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7 key takeaways from new insurance bill

OPINION: Steve Wright has read the Contracts of Insurance Bill which was introduced to Parliament last week and outlines seven potential changes facing advisers and insurers.

Tuesday, May 7th 2024, 2:24PM 1 Comment

by Steve Wright

The Government has released the Contracts of Insurance Bill for comment. Over the weekend I spent some time reading the draft Bill. These are some first impressions.

The good news is that the provisions of several pieces of legislation are now incorporated into one place.

Life insurers will be busy exploring changes to application forms, policy wording and other administrative changes the new law will require. Some provisions affect advisers and the advice they give.

There is much we will need to delve into, to fully understand any implications and changes needed.

Please remember this is a Bill, still in its early stages – there may well be significant changes. For now, I’ll highlight a couple of issues relevant to life insurance advice.

  1. A legal basis for the nomination of beneficiaries seems to be provided in certain circumstances. Benefits expressed to be for the benefit of the policyholder’s, spouse, partner or children are to be held on trust to satisfy those objectives. As I read it, these objectives must be provided for ‘in the life policy’, so policy wording changes may be required. These benefits will not form part of the deceased’s estate and will have some protection against creditors.
  2. The definition of Life Policy is the same as that defined in the Insurance (Prudential Supervision) Act, which excludes health insurance. While it might make sense not to treat health insurance as a life policy for prudential regulation purposes, I’m not sure this makes sense for policyholders or policy administration.
  3. The limit on benefits payable under life policies on the death of a child under 10 years old have increased from $2,000 to $15,000. I think this is still a little low. After a funeral and other expenses, $15,000 won’t allow two working parents much ability to take time off to grieve. Perhaps $25,000 would be more appropriate. A new provision makes it an offence to attempt to defeat this limit.
  4. The prohibition, on anyone other than the natural parent or guardian, or the natural parent, guardian and their spouse jointly, owning a life policy on a child under 16, has been extended to allow a civil union or de facto partner of the child’s natural parent or guardian also to own such a policy jointly with that parent or guardian.
  5. There are changes regarding disclosure (a relaxing of the strict ‘utmost good faith’ principles and the introduction of the concept of ‘qualifying non-disclosure’). It will become more difficult for insurers to deny claims due to non-disclosure. There are also changes to the remedies available to insurers for qualifying non-disclosure, which I’ll write about separately.
  6. Insurers have a new obligation to clearly inform the ‘policyholder’ of their disclosure duties and the possible the consequences of non-disclosure, before the policy is entered into or varied. Insurers that don’t do this as prescribed, may be denied the remedies available on qualifying non-disclosure.
  7. Advisers remain liable for passing any relevant representations or disclosure made to them by their clients, on to the insurer before the insurance is entered into or varied. Any provisions in an adviser’s contract with their client that that requires the client to indemnify the adviser against any failure to pass client disclosure or representations to the insurer is void.

I would urge all FAPs to study the Bill closely and make submissions.

Steve Wright has qualifications in economics, law, tax, and financial planning. He has spent the last 20 years in sales, product, and professional development roles with insurers. He is now independent and helping advisers mitigate advice risk through training and advice coaching.

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Comments from our readers

On 15 May 2024 at 7:48 am JPHale said:
Thanks, Steve. That's an excellent summary so far.

1. This is good; it comes up quite often with clients who have done the work with estate planning and want a more refined approach than ownership or estate options we have. The challenge is having the staff at insurers able to implement and manage this which has been a problem in the past.

2. This is a common client expectation as medical coverage is seen as part of the picture with life insurance advice, access to medical treatment is a growing issue and clients want the bundle.

3. I agree. However, the intent of this was to cover costs and remove incentives for enrichment. More than $15k brings in that component as little as you or I consider it; there's an incentive there.

4. This is useful as I have had issues where the kids need cover on a "new partner's" policy, but that insurer won't insure the parent due to their health. A positive step with this, though, is that new partner doesn't qualify until defacto.

5. This one is the slippery slope; what we have presently is too tough and would be assisted by the privacy commissioner, enabling insurers to ask for full medical notes. The unintended consequences here concern me, policies that will either increase premiums to account for the increased claims paid or the reduction in benefit triggers making claims harder to qualify.

6. We should already be doing this in the present environment.

7. I agree with this. However, the idea that an adviser can currently contract out of section 10 is a new one for me. We are the professionals and we have obligations to act like professionals to ensure clients are not compromised by our actions. A case of assume we are liable and act accordingly to mitigate that liability rather than try and pass the buck.

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