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NZ sets out insurance law overhaul plans

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The New Zealand Government has agreed on key changes to overhaul insurance laws, but will seek more input on whether unfair contract term rules in draft legislation should be brought into line with proposed changes in Australia.

Commerce and Consumer Affairs Minister Kris Faafoi plans to remove insurance-specific exceptions to unfair contract term rules in new legislation, but will ask Parliamentary Counsel to draft alternate options for whether the main subject matter is defined narrowly or more widely.

“I consider how the main subject matter is defined for insurance would benefit from further stakeholder consultation on an exposure draft, given the high level of interest in this matter from both insurers and consumer stakeholders,” he says in a Cabinet paper released this week.

A Business, Innovation and Employment Ministry impact statement says a narrow definition, in line with Australian draft legislation, would provide consistency for insurers such as IAG and Suncorp that operate in both countries.

The draft insurance contract laws will overhaul rules that are currently spread across six pieces of legislation that in some cases date back a century.

Disclosure rule changes will require consumers “to take reasonable care” not to make a misrepresentation, while businesses would need to make a “fair presentation”.

Insurers would have to warn policyholders of the disclosure duties, inform consumers before they access third-party records, such as health information, and ensure policies can be clearly understood.

The Government will consult on the changes next year, after already receiving around 400 submissions to an options paper, and expects to introduce legislation into Parliament by next December.

“Longstanding issues with insurance contract law have been undermining the benefits of being insured,” Mr Faafoi said.

“These measures will complement decisions the Government made earlier this year requiring insurers and other financial service providers to treat their customers fairly.”

Insurance Council of New Zealand (ICNZ) CEO Tim Grafton says existing legislation is outdated and needs to be consolidated into a single piece of law, but a “balanced and careful approach” is needed toward reforms.

“This is a highly technical area and we support the Minister’s decision to consult on a draft piece of legislation, a process that we will engage in constructively,” Mr Grafton said.

ICNZ says its code of practice already requires insurers to respond proportionately when consumers don’t disclose something they should have, and requires members to set out policies in plain English.

Financial Advice New Zealand says the reforms should make the process of taking out insurance easier and simpler to understand for consumers.