Australia: A key facts sheet (or two...): Treasury releases home building and home contents insurance policy discussion paper

According to the Government, too many people are confused by lengthy insurance contracts and their disclosure documents. As such, the Government has indicated that it is committed to implementing a mandatory one page KFS that will clearly set out what is and is not covered under a Home Building and Home Contents Insurance policy (Home policy).

On 1 March 2012, the Government released a discussion paper to seek community feedback on the content, format, structure and provision of the KFS, to ensure that it achieves this purpose.

According to the Government, the KFS will allow consumers to quickly and easily check the basic terms of the insurance policy, including the nature of the cover and any key exclusions.

What should it include?

In prescribing the proposed content of the KFS, the Government has considered what it deems to be essential features of policies and has provided a number of headings. Those headings include:

• Name of policy;
• Type of policy;
• What is covered;
• What is NOT covered;
• Sub-limits/Excesses and
• Warnings/statements.

Submissions in the initial consultation phase indicated that due to the diversity within the Home policy market, information regarding the type of policy (Sum-Insured, Sum-Insured plus Margin and Total Replacement) should be restricted to cover only the policy in question and not all of the potential policy types.

However, with a view to educating consumers, the Government has asked for comment as to whether a definitive explanation of the types of policies available should be provided on the reverse side (effectively a second page) of the KFS, to further increase consumer awareness.

This is seemingly an acknowledgement that one page is already seen as inadequate to properly explain the scope of cover.

Fitting it all in...

It is well understood across the industry that the cover available under various policies is a key area of interest to consumers. In this regard, consumers place a considerable focus on the relevant exclusions that may apply.

• What exclusions should be included in the 'what is NOT covered' section?
• Should the 'what is NOT covered' section of the KFS only reflect the reverse of the 'what is covered' section?
• Should the 'what is NOT covered' section reflect only events in relation to those contained in standard cover or should it be extended to include parts of the standard cover exclusions?
• Will costs for industry increase with an increase number of excluded events and exemptions? If so, please elaborate.
• This highlights the difficulty the Government is encountering in trying to explain entire insurance policies, in just one page.

In addition, as previously raised in our update of April 2011 (see here), the Government is also seeking comment about how to address issues associated with concurrent causes.

That is, if losses are caused by 'concurrent effective or proximate causes' (one of which was covered by the policy, and the other, excluded), the application of the principle identified in Wayne Tank & Pump Co Ltd v Employers Liability Assurance Corp Ltd [1974] QB 57 applies.

The potential adverse financial outcomes consumers may face as a result of the Wayne Tank principle have been raised as a potential area of concern. In order to address this concern it is proposed that the KFS will contain a short statement raising the potential application of the Wayne Tank principle and its potential effect. The proposed statements reads:

The Government then puts forward a number of further discussion queries regarding this statement. One of which is:

• Is the wording of the statement regarding the Wayne Tank principle appropriate? If not, why not?

Including legal standards such as 'concurrent causes' may only further muddy the waters and is arguably contrary to the Government's intention to limit the KFS. If the Wayne Tank principle is primarily an issue in the context of flood, a statement that 'if a loss is caused by both flood and any other cause then cover is excluded' may be clearer.

Too much content, not enough paper?

Although the Government's aims are laudable, the discussion paper highlights the underlying complexity in the defined terms/phrases used. We have only touched upon some of the issues raised.

Merely referring to one word items such as 'Impact', 'Flood' or 'Riot' as excluded causes is unlikely to leave insureds any wiser, but may discourage them from reading the full PDS where such terms are defined and explained.

In order to fully understand the cover, the PDS/policy is still required and the use of a KFS may lead to greater confusion if it results in a failure of consumers to read the relevant PDS/policy.

For more information, please contact:

This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.