Review of Insurance Contract Law – Issues Paper released
The release of an issues paper today signals the start of public consultation on the Ministry of Business, Innovation & Employment's (MBIE) review and proposed reform of New Zealand's insurance contract law. In the foreword to the paper, Commerce and Consumer Affairs Minister Kris Faafoi explains that New Zealand's insurance contract law is fragmented and outdated, often resulting in negative outcomes for consumers. The issues paper identifies recent law reform in both Australia and the UK in relation to a number of the issues highlighted as being in need of review under New Zealand law.
The issues paper advances (and seeks feedback on) two proposed key objectives for the review, modelled on the objectives of the Financial Markets Conduct Act 2013:
- Objective 1: Insurers and insureds are able to transact with confidence at all points in the lifecycle of an insurance policy.
- Objective 2: Interactions between insurers and insureds are fair, efficient and transparent at all points in the lifecycle of an insurance policy.
Scope of the review
The scope of the review focuses on improvements in consumer protection and the conduct and supervision of insurers and intermediaries. The review also proposes to address a number of other technical issues identified by the Law Commission and the insurance industry.
A significant aspect of the review will be on consolidating the six primary statutes that currently govern insurance contracting, being the Marine Insurance Act 1908, the Life Insurance Act 1908, the Law Reform Act 1936, the Insurance Law Reform Act 1977, the Insurance Law Reform Act 1985 and the Insurance Intermediaries Act 1994.
The paper outlines two key issues, both having a focus on consumer protection.
1. Disclosure Obligations: Under the current law, policyholders are under a duty to make full disclosure of all material facts that are within the knowledge of the policyholder. The paper seeks submissions on three key problems relating to this duty:
- The test of "materiality" is subjective, and it will often be the case that what is considered material to the insurer will not be obvious to the policyholder.
- Consumers may be unaware of the duty of disclosure altogether.
- Insurers are often able to avoid the insurance contract for non-disclosure, resulting in a disproportionate loss of protection for the policyholder.
2. Conduct and Supervision of Insurers and Intermediaries: In recognition of recent regulatory reports and the objectives of the International Association of Insurance Supervisors, MBIE has identified a number of problems with the current regulation of the conduct of insurers and intermediaries in New Zealand.
In New Zealand, the Reserve Bank, FMA and Commerce Commission all have powers of regulation/supervision, but there is no regulator with dedicated powers to regulate/supervise the entire insurance lifecycle. This leaves gaps in which the conduct of insurers can lead to negative outcomes for consumers. In particular, this gap in market regulation may be contributing to complaints MBIE has received in respect of:
- lengthy timeframes, lack of transparency and pressure to settle claims in claims handling;
- conflicted conduct and the use of incentives; and
- pressure sales tactics.
In addition to seeking feedback on the key issues above in respect of disclosure obligations and the conduct of the insurers and insurance intermediaries, MBIE is also seeking specific consumer feedback on the operation of the unfair contract terms regime under the Fair Trading Act 1986 and the availability of effective resources for comparing insurers and insurance policies. The paper indicates that MBIE is considering whether these existing current regimes are having negative effects on consumers, and is seeking further feedback to identify what the key issues, if any, are.
Also included in the scope of the review are a number of technical issues affecting procedural aspects of policy and claims management. In particular, the paper identifies the regulation of the following processes as being problematic:
- third party access to liability insurance monies under section 9 of the Law Reform Act 1936;
- failure to notify claims within time limits and the operation of section 9 of the Insurance Law Reform Act 1977, particularly in respect of "claims made" policies;
- exclusions that have no causal link to loss and the operation of section 11 of the Insurance Law Reform Act 1977;
- registration of assignments of life insurance policies under Part 2 of the Life Insurance Act 1908;
- responsibility for intermediaries' actions under section 10 of the Insurance Law Reform Act 1977; and
- the deferral of payments/investment of money by insurance intermediaries under the Insurance Intermediaries Act 1994 .
The timeframe for the review is as follows:
- August 2018 – report to the Minister on issues
- Late 2018 – planned release of Options paper
- March 2019 – brief Minister with recommendations
Written submissions to MBIE on the issues raised are due by 5.00pm on Friday 13 July 2018.
A copy of the issues paper can be accessed here.
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