The result of another Royal Commission recommendation, as of 5 October 2021, insurance sold to retail will no longer benefit from the protection of the duty of disclosure.
Instead, it will be replaced with a lesser duty – a duty to take reasonable care not to make a misrepresentation to an insurer. The full bill can be found here.
What does this mean?
- It will be more difficult for an insurer to demonstrate that an insurer failed to take reasonable care, than it was to prove a breach of the duty of disclosure.
- In effect, it shifts the obligation to consider what an insurer would need to know away from the consumer and toward the insurer.
- It will give the consumer a defence for failing to disclose certain facts, especially if they weren't asked.
In particular, the legislation lists a number of factors that will be considered when determining if a consumer has breached the new duty:
- the type of insurance and its target market (referencing the impending DDO regulation)
- explanatory material or publicity produced or authorised by the insurer
- how clear and how specific any questions asked by the insurer were
- how clearly the insurer communicated the importance of answering their questions and the possible consequences of failing to do so
- whether or not an agent was acting for the insured
- whether the insurer knew or ought reasonably to have known about particular characteristics or circumstances of the insured.
For most insurers, this will prompt a re-examination of their application processes to ensure the right questions are asked, as well as new policies and procedures to address the risks inherent in the reduced protection given by the new duty.
Get in touch if you would like to know more.
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