Improved Contracts of Insurance Bill on the horizon

24/09/2024·3 mins to read

Improved Contracts of Insurance Bill on the horizon

On 9 September 2024, The Finance and Expenditure Committee (Committee) released its report on the Contracts of Insurance Bill (Bill).

In this article, we discuss the Bill and the Committee’s report, and we take a look at potential ‘watch out’ areas around the interpretation of ‘reasonable time’ and the possible impact of genetic testing.

The Bill’s key features

The key changes proposed by the Bill include:

New disclosure duties. For consumer insurance contracts, policyholders must take ‘reasonable care’ not to make a misrepresentation to insurers before the contract is entered into or varied. For non-consumer insurance contracts, policyholders must give a ‘fair presentation of the risk’.
New remedies for non-disclosure depending on how the insurer would have acted had the information been known/ correctly represented when the contract was entered into.
A new duty on insurers to inform policyholders of their disclosure duties.
A codified duty of utmost good faith that explicitly does not apply to policyholders’ disclosure obligations.
Requirements for insurers to investigate, assess, and pay claims within a reasonable time.
An exemption for certain insurance clauses from the Fair Trading Act’s unfair contracts regime. Exempted clauses include those that specify the sum insured, the subject matter or risk that is insured, and the basis for settling claims.
A new requirement that insurance contracts are drafted in plain English.

New issue: genetic discrimination

Some submissions to the Committee raised “genetic discrimination” as a new issue for consideration.

To explain, developments in genetic marker testing mean that genetic disorders and potential future health issues can be diagnosed more easily. Submitters were concerned that life and health insurers could use this testing information to set premiums, and this could lead to discrimination between policyholders based on their genes. There was also a concern that policyholders may be discouraged from taking part in genetic marker testing if their premiums could increase.

The Committee thought the issue requires a full policy review before any specific rules are created. In the meantime, it recommended a new power for the responsible Minister to make regulations to address genetic discrimination at a later date.

Other Committee recommendations

The Committee also made some more significant recommendations including:

Removing the presumption that an insurance contract is a consumer insurance contract.
Lowering the standard of policyholder conduct automatically deemed to be a breach of the disclosure duty from fraudulent to dishonest conduct.
For non-consumer insurance contracts, changing “all reasonable steps” to inform policyholders of their disclosure duties to “reasonable steps”.
Giving insurers a remedy for policyholder’s breaches of their disclosure duty, expanding it from actual knowledge of a breach to include where the policyholder is reckless.
Adding that a reasonable time to address claims includes a reasonable time for insurers to gather information needed to investigate and assess the claim.

Differing views on the report

The report also includes differing views on the Committee’s recommendations. In particular, the Labour and Green parties are concerned that lowering the standard of policyholder conduct for a breach of the disclosure duty from fraudulent to dishonest conduct makes the disclosure duty unclear. Labour is also concerned that extending the timeframe for insurers to deal with claims to include a reasonable time to gather information would create too much delay.

Our view

We are pleased that an insurance law bill is progressing through Parliament, and generally with broad accord. A consolidated Act will be an improvement over the current patchwork insurance law landscape. We also think that improvement is needed to make the law fairer for all parties when it comes to duties of disclosure (currently, the law is lacking in flexibility when it comes to minor non-disclosures).

The requirement that insurers address claims in a reasonable time could turn into a legal battleground if it is not carefully considered. It makes sense that insurers are provided reasonable time to gather information, but as is so often the case, case law may need to develop on what is meant by “reasonable” in a variety of different circumstances.

The consideration of genetic discrimination is an interesting development. The Office of the Privacy Commissioner has indicated that they are against the use of genetic information by insurers, noting that genetic information is not just highly sensitive to the individual, but also to their relatives. In Australia, the federal government has banned genetic discrimination in insurance law. There, policyholders no longer need to disclose genetic test results but must still disclose any diagnosed diseases. In the UK, a moratorium on insurers using the results of genetic testing goes back to 2001 but does not apply to life insurance over £500,000. It will be interesting to see if and how the issue develops in New Zealand.

Get in touch

We look forward to continuing to follow the Bill as it progresses through Parliament to its second reading and then the committee of the whole house stage. If you have any questions about the Bill or the Committee report, or what they mean for your business, please get in touch with one of our experts.

Special thanks to Nick France for his assistance in writing this article.