New Zealand updates insurance laws

By Resolve Editor Deb Eccleston

Last year, New Zealand introduced new legislation that was six years in the making and, according to many, long overdue.

The Contracts of Insurance Act was passed in November and consolidates New Zealand’s many contract-related statutes, including the Law Reform Act 1936, Insurance Law Reform Act 1977 and the Insurance Law Reform Act 1985, among others.

When first proposed in the 2019 Insurance Contract Law Reforms Cabinet Paper by then-Minister Kris Faafoi – now Chief Executive of the Insurance Council of New Zealand (ICNZ) – the reforms were intended to address “significant problems with aspects of New Zealand’s insurance contract law” which “undermine the effectiveness of our insurance markets and impact those who do not receive the support they anticipated from their insurance policies”.

Six years and a change of government later, the new legislation was welcomed by the ICNZ as “striking a balance between strengthening protections for consumers while promoting fairness, certainty and sustainability in the insurance sector”, according to a statement from Mr Faafoi.

While New Zealand insurers have up to three years before the legislation takes effect, Mr Faafoi acknowledged that a huge amount of work was required by insurers to update systems and procedures in that time.

The Bill

The purpose of the Contracts of Insurance Bill is to ensure that insurance contract law is effective for facilitating well-functioning insurance markets for both insurers and policyholders.

It seeks to enable consumers and businesses to effectively protect themselves against risk, while minimising costs and impacts on insurers’ willingness to provide insurance in New Zealand.

The Bill addresses the key issues identified in a series of reviews, including:

• Disclosure duties and insurer’s remedies for misrepresentations.
• Unfair contract terms.
• Understanding and comparing insurance policies.
• Consolidation and modernisation of existing legislation.
• Payment of claims in reasonable time.

New Zealand Minister of Commerce and Consumer Affairs Honourable Andrew Bayly said in a statement the bill “provided consumers with significant new safeguards”.

“Consumers will no longer have to rack their brains and guess what information is relevant to their insurance policy,” he said.

Practical implications

NZILA President Petra Lucioli said now that the bill had been passed, the industry was focused on the practical implications of the rule changes, including:

• Disclosure of information: The obligation is now on the insurers to ask the right questions, which will change their underwriting questions and processes.
• Unfair contract terms: Until now, insurance contracts have been excluded from unfair contract terms. This change will impact insurers’ policy.
• Changes to third party claims: The Bill will allow third parties to claim directly against an insurer.
• Notifications processes: Insurers can now decline a liability claim based on late notification of circumstances.

Ms Lucioli said this last change in particular would have a significant impact on liability insurance and could cause complex problems for people changing insurance companies.

“It’s a really bad outcome because it means that insureds are not going to have seamless cover and will be fighting like fury about whether claims are covered or not,” she said.

Read more in this edition’s NZILA President’s Message.