The insurance reform to pay attention to
It's time for New Zealand’s insurance industry and legal profession to get behind MBIE's efforts to give insurance a shake-up. Victoria University's Dr Bevan Marten explains why.
The project’s remit extends to rules around pre-contractual disclosure, remedies, unfair contract terms and aspects of industry regulation.
It is the first of those topics – disclosure – that is worth paying attention to. As everyone should know, you need to provide your insurer with a lot of information when you take out a policy. That is important and fair, because the insurer is entitled to know what sort of risk they are taking on: do you own an unreinforced brick warehouse on reclaimed land in central Wellington or a flood-prone bungalow in Taranaki? The insurer might alter the scope of your cover, raise the price you pay or turn you down altogether based on the information you provide.
What you might not know is the test New Zealand law currently sets for disclosure. You have to disclose, in good faith, everything a prudent insurer would think material to the risk. That’s right, a prudent insurer. A person I’m not – and you are probably not either. We are expressly being held to a standard an ordinary person cannot necessarily expect to meet. It is a very strange position for the law to place businesses in – let alone ordinary consumers – and one that has been criticised by New Zealand courts on a number of occasions over the past 30 years.
Despite this strong vein of criticism, New Zealanders will approach the coming reform process with a sense of deja vu. We have been here before: in 1998 (Law Commission report), 2004 (the Law Commission again), 2006 (Ministry of Economic Development report) and 2008 (Minister of Commerce cabinet paper).
Nothing changed except the government, later in 2008, but its agenda had no space for insurance law reform. From 2010, the Canterbury earthquakes forced insurance into the forefront of national debate, but the issues were primarily around what insured parties would be paid and the government’s role in spreading the cost of natural disasters.
While New Zealand put questions of disclosure to one side, other countries were hard at work. The United Kingdom brought in the Consumer Insurance (Disclosure and Representations) Act 2012 and the Insurance Act 2015 to sweep away the traditional approach in both the consumer and commercial fields. Australia can point to more than 30 years of fresh thinking with its Insurance Contracts Act 1984 and subsequent amendments.
In each case, the question of “What must I disclose to the insurer?” has been answered not with the standard “Whatever a prudent insurer would think material” but with a more nuanced and insured-friendly approach. Although the focus of the legislation in each country is different, and each has different tests for consumer and non-consumer insurance, both Australia and the UK concluded that the old law was unsustainable.
New Zealand has been left behind.
Unless it wants to capture the legal historian package holiday market, it is time for New Zealand’s insurance industry and legal profession to get behind MBIE’s efforts and help bring this reform to fruition.
It could be as simple as making a choice between legal harmonisation with its closest neighbour or following in the footsteps of the jurisdiction from which New Zealand has traditionally sourced its insurance law.
The MBIE consultation process is set to last well into 2019, so a final legislative decision is some way off. Nonetheless, new Minister of Commerce and Consumer Affairs Kris Faafoi is to be congratulated for bringing this reform on to MBIE’s agenda early in the Parliamentary cycle. The insurance industry has made a decent go of self-regulation through its Fair Insurance Code, but binding change is long overdue.
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