A review of insurance contracts law wants to tackle issues of non-disclosure.

Submissions are currently open on an options paper that sets out the Ministry of Business, Innovation and Employment’s plans to revamp the laws that apply to the sector.

“I have heard from stakeholders throughout this review that there are significant problems with New Zealand’s insurance contract law,” Commerce Minister Kris Faafoi said.

“At the moment, individuals must tell insurers everything that could affect their decision to offer insurance or how much they charge in premiums. The review has found that people often do not understand the kind of information that must be disclosed and that the consequences for not disclosing the information can be very harsh. This paper proposes options to change the rules about disclosure to better reflect the information known by consumers and businesses.”

MBIE said, as it was, consumers could not reasonably be expected to know what an insurer could consider material.

In a 2018 Colmar Brunton survey commissioned by MBIE, 51% of respondents thought they needed to tell the insurer everything that might affect their insurer’s decision, even if the insurer did not specifically ask for it. Another 24% thought that they needed to tell the insurer everything relevant that they can remember, while 18% thought that they only needed to answer the insurer’s questions.

Among the proposals are a change to the law that would only require consumers to answer questions truthfully from their insurers. 

MBIE said that would make it easier for them to know what they needed to disclose when they were applying for a new insurance policy but getting insurance could take longer because there would be more questions to answer.

Another option was to introduce a requirement to “disclose what a reasonable person would know to be relevant” but MBIE said that could still mean it was hard to know what needed to be disclosed.

Options for ways for insurers to deal with non-disclosure were also proposed, including allowing insurers to avoid contracts when the objectively material non-disclosure was reckless or deliberate. Proportionate remedies would apply where non-disclosure or misrepresentation was not deliberate or reckless, but was both careless and induced the insurer to enter the contract on those terms.

Another option would allow insurers to avoid contracts where the non-disclosure was fraudulent and induced the insurer to accept the contract on those terms. This would allow a court to disallow avoidance when the insurer had not suffered a significant loss.

A third option was to create proportionate remedies based on what the insurer would have done had it known the correct information.

It is also considering how insurance contract terms are dealt with. The Fair Trading Act allows some insurance terms that would normally be considered unfair. 

An example of a term that could be the potentially unfair was that car insurers could decline a claim for an accident if they could not contact he person at fault. MBIE said the consequences were still borne by the insured in this situation even though the insurer had the responsibility.

“Without the exceptions, insurers say they would face uncertainty regarding the extent of risk they take on. For example, an insurer may include terms which exclude it from liability on the happening of certain events, and prices its premiums based on those exclusions. If a court can strike down those terms as unfair, the insurer has not factored this additional liability into its premiums. If insurers can’t accurately price risk, they may cease offering cover or increase premiums,” MBIE said.

An option was to remove the insurance-specific exemptions and instead tailor the generic exceptions to accommodate insurance, rely on generic unfair contract terms provisions, or completely exempt insurance contracts.