MBIE release insurance contract law Options Paper
The Ministry of Business, Innovation and Employment (MBIE) have released an Options Paper for its review of insurance contract law. The review is intended to:
- ensure that insurers and people getting insurance are well-informed and able to transact with confidence;
- ensure interactions are fair, efficient and transparent;
- minimise barriers to insurers providing insurance; and
- protect consumers’ interests.
MBIE has asked for submissions on the Options Paper to be made by Friday 28 June 2019. The Options Paper can be found, and submissions made, here.
Who needs to read it? Why?
The Options Paper considers key issues within the insurance law framework. Any reforms that come out of this review may have a considerable impact on the insurance sector, so this will be of interest to anybody that provides or makes use of insurance.
What does it cover?
The Options Paper considers (among other things) the following:
1. Options in relation to disclosure by consumers
The Options Paper considers concerns regarding the existing duty for consumers to disclose material information to their insurer, presenting the following options:
- Option 1: Duty to take reasonable care not to make a misrepresentation
This option would abolish the duty of disclosure for consumer insureds and replace it with a duty to take reasonable care to not make a misrepresentation. Insurers will be required to identify, through questions, the information they need to underwrite the risk.
- Option 2: Duty to disclose what a reasonable person would know to be relevant
This duty would be to disclose information that the consumer knows, and that a reasonable person in the circumstances would be expected to know, to be a relevant matter to the insurer in making a decision to accept risk.
- Option 3: Require life and health insurers to use medical records to underwrite
This duty would remain similar to the status quo. However, there would be an obligation on life and health insurers to seek permission to access consumer medical records and use those records to underwrite the risk.
Also being considered as “design options” that would apply to all the above listed options is a statutory requirement that insurers (i) warn insureds of the duty in writing before any contract is entered into and (ii) inform consumers about whether and when they will access third-party records (including whether this would relieve the insured of the duty to disclose particular matters).
2. Options in relation to disclosure by businesses
- Option 1: Duty to disclose what a reasonable person would know to be relevant
This option is similar to Option 1(b) above for consumers. However, it would apply a higher standard. Under this option, businesses would be required to disclose what a reasonable person would know to be a material fact.
- Option 2: Duty to make fair presentation of risk
This duty will require businesses to disclose every material circumstance which they know or ought to know, or if they are unable to, to make disclosures that gives the insurer sufficient information to put a prudent insurer on notice that it should ask further questions to reveal those material circumstances.
- Option 3: Duty to take reasonable care not to make a misrepresentation
As per Option 1(a) above for consumers.
3. Other disclosure considerations
The Options Paper also considers:
- the question of whether the business disclosure duties should apply to small business (including proposing how “small businesses” should be defined); and
- options in relation to disclosure remedies (i.e. options to provide remedies based on intention and materiality, or on materiality only).
4. Options in relation to unfair contract terms
The Options Paper also looks at how to respond to unfair contract terms (UCT) in insurance contracts, presenting the following options:
- Option 1: Tailor generic UCT provisions to insurance
This option would remove the insurance-specific exceptions but amend the generic UCT exceptions to accommodate specific features of insurance contracts.
- Option 2: Rely on generic unfair contract term provisions
This option would remove all insurance-specific exceptions from the Fair Trading Act. The generic UCT provisions would apply to insurance contracts unconditionally.
- Option 3: Completely exempt insurance contracts from UCT provisions and rely on conduct regulation
Under this option, insurance contracts would be largely or completely exempted from the UCT provisions in the Fair Trading Act. The costs and benefits of this option would rely on the outcome of the separate review being carried out by MBIE into the way that conduct is regulated in the insurance industry.
5. Options in relation to understanding and comparing policies
The paper lastly looks at the difficulties consumers face in trying to understand and compare policies, presenting the following options:
- a requirement for insurers to present their policies in plain language;
- a requirement for core policy wording to be clearly defined;
- a requirement for policies to highlight core policy terms or include a summary statement to draw consumers’ attention to the key aspects of the policy;
- a requirement for insurers to work with third-party comparison platforms; and
- a requirement for insurers to disclose key information to clients in a clear, concise and effective manner, using plain language.
Our discussion on the earlier Issues Paper from this review, focusing primarily on the duty of disclosure, can be found here. The expectations that we set out for a change in this duty have been reflected in the options raised in the Options Paper, and we still expect the end result to include some change (likely a reduction) in this duty.
It will be important for insurance companies to engage in the law reform process at this stage to ensure any law changes are fit for purpose.
If you have any questions in relation to this paper or review, are considering how the proposed changes may affect your business, or would like assistance in making a submission, please contact one of our experts.