Jenée Tibshraeny, Journalist, at interest.co.nz has a good article on promises to update disclosure law.
Jacqui Dean has told interest.co.nz she’d like to “commence work on a significant package of insurance contract law reform in 2018”.
This is likely to add to a relatively busy period for law and regulation for insurers and insurance sales. The Financial Services Legislation Amendment Bill has been getting most of the spotlight, but there is also the review of the Insurance (Prudential Supervision) Act being carried out by the Reserve Bank (update here), and now the promise of insurance contract law reform.
Insurance law is rarely updated, so why now? The IMF report on Financial Sector Stability identified the insurance market as an area in which there could be improvements in insurance market conduct. Some aspects of that criticism touched on the activities of advisers, but changes to advice law in the new Amendment Bill already have that area covered – requiring adherence to a new Code of Professional Conduct and giving the FMA much more power to manage conflicts of interest. That left insurer's conduct obligations, which were also picked up as an issue in the report. But international reports are rarely so quickly turned into action. We think that local pressures pressures for change are more significant:
- Conduct has been a big focus for the FMA recently, so officials would have echoed the IMF report's call for better management of market conduct.
- Disputes resolution bodies (the ISO and FSCL) have a modest, but persistent, flow of complaints that relate to non-disclosure. There are certainly more that we are unaware of, as some people simply do not complain when their claims are rejected. They have been highlighting the issue of the disclosure law for a long time.
- There have been a very large number of claims for damage arising from earthquakes and lots of publicity about complaints relating to delays, settlements, and denied claims. So for once insurance law reform may actually be noticed, and desired, by lots of voters.
The example of material non-disclosure in the article relates to a life insurance case, rather than fire and general, where most recent complaints probably arise. A further nuance to the example is that it depends a lot on what kind of application process there was. Most (functionally, all) fully underwritten life products would have asked a question about the back injury, so it would have to be more than an accidental omission, the client would have had to either lie or have forgotten. But when the application is a ‘short form’ or if there are simply no health questions because it is a ‘guaranteed acceptance’ product, it would be easy for clients to make the non-disclosure along the lines suggested in the article.
For most insurers, who are paying these claims, the change to disclosure law will not be an issue. Their parent companies in Australia and the UK are typically already working under these regimes. The low level of complaints (relating to life insurance) indicates that there cannot be really large volumes of claim declines. But the change would still be significant enough to be welcome, because a functioning insurance market relies on confidence, and confidence in claim payment most of all. What the consumer gains in confidence is a direct gain to the industry as well – it will result in more policies being purchased from insurers. Advisers should also reflect that it will reduce their advice risk around non-disclosure complaints.
Of course, no final judgment can be made until we have the draft law, but this could be good.