Here’s what insurance law changes mean for you

Sunday, 24 November 2024

The Contracts of Insurance Bill passed its third reading in Parliament on Thursday.

The bill puts the onus on insurers to ask questions and help consumers disclose everything they need to.

Financial Ombudsman Susan Taylor says consumers often weren’t sure what information was important to insurers and that could result in claims being declined.

Changes to insurance law mean consumers will face more questions before being offered a policy, but experts say that’s a good thing.

The Contracts of Insurance Bill was designed to modernise New Zealand’s insurance law and passed its third reading in Parliament on Thursday.

The changes it introduced would mean consumers no longer had to “rack their brains and guess” what information was relevant to their insurance policy, Commerce and Consumer Affairs Minister Andrew Bayly said.

Under existing law, consumers must disclose any information that might influence a “prudent insurer“.

However, that term was poorly understood and had led to insurers declining claims when consumers accidentally or unknowingly failed to disclose information, Bayly said.

“Now, the onus is on insurers to ask the right questions and consumers must simply provide honest answers.”

Financial ombudsman Susan Taylor said it had long been a problem that consumers didn’t know what information was important for an insurer, which often led to claims being declined.

In the 2023/24 year, business and travel insurance were the two largest categories of insurance-related complaints to dispute resolution service Financial Services Complaints Ltd.

Disclosure issues — whether about the nature and scope of a business when applying for cover or pre-existing medical conditions when applying for travel insurance or life and health cover — were a recurring theme, Taylor said.

“These issues also arise in insurance advice complaints, particularly where a consumer alleges that they weren’t guided adequately to ensure full and accurate disclosure.”

But the new law put the responsibility on the insurer to ask questions to help the consumer disclose everything they need to.

“We believe the new legislation’s provisions around fairer disclosure requirements will help reduce consumers accidentally or unknowingly failing to disclose information, potentially leading to fewer disputes,” she said.

The bill also introduced a requirement for insurers to write policies in plain language and pay claims within a reasonable time.

After the select committee stage, it was updated to protect consumers’ access to life and health insurance if they had taken a genetic test, Bayly said.

While genetic testing was a valuable, emerging technology that could unlock significant health and productivity benefits, there were international examples of insurers limiting cover, or increasing premiums, due to genetic testing results, he said.

“While we don’t believe this is happening regularly in New Zealand now, the bill includes provisions which mean the Government can, if needed in the future, regulate the use of genetic testing results by insurers.

'This change brings New Zealand closer in step with our partners. Canada has laws stopping insurers from seeing genetic test information, and recently Australia announced it will ban life insurers from using genetic test results.“

Insurance Council of New Zealand chief executive Kris Faafoi said the law change would tidy up the “mishmash” of outdated insurance laws and bring New Zealand in line with international best practice.

“The legislation strikes a balance between strengthening protections for consumers while promoting fairness, certainty and sustainability in the insurance sector,” he said.

'We know there’s still a lot to do as the insurance industry works toward putting in place the changes required under the legislation.“