We have previously published an article on the Insurance Contracts Bill, which was a Member's bill drawn from the Members' bills ballot and put before Parliament.
The Insurance Contracts Bill passed its first reading in Parliament on 2 May 2024. It has now progressed from being a Member's bill to a Government bill, renamed the Contracts of Insurance Bill (Bill). While still in early stages, we consider that this is a strong signal that the current government intends to pursue passing of the Bill, if possible.
In fact, during the course of the Parliamentary Debate, the Bill was unanimously commended to the House by all parties, though some concerns were raised as to some of the provisions currently in the Bill. Hon Andrew Bayly has indicated in subsequent media reports that he hopes that the Bill will be passed into law before the end of the year.
Changes in the Bill
Though the majority of the comments contained in our previous article remain relevant to the Bill, some changes have been made to the Bill. The noteworthy changes are:
- The codification of the duty of good faith has been removed. However, we note that the additional duty on insurers to pay claims within a reasonable time remains
- The Bill introduces significant changes to the Financial Markets Conduct Act, to require insurers to draft insurance contracts in plain English, which is intended to ensure that policyholders are able to understand and compare insurance contracts.
As previously mentioned, the policy decisions underlying the Bill and the proposed reform are to:
- Place the responsibility on insurers to ask consumers the right questions when processing new insurance policies, rather than leaving it to consumers to know what to tell their insurer
- Require insurance policies to be written and presented clearly, so that consumers can easily understand them
- Ensure insurers respond proportionately when consumers do not disclose something they should have, or misrepresent themselves
- Remove insurance-specific exceptions from the unfair contract terms provisions in the Fair Trading Act 1986 and instead clarifying which insurance terms are part of the “main subject matter” of the contract (which cannot be declared unfair)
- Provide transparency and certainty by requiring that insurers pay out on claims within a reasonable time
- Extend powers to the Financial Markets Authority to monitor and enforce compliance with the new requirements.
Next steps
The Bill has now been referred to the Finance and Expenditure Committee. We expect that the Bill will undergo a number of changes between now and enactment (if it occurs). There is still a long way to go before the Bill potentially becomes an Act, including the Select Committee process.
Public submissions are now open on the Bill and will remain open until 3 June 2024. We anticipate that many industry participants will be very interested in ensuring that their comments and concerns are provided.
If you would like to explore making a submission on the Bill with our assistance, please contact one of our team.
