Insurance Contract Law Changes a Win For Consumers


Proposed changes to insurance contract law by the Government aims to make insurance policies easier to understand and fairer for consumers.

Minister of Commerce and Consumer Affairs, Kris Faafoi, says the current law is outdated and many insurance policies are complex and difficult to follow.

Minister of Commerce and Consumer Affairs, Kris Faafoi

“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,” he said.

Last year the Government launched a review of insurance contract law and following extensive public feedback, Faafoi confirmed they will be improving the rules around disclosure, making policies more easy to understand and addressing unfair contract terms.

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,” said Faafoi.

“…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.”

Financial Advice NZ CEO, Katrina Shanks

Financial Advice NZ CEO, Katrina Shanks, says the changes should go a long way towards seeing the end of policies that confuse consumers.

“These proposed changes are not before time,” she said, referring to its recent adviser members survey which showed that one of the most common mistakes consumers make when it comes to insurance is not understanding their policy limitation.

“That generally comes down to how they are written,” said Shanks. “In fact, some 95 percent of advisers said the language and complexity of policies make it difficult for consumers to understand them, without specialist advice, while 97 percent said the language and complexity makes it difficult for consumers to compare policies.”

She said the association also welcomes the proposal to put the onus on insurers to ask consumers the right questions when signing them up rather than relying on them to know what to disclose.

“We also favour ironing-out the rules surrounding unfair contract terms and making insurers respond proportionately if a customer fails to disclose something they should have disclosed, so claims cannt be rejected based on unfair contract terms,” said Shanks.

FSC Chief Executive, Richard Klipin

The Financial Services Council also welcomed the proposed changes to insurance contract law.

FSC Chief Executive, Richard Klipin, says “The scope of the measures released is comprehensive and has a clear focus on improving outcomes for consumers.

“They represent a modernisation of this technically complex area and will provide greater certainty, clarity and transparency for consumers,” he added.

Faafoi said the Government expects to consult with the public next year on draft legislation before any changes come into effect.