The background to the Bill can be found in our earlier articles here and here.
As we explain below, the amendments include changes to the disclosure duties for consumer policies and remedies for breach, the duty on insurers to inform policyholders about their duties, the new third party claims regime (removing the statutory charge on liability policies), claims handling, duties on intermediaries, and criminal liability for brokers. The Committee also recommended introducing “unusually broad” powers to make regulations to prohibit or regulate “genetic discrimination” by insurers.
Committee’s key recommendations
The table below summarises the key amendments proposed by the Committee.
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Changes to scope |
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Excluding reinsurance arrangements |
Reinsurance contracts have been excluded from the scope of the Bill on the basis that the issues the Bill seeks to address are generally not directed at arrangements between insurers and reinsurers. |
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Application of disclosure duty for consumer insurance contracts |
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Presumption removed |
The presumption that an insurance contract is a consumer insurance contract unless proven otherwise has been removed. |
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Provisions for determining whether a policyholder has taken reasonable care not to make a misrepresentation |
In response to submissions, various drafting changes have been made to these provisions in an attempt to simplify them, and to make clearer that the standard of care required of a reasonable policyholder must take account of the actual policyholder’s circumstances if they were known or ought to have been known to the insurer. The changes are also said to place the onus on the insurer to follow up if a non-answer or an obviously incomplete or irrelevant answer is given. |
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“Fraudulent misrepresentations” have been replaced with references to “dishonest misrepresentations” |
The clause stating that “fraudulent” misrepresentations must always be taken as showing a lack of reasonable care has been changed to refer to “dishonest” misrepresentations, to align the clause with the equivalent UK provision and avoid associations with criminal law. |
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Provisions on attribution of information and knowledge in relation to life policies extended to health policies |
The Bill clarifies how the disclosure duties apply to consumer life insurance where the policyholder is not the assured:
These provisions have helpfully been extended to apply to health insurance contracts as well, after submitters noted that health policies can be taken out on people other than the policyholder. |
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New remedy for insurers |
A new remedy has been added where the insured makes a misrepresentation before entry into a policy, and the insurer would still have entered into the policy had it known the correct position, but on different terms. In that case, the insurer can charge a higher premium for the remainder of the contract to reflect the actual risk covered, and/or (as the Bill already provided) proportionately reduce the payout on any claim that arose while the insured was paying the lower premium to account for the fact it would have charged a higher premium. |
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Insurer’s duties to inform policyholder of certain matters |
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“All reasonable steps” now just “reasonable steps” |
As introduced, the Bill would require the insurer to take “all reasonable steps” to ensure that the policyholder is clearly informed of specified matters. This created some ambiguity as to whether the insurer was required to take all possible reasonable steps. The Committee has agreed to replace the term “all reasonable steps” with “reasonable steps”. |
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Remedies exception extended for a reckless breach by a policyholder |
The Bill previously provided that, if an insurer under a non-consumer contract failed to notify the insured of their duty of disclosure, the insurer would only have a remedy for breach of duty by the insured if that breach was deliberate. We submitted that the insurer should also have a remedy if the insured’s breach was reckless, consistent with other provisions of the Bill. The Committee agreed and has changed the Bill accordingly. |
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Third party claims regime |
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Improved defences for insurers |
The Committee accepted our submission that the existing drafting would prevent insurers from relying on basic defences to a claim by a third party (e.g., that the third party’s claim had already been paid). The Bill will clarify and narrow the scope of defences that an insurer cannot make to a third party claim. |
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Claims handling |
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Implied term about payment of claims |
The Bill introduces an implied term to every insurance contract: if the policyholder makes a claim under the contract, the insurer must pay any sums due in respect of the claim within a reasonable time. “Reasonable time” in this context will now include a reasonable time to gather information needed to investigate and assess the claim. |
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Changes for specified intermediaries |
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Changes to definition of “specified intermediaries” |
This definition has been clarified to include intermediaries who receive commission or consideration indirectly from an insurer so that individual financial advisers that receive commissions or consideration from their financial advice provider rather than directly from the insurer are also captured. |
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Duty to pass on representations |
In response to the concerns of insurance brokers, the Bill has been amended to provide that their compliance with the Bill’s duties to pass on information to an insurer would not place the intermediary in breach of any contract (including their contract with the policyholder). In addition, the compensation a court can order for breach of these duties is subject to any position agreed between the insurer and the specified intermediary relating to compensation for breach. In other words, the Bill now expressly allows the intermediary to contract out of these duties, and/or agree to a cap on liability. |
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Duties of brokers |
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Duties of brokers in relation to premiums |
As introduced, the Bill retained an existing criminal offence for brokers who fail to pay premiums on to insurers, which is punishable by a fine of NZ$5,000 for an individual or NZ$10,000 in any other case. The Committee agreed with our suggestion to revisit whether criminal liability is warranted in these circumstances and recommends deleting this criminal offence and instead providing for the insurer to recover any amount payable in court as a debt due. |
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Genetic testing |
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“Unusually broad” regulation-making powers |
Concerns were raised in submissions that insurers might discriminate on the basis of genetic test results, and that this may discourage people from being tested (which could be detrimental to their own health outcomes). Rather than introducing a ban on “genetic discrimination”, a new power has been introduced to make regulations “prohibiting or regulating any conduct of insurers in connection with genetic testing”, which the Committee described as “unusually broad”. The regulations can only be made on the recommendation of the Minister, who must first undertake a consultation process and be satisfied of certain statutory criteria relating to the necessity for, and scope of, the regulations. |
Where to from here?
The Government has previously indicated that the Bill will be passed before the end of the year, so we expect the final stages of the parliamentary process to be relatively quick.
MBIE has acknowledged insurers’ submissions that implementation of the Bill will be a significant one-off exercise for the industry. This is reflected in the existing commencement period in the Bill of up to three years.
Prior to the Bill coming into force, further work will be required for any regulations required to support the Bill. This includes any regulations made in relation to the form and presentation of consumer insurance contracts, which will be developed in consultation with the insurance industry and other stakeholders.
If you have any questions about the matters raised in this article, please get in touch with the contacts listed or your usual Bell Gully adviser.