Ombudsman wants change to disclosure rules

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Legislative change around insurance policy disclosure needs to be put back on the agenda to prevent more consumers inadvertently falling foul of the rules, according to Insurance and Savings Ombudsman (ISO) Karen Stevens.

Friday, October 30th 2009, 9:02AM 1 Comment

by Sonia Speedy

Stevens says about a quarter of the cases the ISO deals with relate to non-disclosure and consumers simply do not understand what they need to disclose.

She wants to see the existing "prudent underwriter/insurer test" - used to determine what a consumer is legally expected to disclose to ensure their policy is valid - to be replaced by a "reasonable person test", as used in Australia.

The common law based "prudent underwriter test" requires the consumer to disclose any information that an "omniscient" insurer might consider material in underwriting risk, Stevens says. The "reasonable person test" focuses on what a reasonable person would understand that a prudent insurer would want to know.

Stevens says draft legislation including this change already exists, with Cabinet agreeing to such proposals in June 2007. The Insurance Contracts Bill containing these changes was scheduled to be introduced to the House in August 2008, she says. However, it has ended up on the back burner.

A Ministry of Economic Development spokesperson confirmed that the bill is currently on hold.

Stevens says: "I fully appreciate that the Government has been very busy, that they've got a whole lot on in terms of the finance sector and that all of the companies are frantically busy trying to come up to speed on the other stuff. But at the same time we need an Insurance Contracts Act."

Sovereign general manager of customers and markets David Drillien, says that with risk products such as life insurance, when used in conjunction with a "solid" application form,  many insurers already apply a form of reasonable person test around disclosure. However, general insurance products, such as motor vehicle insurance, where ongoing disclosure is required, can be more complicated.

"To know on an ongoing basis what you have to disclose is difficult for the customer.

Having said that, even a reasonable person test might not help you," Drillien says.

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