The Insurance Contracts Bill is on its way to revise New Zealand’s existing insurance laws.

The Insurance & Financial Services Ombudsman Karen Stevens has highlighted how outdated New Zealand’s current insurance laws are, and the need to play catch up with similar jurisdictions in order for consumers to understand their rights and obligations in a more user-friendly way.

The current law concerning disclosure is one that is ambiguous to many consumers. The duty asks the consumer to consider if the information they provide to the prudent insurer will suffice when ascertaining the scope of the terms and conditions of that policy.

There are no indicators as to how much or how little the consumer must disclose to their insurer. The consumer is forced to exercise their judgment and disclose everything they deem to be important to an insurer.

This test has been widely criticised by commentators for being difficult to understand as a consumer. It has led to many circumstances where insurance companies have refused claims, arguing that if they had received disclosure about something they considered important they would have not accepted the cover, or would have charged significantly higher premiums.

Problems in practice have demonstrated that people often do not know what to disclose, and are not trained or educated with the knowledge of what an insurer needs to know, and therefore many consumers would be taking mere guesses at what they need to disclose.

Furthermore, many instances of consumers innocently forgetting to disclose an issue have seen them face the same severity of consequences as those who have deliberately misled or misrepresented things to their insurers.  

From a public policy viewpoint they should not be expected to be faced with such serious outcomes as policies being void, cover being denied, or claims being rejected. From a legal standpoint, it is certainly unrealistic to expect consumers to figure out what is and is not relevantly required to be disclosed to their insurer.

The proposed Bill places the burden on the insurer to ask the right questions to the consumer before a new insurance policy is created, therefore putting the responsibility on the insurer to ascertain the required information. This creates clarity and ease for the consumer to simply answer what is asked. Concurrently, the transparency of the proposed Bill allows insurers to more easily gauge when they are being misled or something is being misrepresented to them.

The new Insurance Contracts Bill states that, “...consumers must take reasonable care not to make a misrepresentation to the insurer”. The test of reasonableness is far more fair and just in comparison to the previous test which penalised consumers irrespective of whether they intended on making a misrepresentation or not. A distinct advantage of this Bill is that it will ensure the law does not hold people liable for making innocent mistakes.

Another vast difference between our current laws and the proposed ones are the consequences for failure of disclosure by a consumer. Under the current laws, the insurer can decline to issue a policy, or to hold the policy void if a significant failure to disclose is present whether it is intentional or unintentional.

The parameters of the proposed Insurance Contracts Bill state that the consequences of such a breach are to be proportionate to the severity of the failure to disclose.

In the proposed bill, if an insurer is deliberately mislead by a consumer then the insurer can choose to cancel the policy or just not create the policy (if the policy has not yet been created). But within the proposed bill, if a consumer innocently misleads the insurer, the insurer can’t reach for those harsher outcomes such as holding the policy as void.

This proposed Insurance Contracts Bill has been widely accepted as a stark departure from our current law, and commentators are largely looking forward to the improvements and clarity it brings to New Zealand’s Insurance Contract laws.