Background
| Focus: | Unfair terms in insurance contracts to be regulated |
| Services: | Insurance |
| Industry Focus: | Insurance |
In 2009, a Senate Committee reported that consumers are not provided with adequate protection in general insurance contracts under existing law.
In 2010, the Federal Government released a paper setting out some proposed options for dealing with harsh or unfair terms in insurance contracts, a move which was welcomed by consumer groups but opposed by the insurance industry.
Last month, the Federal Government released an exposure draft of the Insurance Contracts Amendment Bill 2010. This draft legislation, long-awaited by the insurance industry, has been updated in some respects but is silent on the issue of unfair contract terms.
The insurance industry could have been forgiven for thinking that unfair contract terms were off the Christmas list for time being. Until now.
What has happened?
Today, the Federal Government has delivered a Christmas present that will be seen as gift by consumer groups but as a lump of coal by the insurance industry.
The Assistant Treasurer has confirmed that the Government will amend the Insurance Contracts Act 1984 (Cth) to impose an unfair contract term regime that applies to general insurance contracts issued to consumers.
Key features are that:
- it will apply to standard form contracts;
- it will form part of the duty of utmost good faith, so that if a term is found to be unfair then the insurer will be in breach of that duty and will be unable to rely on that term;
- courts will be empowered to award additional remedies;
- unfair terms will be open to challenge not only by consumers but also by the Australian Securities and Investments Commission; and
- insurers will have the onus of proving that a term is reasonably necessary to protect their legitimate interests.
Some observations
Details of the regime are not yet available but already it is clear that the insurance industry will need to pay careful attention to issues such as:
- what contracts will be deemed to be 'standard form';
- how 'consumer contract' will be defined in the legislation; and
- since the regime will not apply to 'the main subject matter of the contract', how insurers can protect themselves adequately – the question of whether some contract terms are really exclusion clauses or insuring clauses has already proven itself fertile ground for dispute.
The insurance industry will not be enthused by some of the statements already being made by the Government. In a media release today, the Assistant Treasurer referred to consumers having to '...fight insurance claims with one hand tied behind their back...' and asserted that consumers are not having claims paid because of unfair terms contained in the 'fine print' of insurance contracts.
Finally, although life insurers have been left alone for the time being, they should monitor these developments with interest because the Government has stated it will turn its attention to life insurance contracts in the future.
What happens next?
We will not see the draft legislation until an unspecified date in 2013.
In the meantime, the Assistant Treasurer's media release is available here.
We will keep you updated with any developments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.