Expect a stronger consumer focus to flow from the review of insurance contract law announced last week.
This was indicated in Commerce Minister Kris Faafoi’s press statement and would be in line with international trends.
An Issues Paper is currently being prepared by the Ministry of Business, Innovation and Employment (MBIE) for release mid-year.
Review Terms of Reference
The review, which will cover all types of insurance, will focus on:
- disclosure obligations for policyholders and remedies for non-disclosure which are seen as onerous
- a range of technical issues that have been identified by the Law Commission and industry
- gaps in the regulation of insurers' and intermediaries' conduct identified in the International Monetary Fund Financial Sector Assessment Programme
- the precise scope of those terms defined not to be “unfair contract terms" under the Fair Trading Act 1986, and whether these could be moved to insurance-specific legislation, and
- consumers' ability to find and compare prices and policies.
The end objective is to modernise New Zealand’s insurance contract law and consolidate it into one statute.
The prudential regulation of insurers is out of scope, being separately considered by the Reserve Bank in its review of the Insurance (Prudential Supervision) Act 2010. Financial advice on insurance is also out of scope to the extent the issue is being addressed through the amendments proposed in the Financial Services Legislation Amendment Bill, now before Parliament.
The important social and economic role insurance plays for businesses and households in New Zealand has been underlined by the recent earthquakes in Canterbury and Kaikoura. Yet New Zealand's the insurance contract law is "antiquated and fragmented".
We have six pieces of insurance-specific legislation, two dating back to 1908 and, as the Terms of Reference acknowledge, the Law Commission, insurers and policyholders have identified various weaknesses in the current framework.
But initiatives for reform over the past 20 years have stalled, putting New Zealand behind Australia, and the United Kingdom.
Significantly, stronger consumer protections were a major theme of the reforms in those jurisdictions – particularly in the United Kingdom which abolished aspects of the duty of “utmost good faith” in the context of innocent non-disclosure – a topic raised in the Terms of Reference.
Chapman Tripp comment
The Minister’s statement and the Terms of Reference indicate a significant focus on improving consumer outcomes.
We welcome the consultative approach MBIE is taking to the review, as this worked well with the Financial Markets Conduct Act and with the current financial adviser reforms.
Insurers will need to engage with the process to ensure that the new regime is practical and does not inadvertently and unnecessarily push up the cost of insurance.
MBIE plans a transparent process with two rounds of consultation, first on an Issue Paper and subsequently on an Options Paper.
Mid-2018 Issues Paper
Late 2018 Options Paper
Mid-2019 Policy decisions by Cabinet
If you would like to know more about the review or need advice on insurance contract law, or the regulation of insurance in New Zealand more generally, please contact any of the people listed.