Business

Could insurance companies lose the right to be unfair?

Questionable insurance contracts may soon be a thing of the past as the Government looks to change the law that allows insurance companies to be exempt from areas of the Fair Trading Act

Submissions closed on Friday for a Ministry for Business, Innovation and Employment options paper that would impose impose tighter controls on insurance companies. 

MBIE received more than 300 submissions on the paper - a larger than usual number, a spokesperson says.

The options paper follows last year’s review on insurance law, where MBIE identified three areas of public concern. 

These were:

- Insurance companies being allowed to offer unfair contracts;

- Insured people having to guess what disclosure was expected of them; and

- Insurance policies being too difficult for people to understand. 

The review included real life examples such as one couple’s insurance claim being declined after their wedding ring was stolen from a hotel room. The small print in the contract stated it would only cover jewellery or personal belongings that were stored in a safe.

Another tried to claim insurance after losing his job, but the contract details specified he would only be covered when in permanent employment - but not during a three-month trial period. 

MBIE is concerned insurance companies are being let off lightly, as they do not have to comply with several significant unfair contract terms provisions in the Fair Trading Act. 

The options paper explores removing the insurance companies’ exclusion. 

Not-for-profit organisation Consumer NZ has supported this option in its submission to MBIE. 

CEO Sue Chetwin says insurance providers must be included in all aspects of the Fair Trading Act. 

“Insurance is the only industry that’s largely exempt from this ban.

“Consumers are not experts in insurance contracts and it’s unfair that they are expected to be.” 

However, Tim Grafton, Insurance Council New Zealand’s chief executive, argues the terms in insurance contracts are not unfair. He says the wording of the Fair Trading Act protects "the legitimate interests of insurers" and is necessary because of the high risk involved. 

He says ICNZ’s submission warns that including insurance companies in the Fair Trading Act’s 'unfair terms' provisions may mean more expensive premiums for consumers. 

Grafton believes that the transfer of risk from insured to insurer warrants a different relationship than that of seller to consumer - and therefore should have different terms. 

“If an insurer cannot define a risk, then that just dials up the risk for the insurer and dials up the uncertainty, and that is reflected very often in price. We don’t want to see consumers adversely impacted.” 

Freelance journalist Diana Clement, who revealed bad practice at insurance provider Youi in 2016, called ICNZ’s belief in the Fair Trading Act exemption “bizarre”. 

“Why on earth should insurance companies be allowed to have unfair terms in contracts? If they want to remain exempt, it is because they know their terms are unfair. The act is there to protect the consumer and that’s what insurance companies should be doing.” 

As for the possibility of increased premium costs, Clement calls that scaremongering. 

“The reality is there is competition in the market and there always will be. That keeps the prices in check.” 

MBIE will review the submissions and then present its recommendations to Commerce and Consumer Affairs Minister Kris Faafoi later this year.

Clement says the minister has “energy and cojones [balls]” and she hopes he will follow through with law reform by 2020. 

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