Concern that the country’s 450,000 small business owners may be disadvantaged if the Contracts of Insurance Bill becomes law have been raised by Financial Advice NZ CEO Nick Hakes.
He told members of a select committee hearing submissions on the bill that its current wording defines consumer and non-consumer policies based on their purpose.
The purpose then detemines the disclosure duties of the insured. He is concerned this will increase the complexity for small business owners applying for life and disability insurance and proposed that all life, disability and health insurance policies be deemed consumer contracts.
By way of illustration, Hakes gave the scenario of ‘Jack’ a small business owner needing a personal life policy to address his family and personal mortgage needs but who also needs a life policy to cover his key person business risk.
“As the business insurance policies are not for personal, domestic, or household purposes, they would be defined as a non-consumer contract,” said Hakes.
“Our interpretation of the proposed meaning of consumer and non-consumer contracts is that Jack would have two different disclosure obligations when he applies for the life policy.
“For his personal life policies his disclosure duty is one of reasonable care. For the business life policies his disclosure duty is one of fair representation.”
Hakes says consumers already perceive the application process for life policies as complex, confusing, and time consuming.
“So this distinction of purpose for life policies, which result in a life policy being consumer or non-consumer, could have the unintended consequence of increasing barriers to consumer participation,” he said.
He asked the committee to consider defining all life, health, and disability policies as consumer contracts.