Announcing the changes, Minister for Financial Services and Superannuation Bill Shorten said the reforms will:
- Remove impediments to the use of electronic communication for statutory notices and documents;
- Give increased powers to the regulator, the Australian Securities and Investments Commission, to take action to address breaches of the duty of utmost good faith by insurers, including in respect of claims handling; and
- Make the duty of disclosure easier for consumers to understand and comply with, especially at renewal of household/domestic insurance contracts.
TurksLegal lead partner in general insurance Paul Angus said some of the amendments will have a “significant impact” on the way general insurers deal with the inception and renewal of policies and handle claims.
In his view the most significant changes are:
- An extension of the requirement on an insurer to give notice of an insured’s duty of disclosure to renewals, where it previously was only required for policies prior to inception, and to ask specific questions regarding disclosure at renewal;
- An extension of several sections to apply to third party beneficiaries under a policy, including confirmation that the duty of utmost good faith applies to persons other than the actual named insured;
- Clarifying the priority between an insurer and an insured in regard to subrogated recoveries against a third party and how monies recovered are to be allocated between the insurer and the insured
Mr Angus said the changes make the Act more consistent in how it applies to both new general insurance policies and renewals, but will require general insurers to change the way they renew personal lines products.
General insurers’ procedures and documents need to be carefully analysed in light of the changes, he added.
John Myatt, head of the insurance and financial services practice group at TurksLegal, said the changes correct “some basic omissions that go right back to the inception of the Insurance Contracts Act itself”.
“For instance, a life insured quite inexplicably had no duty of disclosure imposed on them by the legislation in its original form,” he said.
“The remedies for non-disclosure and misrepresentation that apply to group life insurance schemes were also poorly drafted and hard to interpret.”
The Bill also makes it clear for the first time that a life insurance policy can be cancelled in the event of a fraudulent claim, he added.
“The reforms to the remedies available to life insurers for non-disclosure and misrepresentation presented by the Bill are ground-breaking and will provide a great opportunity for the industry to deliver better targeted and fairer responses to this significant problem,” he said.
