Law review terms released
How insurers deal with unintentional non-disclosure is likely to be a significant aspect of the review of New Zealand’s contract law.
Tuesday, March 6th 2018, 12:42PM 
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by Susan Edmunds
Commerce and Consumer Affairs Minister Kris Faafoi has released the terms of reference for the review.
“Insurance plays an important role in the lives of New Zealanders, helping people cope with unforeseen life events and providing businesses with greater certainty,” he said.
“But there are significant problems with New Zealand’s insurance contract law which are undermining the effectiveness of our insurance markets and impacting those who do not receive the support they anticipated from their insurance policies.
“I have heard, for example, that consumers are sometimes not covered for losses or unable to claim for important needs like health treatment because they innocently did not disclose seemingly unrelated matters to the insurer.
“This is really tough for people who genuinely believe they have met their requirements and are later unable to rely on benefits of insurance. So onerous disclosure requirements are one of the issues I am keen to look at.”
Faafoi said the review would also consider whether there was a case for greater regulation and supervision of insurers’ conduct. The International Monetary Fund iidentified that New Zealand has room for improvement in this area.
“Insurance contract law has been significantly updated in comparable markets including Australia and the UK, so this work is long overdue,” Faafoi said.
“Reform is needed so that all New Zealanders have the protection of a well-functioning insurance market. The sector has been supportive of the need for a review so I am optimistic that stakeholders will be involved in order to make good progress swiftly.”
Faafoi said he hoped to release an issues paper by the middle of the year and introduce new legislation, if needed, this parliamentary term.
FSCL chief executive Susan Taylor welcomed the review. She said it was well overdue, given that it had been 20 years since the Law Commission provided its report and recommendations.
“We would particularly like to see a review of the law relating to ‘unintentional’ non-disclosure by a policyholder, where the consumer leaves out information because they have either forgotten it or not realised the importance of disclosing information.”
Insurance and Financial Services Ombudsman Karen Stevens also supported the review.
“Strictly speaking, the law does not provide any remedy for a consumer who has failed to disclose (either intentionally or not), material information – materiality being determined on the basis of what would be material to a prudent underwriter in assessing the risk. The trouble with using the prudent underwriter test is that most consumers do not know what a prudent underwriter is and neither do they understand how risk is assessed, until it is too late."
She said consumers could be left with no policy of insurance, no realistic prospect of obtaining replacement insurance and the possibility of having any other policies, held with the same insurer, cancelled on notice.
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Advisers must demonstrate "Care, Diligence and Skill" under the Section 33 of the Financial Advisers Act but there is currently no regulatory control for insurers to do the same. It's time there is a level playing field and for NZ to introduce reform similar to other countries.