The Insurance Contracts Bill will repeal, replace and consolidate several Acts governing NZ’s insurance law. Olly Peers, partner at Buddle Findlay, believes care needs to be taken to ensure the Bill doesn’t make the insurance process more difficult for customers to navigate.

…the Bill proposes replacing the common law duty of disclosure with a new statutory duty. Consumers would be required to take reasonable care not to make a misrepresentation to the insurer. In effect, an applicant for insurance will need to answer any questions put by the insurer truthfully and accurately but will no longer need to determine for themselves what information may be material to the judgment of the insurer. No longer will there be an obligation to volunteer information not requested.

…One of the specific matters to be considered in determining whether the policyholder has taken reasonable care is the questions asked of the policyholder, namely were they clear and specific? If an insurer has asked vague questions, they will have less cause to complain about vague or general answers. In addition, an insurer will have a general obligation to communicate to the policyholder the importance of answering questions in a fair and accurate way.

For the legislation enacted in the UK, industry participants were concerned that the new statutory standard might promote excessively detailed questions and application forms, as insurers try to mitigate their risks. While the UK market appears to have regulated itself against the excesses of this practice, it is always worth bearing in mind the wider commercial impacts of legislative and regulatory reform. The unexpected consequences of recent changes to bank lending rules are a timely example of how well-meaning reform can have adverse rebound consequences.

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Insurance & Financial Services Ombudsman (IFSO) Karen Stevens is looking forward to the Insurance Contracts Bill. The bill aims to update and consolidate NZ’s existing insurance laws and make insurance contracts easier to understand and fairer to consumers.

“As long as they don’t deliberately try and mislead the insurer by giving them wrong information or withholding information they know about, then they should not be penalised. At the moment, the law [is that] it doesn’t matter whether or not you innocently failed to disclose.”

Under the law in place at present, forgetting is enough to be denied compensation…. “If they actively mislead the insurer, then the insurer can respond by avoiding the policy or declining the claim. But if they don’t actively mislead the insurer, then the insurer can’t take that very harsh action that they currently do now.”

According to the ombudsman, over the years they have seen a lot of policyholders who have not actively tried to misrepresent the situation but have suffered the consequences of non-disclosure…. “That means that they’re uninsurable. As well as being uninsured, they’re uninsurable.” …

“Some insurance contract terms will be deemed to be unfair going forward, and I think that’s going to cause a degree of consternation to insurers in terms of looking at policies carefully and working out how that’s going to impact on the current policy documentation.”

“… the government has said that to help consumers better understand what their policy covers basically, they want them to be presented and worded clearly. So, the government’s thinking about how to regulate in that sort of space to make sure that they are easier to understand.”

We asked Karen Stevens to give examples of possibly unfair contract terms. Of course, this is difficult to do as a category, because ‘unfair’ will be judged in the courts in ways which can only ever be specific to a contract and a specific person. Having said that, what emerges from our discussion and some of the case examples provided is that blanket exclusions, for example, for mental health conditions; or all pre-existing conditions; or blanket provisions allowing an insurer to revise terms and conditions (such as changing the definitions for trauma or health conditions that define the threshold for payment) have been successfully challenged overseas, like the example here. Following our review of these issue in our last quarterly life report this suggests that it will be sellers of short-form underwritten contract that will probably have the most challenges in managing the transition required by the new law.

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24 Feb 2022 –The Ministry of Business, Innovation and Employment (MBIE) sought feedback on the draft Insurance Contracts Bill that will make changes to improve insurance contract law, with submissions closing on 4 May 2022. https://www.mbie.govt.nz/have-your-say/consultation-on-exposure-draft-insurance-contracts-bill/

24 Feb 2022 – IRD sought feedback on its draft long-term insights briefing, “Tax, foreign investment and productivity” with submissions closing on 14 April 2022. https://taxpolicy.ird.govt.nz/news/2022/2022-02-24-draft-ltib-consultation

24 Feb 2022 – Commission for Financial Capability announced an awareness campaign aimed at inspiring young people to learn about money as part of Global Money Week, 21 – 27 March. https://retirement.govt.nz/news/latest-news/global-push-to-get-young-people-thinking-about-money/

13 July 2021 – Parliament’s Finance and Expenditure Committee announced it will be opening an inquiry into the current and future nature, impact, and risks of cryptocurrencies. https://www.facebook.com/FESCNZ/posts/942985546484119

19 July 2021 – FMA released its Annual Corporate Plan 2021-22. https://www.fma.govt.nz/about-us/corporate-publications/annual-corporate-plan/

In the last item there is a relatively brief mention of the insurance sector priorities, which are: 

Our areas of focus in the Banking & Insurance sector are:
Preparation for the CoFI and updated insurance contract law regimes including:
• providing policy input as part of the legislative process
• engaging with industry participants and other stakeholders to build our understanding of the banking and insurance sectors
• developing a licensing approach for CoFI
• developing a monitoring and enforcement approach for when the regimes are in force.