Standardised maintenance and wear and tear definitions proposed by the Insurance Council of Australia would add complexity and fail to reduce consumer confusion, the industry code governance committee, complaints authority and consumer groups have warned.

ICA is seeking Australian Competition and Consumer Commission authorisation for its proposed home policy wordings.

But the proposal falls short and voluntary adoption could undermine its aims, the General Insurance Code Governance Committee says.

“We acknowledge ICA’s objective of improving consumers’ understanding of their maintenance obligations,” the committee says in a submission.

“However, the proposed definitions are not specific or practical enough to support this outcome. Consequently, the definitions risk introducing ambiguity or inconsistent understanding.”

The Australian Financial Complaints Authority says standard definitions and campaigns to improve consumer understanding could make a difference, but ICA’s approach has shortcomings.

ICA does not include measures to ensure wear and tear or maintenance provisions – which can be conditions or exclusions – operate consistently, and its examples risk further confusion and complaints, the authority says.

“Even if standard definitions are developed, the proposals do not include measures to ensure insurers take an appropriate and consistent approach to application and causation.”

Consumer groups have long sought harmonisation and simplification of terms but say the proposed approach is “fundamentally flawed” and does not adequately address federal parliamentary flood inquiry recommendations.

The proposal risks stopping consumers relying on Insurance Contracts Act protections, and it does not address the idea that a consumer should reasonably observe wear and tear or damage. It does not include related terms “pre-existing damage” and “defect”.

“The standardisation of general insurance terms cannot be led by the industry,” Financial Rights Legal Centre senior policy and advocacy officer Drew MacRae said on LinkedIn.

Financial Rights supports the government’s announced legislative approach on natural hazard terms, which will have to consider all stakeholder views, he says.

The ACCC is to release a draft determination on the definitions this month or next, with a final decision expected in August or September.

The submissions are available here. 

---

Consumer advocates have unveiled a sweeping plan to make 'legacy' homes more resilient as the climate crisis gathers pace. See the details in the latest Insurance News magazine

---