Commerce and Consumer Affairs Minister Kris Faafoi says new rules will include what policyholders must disclose to insurers, making changes to allow people to more easily understand their policy, and addressing unfair contract terms

The Government's announced plans to move ahead with reforming the laws governing insurance contracts.

A period of consultation will be held with the public next year before the changes are enshrined in law.

Minister of Commerce and Consumer Affairs Kris Faafoi says New Zealand consumers will have greater certainty about their insurance cover when they need to make claims as a result of the proposed changes.

“Insurance is vitally important in supporting consumers and businesses to be financially resilient when unexpected events happen,” he said.

“The current law is outdated, and many insurance policies are complex and difficult to follow. This means consumers can be buying insurance products they don’t understand, which can be poorly suited to their needs, and can leave them in the dark about what they should disclose to their insurer.

“We want to fix these issues. So, last year the Government launched a review of insurance contract law.

“Following extensive public feedback, we are improving the rules around what policyholders must disclose to insurers, making changes to allow people to more easily understand their policy, and we’re addressing unfair contract terms,” Faafoi said.

Changes the Government has agreed on include:

• Placing the responsibility on insurers to ask consumers the right questions when processing new insurance policies, rather than leaving it to consumers to know what to tell their insurer.
• Requiring insurance policies to be written and presented clearly, so that consumers can easily understand them.
• Ensuring insurers respond proportionately when consumers don’t disclose something they should have, or misrepresent themselves.
• Strengthening protections for consumers against unfair terms in insurance contracts.
• Extending powers to the Financial Markets Authority to monitor and enforce compliance with new requirements.

“All New Zealanders deserve the assurance that when they claim for losses, their policy will provide the cover they expected.  However, longstanding issues with insurance contract law have been undermining the benefits of being insured.

“These measures will complement decisions the Government made earlier this year requiring insurers and other financial service providers to treat their customers fairly.

“It’s about ensuring financial products and services are appropriate for consumers to use and properly meet their needs.

“We want to be sure we’ve landed on solutions that will work in practice, so we expect to consult with the public next year on draft legislation before any changes come into effect,” Kris Faafoi said.

The Insurance Council of New Zealand (ICNZ) says it welcomes the moves.

Chief executive of ICNZ Tim Grafton says the current legislation is outdated and needs to be consolidated into a single piece of law.

"This is a highly technical area and we support the Minister’s decision to consult on a draft piece of legislation, a process that we will engage in constructively.

"Consultation will allow us to ensure the strengthened consumer protections in insurance contracts provide clarity and certainty for all parties," he said.

For the past four years ICNZ’s Fair Insurance Code has required its members to respond proportionately when consumers don’t disclose something they should have, a process ICNZ supports applying to the whole sector.

"Also under our Code, we require our members to set out their insurance policies in plain English which the whole sector should be striving to do. Furthermore, putting the onus on insurers to ask the right questions of consumers to underwrite a risk reflects the fact they have the ability to ask the right questions.

Grafton concluded that ICNZ supports the Minister taking a balanced and careful approach to reform to what is a complicated and technical area.