Insurance Law Reform - Duty of Disclosure, Fair Trading Act and Good Faith.
Insurance Law Reform is long overdue. There have been discussions about law reform in this area for the last 30 years. This government appears to be finally ready to implement some of the changes that the industry has been calling out for.
The two main reforms are in the following areas:
There is a proposal to reform the duty of disclosure to require consumers to “take reasonable care not to make a misrepresentation” (effectively to answer any questions asked by the insurer truthfully and accurately).
Amendments to the Fair Trading Act 1986. The Act prohibits unfair terms in standard form consumer contracts however certain insurance terms cannot be declared unfair. The government has indicated that they will remove these exceptions.
One of the more important omissions is any meaningful reform to the duty of good faith. As identified by the minister the courts have recently stated that insurers’ duty is that they must disclose material information; act reasonably, fairly and transparently; and process claims in a reasonable time.
However, penalties for breach of that duty have been very modest. For reforms to be meaningful we need to amend the corporate practices of the insurance companies. Currently, there is no reason for insurance companies to change their behaviour. The consequences for the insured are so dire there need to be equal consequences for the insurer.