparing policies. Through this change, customers will be able to find the policy selection process easier. Potential solutions are:

  1. Requiring plain language insurance policies
  2. Requiring core policy wording to be clearly defined
  3. Requiring a summary statement to be provided
  4. Requiring insurers to work with third-party comparison platforms
  5. Requiring insurers to disclose key information

I shall make my initial review notes available to subscribers to the Chatswood Quarterly Life and Health sector review, as I did with the Conduct of Financial Institutions paper. 

Submissions are required by 28 June 2019.

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