Published 25 November 2024
The Contracts of Insurance Act 2024, passed by Parliament on 15 November 2024, will be a significant reform of New Zealand's insurance law. It has been a long-awaited piece of legislation – we have been calling for insurance law to be changed since 1998, when the first recommendation to change New Zealand’s insurance contract law was made by the Law Commission.
We welcome the changes introduced by the Act, which will modernise New Zealand's insurance law and align it with that in Australia and the UK. The Act will make insurance contracts fairer and easier to understand for consumers, and we believe this will result in fewer consumer complaints across the board.
The date that the Act will come into force is yet to be set, but the plan is to have a phased implementation over 3 years, giving insurers time to make and adapt to the required changes.
Below we outline the key aspects of the Act.
Plain English
Insurers will need to ensure contracts are written clearly, in plain language, to help consumers understand terms and compare products. This should make insurance contracts easier to read and understand.
While plain English policies are great for consumers, it does not take away the need for consumers to carefully read their policies to understand what cover they have, and any exclusions to that cover.
Insurers will be required to make key data, such as claims acceptance rates, publicly accessible.
Failing to disclose must be deliberately dishonest
Insurers will now have a responsibility to ask targeted questions to consumers about information that is material (important to them accepting the risk or imposing terms), and to follow up on unclear or incomplete responses. The new law will mean that the onus is on insurers to ask the right questions and should make it easier for consumers to know what information they have to provide.
However, consumers will need to take reasonable care not to make a misrepresentation to their insurer. Over many years, the IFSO Scheme has seen a lot of claims declined due to innocent non-disclosure of important information. This can be because consumers don’t understand what information they must give their insurer, and the very dire consequences if they don’t disclose this information.
A consumer will need to have been deliberately dishonest, rather than just having accidentally failed to disclose something, for the insurer to decline their claim.
Responding proportionally
Insurers will no longer be able to cancel a contract just because a consumer failed to disclose information. As the law currently stands, if the insurer would have done something differently when the policy was arranged – like adding an exclusion or increasing the premium - the claim can be declined and the policy cancelled back to the beginning.
With the law change, insurers will have to respond “proportionally”, meaning they might charge a higher premium for the remainder of the contract to reflect the actual risk covered, or reduce the amount paid on a claim. It is a response some insurers use now because it is a better outcome for their customers and, in our view, is a much fairer response.
Timely claims processing
Insurers will need to process claims within a "reasonable time". There is no fixed time limit for this, allowing flexibility to take into account the complexity of the claim, and what is required to investigate and assess the claim.
The IFSO Scheme sometimes sees claims which have had long delays and, in our experience, this can cause complaints to escalate rapidly. Requiring a “reasonable time” to be factored into claims handling will also change depending on the circumstances i.e. business as usual claims as distinct from post natural disaster claims.
Intermediary responsibilities
Intermediaries, such as brokers who receive commission from insurers, will have a duty to take reasonable steps to let the insurer know what the customer has told them - before the insurer enters into or varies the contract of insurance e.g. something important about their health if it is a policy related to life or health insurance.
Genetic testing regulations
No final decision has been made on this, instead a flexible approach has been adopted. This will allow regulators to prohibit or regulate conduct concerning genetic testing, following consultation and consideration of the impacts and various other factors.
We will provide further updates as we know more about the implementation of this legislation. In the meantime, we are pleased to see this Act passed and look forward to seeing it benefit all New Zealanders.