Insurance Industry – Major Changes to Insurance Contracts set to give power back to Consumers / Policy Holders


The insurance sector is undergoing a major shake-up – the first in nearly 100 years – with the release late last week of the draft Insurance Contracts Bill. The bill will rewrite the rule book on disclosure and risk in insurance contracts. Insurers, who currently hold the upper hand, will find the balance of power has shifted to policyholders and consumers. Most industry players believe the key changes have already been set in stone by a government intent on insurance law reform.


Submissions are still being received up to 4 May 2022 about the two options being proposed by the government. Only one aspect of the Bill – the proposal to remove the insurance industry’s exemption from the Fair Trading Act’s ban on unfair contract terms(UTC) – is up for further discussion. Along with the government’s proposed changes to the duties of disclosure for consumers, the plan to scrap or severely limit the UTC exemption has drawn the most ire from the insurance industry. The draft bill is a game-changer, warning of potential premium hikes and less availability of consumer insurance cover as insurers try to figure out what the changes will mean so they can recalculate and re-price their risk.


If passed in its current form the bill will make fundamental changes to an insurer’s duty of disclosure, introduce unfair contracts terms and regulation to insurance for the first time and will consolidate a raft of minor legal reforms dating back to the 1930s. The bill intends to shift the power away from the insurer to the insured and will cover the entire licensed insurance industry – life, health, general and travel. It will repeal five statutes, pulling New Zealand’s fragmented insurance law together into one Bill and bringing our insurance contract law into line with Australia and the United Kingdom and amounting to a fundamental shift in the regulatory environment which will make quite a big difference to insurers and the insured. One of the most significant changes is the duty of disclosure. Under the current law, insureds are required to disclose all information that would influence the judgment and risk assessment of a prudent underwriter. Failure to do so means the insurer is entitled to avoid the policy when a claim is made, even though the non-disclosure might have nothing to do with the claim. The Bill puts the onus back on the insurer who will no longer be able to avoid a consumer insurance policy when there is non-disclosure by a policyholder. Rather than demanding consumers tell them everything the insurer might consider relevant, the insurer will now be required to ask specific questions, which the prospective policyholder must take reasonable care to answer honestly and correctly. If this duty of care is breached, the insurer will have proportionate remedies which will depend on whether the misrepresentation was innocent, fraudulent or reckless.

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