The FMA released updated information last week on the duties of intermediaries under the Contracts of Insurance Act 2024, noting that the changes have important implications for both policyholders and the intermediaries that support them.
The new Act comes into force on November 15 next year.
The newly updated pages explain that the CoIA, which modernises New Zealand’s insurance contract law and establishes a new legislative framework governing insurance contracts, introduces significant changes for insurers, intermediaries and policyholders “…including new disclosure duties and proportionate remedies where those duties are breached.”
The FMA says intermediaries “…have an important role in supporting the operation of the new framework because they often facilitate the exchange of information between policyholders (including prospective policyholders) and insurers.
“CoIA includes specific requirements for intermediaries in certain circumstances, including requirements to pass on information from policyholders to insurers.”
…Intermediaries will need to understand how CoIA applies to their role and what changes may be required to their existing practices and processes…
The updated information says that collectively the changes have important implications for both policyholders and the intermediaries that support them.
“Intermediaries will need to understand how CoIA applies to their role and what changes may be required to their existing practices and processes.”
Duties of specified intermediaries to pass information to insurers
The FMA says the CoIA introduces new statutory duties for specified intermediaries to pass certain information on to insurers.
“These obligations reflect the important role specified intermediaries can play in passing information between policyholders and insurers.
“Under existing insurance law, insurers are deemed to know certain information that is known to intermediaries, but there is no legislative requirement for those intermediaries to pass that information on to insurers.
…A court may order an intermediary to compensate an insurer for loss if they breach this…
“The new duties address this by requiring specified intermediaries to take reasonable steps to pass information on to insurers. A court may order an intermediary to compensate an insurer for loss if they breach this,” it says, noting the parties can contract out of the duties.
The duties differ depending on the type of insurance contract.
Consumer insurance contract: Specified intermediaries must take reasonable steps to pass on to the insurer representation made to them by the policyholder that is relevant to questions asked by the insurer, before the insurance contract is entered into or varied.
Non-consumer insurance contract: Specified intermediaries must take reasonable steps to disclose to the insurer every material circumstance that is known to any individual who works for the specified intermediary in relation to the insurance contract.
What is material?
The FMA states that a circumstance is considered material “…if it would influence the judgement of a prudent insurer in deciding whether to take the risk and, if so, on what terms.
“Examples of circumstances that may be material include special or unusual facts relating to the risk and particular concerns that led the policyholder to seek insurance cover. See section 32 of CoIA for further detail and examples of circumstances that may be material,” the FMA says.
The regulator says specified intermediaries “…should familiarise themselves with both the new policyholder disclosure requirements and the statutory duties to pass information on to insurers.
“They should review their existing processes and controls for capturing and passing on relevant information and consider whether any changes are needed before CoIA comes into force.”
Click here to view the FMA information.