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Insurance contract law reform

31 May 2017

The Minister of Commerce and Consumer Affairs is committing to reviewing legislation that has for decades been criticised for putting consumers on the back foot when dealing with insurers.

Jacqui Dean has told she’d like to “commence work on a significant package of insurance contract law reform in 2018”.

This is expected to include a review of the Insurance Law Reform Act, which essentially enables an insurer to decline a claim if the claimant innocently or mistakenly doesn’t disclose information about themselves that the insurer deems material.

In other words, an insurer can decline a claim related to someone having a heart attack, if it finds out that on taking out the insurance policy, the claimant failed to mention the fact they had in the past taken ongoing medication for a back injury that had since healed.

The newly-appointed Minister is “scoping what work may be required to insurance contracts law”, despite the National-led Government not doing anything in this area since the Labour-led Government released a Cabinet Paper in 2007 calling for an Insurance Contracts Bill to be drafted to bring together a handful of archaic insurance laws.

The paper noted: “The key areas requiring reform (as raised by industry, professional bodies, the judiciary, the Law Commission [in 1998] and Government) relate to the policyholder’s duty of disclosure and the insurer’s remedies for mis-statement and non-disclosure…

“The duty to disclose… can create a power imbalance between insurers and policyholders, because there are limited incentives for insurers to ask questions that signal to policyholders what information is important to underwriting their policy, and where questions are asked there is limited understanding by policyholders that there is a duty to disclosure matters outside the scope of the questions.”

Dean acknowledges: “Our current disclosure obligations have resulted in a considerable number of disputes between insurers and consumers.”

Yet she says: "The advent of the global financial crisis meant that the Insurance Contracts Bill was not progressed as resources were shifted to focus on the overhaul of financial markets regulation that resulted in the passage of the Financial Markets Conduct Act and related legislation…

“Other jurisdictions have made significant changes to their insurance contract law since the 2007 policy decisions were taken…

“Australia and the United Kingdom have clarified the information that consumers are obliged to disclose in their insurance contracts law, and I expect we’ll take a good look at the options in this area as part of my insurance law reform programme in 2018.”

This of course assumes the National Party remains in government after the September 23 election.

Dean aims to pass an Insurance Contracts Bill, which “consolidates and modernises New Zealand’s insurance contract law”, during the next parliamentary term.

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