Insurance contract law reform to benefit everyday Kiwis

A long anticipated reform to insurance contract law, which appeared initially as a member’s bill in March and then adopted by the Government as the Contracts of Insurance Bill (Bill), passed its first reading on 2 May and was referred to the Finance and Expenditure Committee. According to Hon Andrew Bayly (Minister of Commerce and Consumer Affairs), the Bill will “modernise insurance law and make it easier for everyday Kiwis to get insurance and make a claim.”
One of the key changes the Bill introduces is to the duty of disclosure placed on the policyholder. Currently before entering or renewing a contract of insurance, a policyholder must disclose to the insurer all information that could influence their judgement in setting the premium or in taking the risk. This places the burden on the policyholder to know what the insurer would consider relevant. Under the Bill, for consumer policyholders (personal, domestic, household), the current disclosure requirements would be replaced with the duty “to take reasonable care not to make a misrepresentation to the insurer”. In effect, placing the onus on the insurer to ask the right disclosure questions. In determining if ‘reasonable care’ has been taken by the policyholder, the matters that may be taken into account include: how clear and how specific any questions asked by the insurer were, how clearly the insurer communicated the importance of answering those questions, and any explanatory material or publicity produced or authorised by the insurer.
Where a consumer policyholder has breached their duty to take reasonable care, under the Bill the insurer would no longer have the right to avoid the contract outright, unless the policyholder’s breach was deliberate or reckless. Where the misrepresentation was not deliberate or reckless the insurer will have proportional remedies based on how the insurer would have responded if the correct information had been given.
For non-life policies, remedies include: if the insurer proves that they would not have entered contract on any terms, the contract can be avoided and claims refused, but premiums paid returned, or if the insurer would have entered into the contract, but would have charged a higher premium, the insurer may reduce proportionately the amount to be paid on a claim.
Non-consumers (commercial, business) under the Bill will now have a duty to provide to the insurer “a fair presentation of the risk”. This includes the disclosure of “every material circumstance that the policyholder knows or ought to know”, or if they are unable to, that they provide sufficient information to make a prudent insurer aware that they need to ask further questions in determining whether to take the risk, and on what terms. For breaches of duty of ‘fair presentation’, proportionate remedies apply, similar to that for consumers.
The Financial Markets Conduct Act 2013 will also be amended to include the requirement for insurers to ensure contracts are worded and presented in a clear, concise, and effective manner – the intent being to help make insurance policies more readily understandable and comparable for consumers.
Public submissions will close 3 June, with the Select Committee’s report due 3 September 2024.