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20/11/2024·2 mins to read
Important changes coming for insurance
After nearly three years since reforms were tabled, New Zealand finally has a modernised insurance law. On 15 November 2024, the Government passed the Contracts of Insurance Act 2024 (Act) and the Contracts of Insurance (Repeals and Amendments) Act 2024.
The combined effect of the new laws is to modernise insurance law in New Zealand, align it with international best practice and consolidate a patchwork of older insurance laws into one Act.
The changes incorporate all recommendations made by the Finance and Expenditure Committee. We previously summarised those recommendations here.
Key changes
- Clearer disclosure obligations:
- Consumers must take ‘reasonable care’ not to make misrepresentations to insurers before entering into or varying a contract.
- Non-consumer policyholders must give a ‘fair presentation of the risk’.
- Insurers must inform policyholders of their disclosure obligations.
- New remedies for non-disclosure: Remedies for non-disclosure will depend on how the insurer would have acted had the information been known/ correctly represented when the contract was entered into.
- Good faith obligations: The duty of utmost good faith has been codified and explicitly does not apply to policyholders’ disclosure obligations.
- Faster claims processes: Insurers must investigate, assess, and pay claims within a reasonable time.
- Broader application of the unfair contracts regime: Contract terms which define the duty of utmost good faith or the requirements for disclosure are no longer exempted from the Fair Trading Act 1986’s unfair contracts regime. Terms that define premiums for non-life/health insurance policies can now also be declared unfair. For non-consumer insurance contracts, the unfair contracts regime will now only apply to contracts with a premium below $20,000.
- Plain English policies: Consumer insurance contracts (including life and health insurance contracts) must be drafted in a clear, concise, and effective manner (plain English), including any regulated form, presentation and information disclosure matters.
Timeframe
The changes will come into force on the earlier of a date set by Order in Council and three years from the date of Royal Assent. We anticipate that there will be a reasonable lead-in time, given that insurers will have significant work to do to put in place systems for compliance. Many insurers, brokers, and insurance professionals will have already started to prepare for the new Act, for example by rolling out plain English policy wording. Regulations must also be developed to support specific sections, including genetic testing, interest on life insurance payments and forms.
Our view
This reform is a significant milestone for the insurance industry and the culmination of a substantive review process which started in February 2022. While the expected lead-in period provides some breathing room, the scope of change means that insurers should start preparing now.
The new regime is a good opportunity to conduct a wider review of policy wording and insurance practices, especially given the FMA and the Reserve Bank’s stricter monitoring of the financial services industry (which includes insurance) and the correlation with many aspects of the fair conduct principles in the Conduct of Financial Institutions (CoFI) regime, coming into force on 31 March 2025. We have also written about some of the wider regulatory overhauls underway here.
Get in touch
If you have any questions about the changes or have wider questions about financial institution reform or the upcoming CoFI regulations, please get in touch with one of our experts.
Special thanks to Nick France for his assistance in writing this article.
