Policyholders urge fix for court failures

Fixing the insurance industry requires fixing a broken court system, said Se´ amus O’Cromtha from the ‘‘Prisoners of Tower’’ protest group.

An overhaul of insurance industry rules has taken a step forward with Commerce Minister Kris Faafoi inviting submissions from the public on what needs to change.

But O’Cromtha, a Tower policyholder locked in a court battle to get his earthquake-damaged Christchurch homes repaired, said there were glaring omissions in the areas the discussion paper covered.

‘‘I didn’t expect to be sitting in my earthquake-damaged house seven years after the original trigger event. I still haven’t got to the court.’’

O’Cromtha fears Faafoi’s consultation will be window-dressing unless access to timely justice is addressed.

But he said the Government was conflicted as owner of the Earthquake Commission (EQC) and Southern Response.

He estimated there were currently about $1 billion of claims in front of the courts, with just two judges handling the majority of the cases.

O’Cromtha also called on the Government to review the legal onus for individual policyholders to prove they have a claim.

Policyholders finding themselves in a fight with insurers often lacked the resources to do it, forcing them to settle.

‘‘It’s ridiculous. We really needed an independent regulator for insurers that has teeth, and can impose sanctions,’’ he said.

Releasing the discussion paper yesterday, Faafoi said people’s experiences following the Christchurch earthquakes and a royal commission of inquiry in Australia had highlighted ‘‘the need to look at whether greater regulation of insurer conduct is required’’.

In response to O’Cromtha, Faafoi said the consultation was an opportunity for the public to raise concerns.

Faafoi said ‘‘significant problems’’ with insurance contract law were undermining the effectiveness of insurance, and affecting people who did not receive the support they expected from their policies.

It’s not just house and car insurance under the spotlight.

‘‘I have heard, for example, that consumers are sometimes not covered for losses or unable to claim for important needs like health treatment because they innocently did not disclose seemingly unrelated matters to the insurer,’’ Faafoi said.

‘‘This is really tough for people who genuinely believe they have met their requirements and are later unable to rely on benefits of insurance.’’

There are four core areas of possible reform raised in the discussion paper issued by Faafoi.

The first is to bring policies under the Fair Trading Act. Currently, insurance contracts are carved out of some aspects of the act, meaning they can contain ‘‘unfair’’ terms.

The second is to address the unfair disclosure rules, which can easily trip up ordinary people. People taking out insurance have a duty to tell an insurer everything that would be ‘‘material’’ to a ‘‘prudent underwriter’’. Anyone who fails to do so can have a claim declined.

Accidental failure to disclose means a policyholder could find out only at claims time that years of premiums bought nothing.

Questions are also being asked about whether insurers are too lightly regulated.

The International Monetary Fund, in its last review of New Zealand, said regulation of insurers’ conduct was ‘‘inadequate’’.

The discussion paper also asks for any evidence that insurance intermediaries such as banks and insurance advisers are behaving badly, and whether sales incentives like high up-front commissions, which can reach more than 200 per cent of a first year’s premium, are causing poor outcomes.

The deadline for submissions on the discussion paper is July 13.

Proposals for law change will be with the minister by March next year.