Unfair case shows why insurance change needed
Outdated and unfair insurance laws are finally to be overhauled a quarter of a century after the Law Commission called for them to be reformed.
Commerce and Consumer Affairs Minister Andrew Bayly stood in Parliament’s debating chamber yesterday for the first reading of a bill he said would modernise insurance law. The Contracts of Insurance Bill contains changes to insurance law first recommended by the Law Commission in a report in 1998 to limit insurers’ ability to deny claims, and even cancel people’s insurance policies, if those people made innocent mistakes when they applied for cover.
Bayly told MPs the story of a wife who was told by an insurer it would not pay a claim after her husband was killed by a truck driver because he had not told the insurer he had once been bankrupted when he applied for his life insurance.
“I think most New Zealanders will agree this is not fair, or right,” Bayly said.
Bayly’s bill would also require insurers to pay claims within a “reasonable” time, and a specific requirement that life insurers must pay interest on death claims from the 31st day after they were notified a policyholder had died.
Bayly’s bill contains many of the things included in a private members’ bill drafted by Labour’s last Commerce and Consumer Affairs Minister Duncan Webb had been working to change before the current coalition government won power.
Webb, a former insurance lawyer, said Bayly’s bill was “not a bad bill, but not as good as my bill”. “I’ll be honest. I’m a bit peeved that the minister has stolen this show, but we are constructive and pragmatic, and we will put our heads down and make this bill good for all New Zealanders because this bill is of critical importance,” Webb said.
“These reforms are long overdue,” Bayly said. “New Zealand’s insurance law is complicated and dated, some of which is more than 100 years old.
“We have all heard stories of people being denied compensation because they didn’t realise they had to disclose certain information, or waiting months on end in limbo while they wait for a decision from their insurer. This isn’t fair or right,” Bayly said.
“The Bill makes a really positive change for consumers by shifting the onus of disclosure duties to insurers. Right now, consumers must disclose everything that might be relevant to an insurance policy. But it’s difficult for everyday Kiwis to know what information is relevant,” he said.
And, under Bayly’s bill, when customers make innocent mistakes, insurers would have to deal proportionately with them.
Instead of declining a claim for innocent non-disclosure, for example, insurers would be able to reduce the amount they paid to compensate them for the extra premiums they would have charged had the innocent non-disclosure never happened.
Bayly’s bill would also require insurance policies be written in simple terms.
Bayly said the proposed laws would bring New Zealand into line with international best practice, and would be enforced by the Financial Markets Authority.