“What we are currently seeing is the regulator simply following through,” said Susannah Fricke (pictured above), partner with the general insurance team at Hicksons law firm.
In recent weeks, for the first time, the Australian Securities and Investments Commission (ASIC) launched actions against two insurance companies for alleged unfair contract terms. The regulator’s proceedings against Auto & General Insurance Company (Auto & General) were followed last week by a similar action against HCF Life Insurance Company (HCF Life).
HCF Life, part of health fund HCF, is strongly contesting the case.
This week, Insurance Business published an interview with Fricke detailing the significance of these ASIC cases and what exactly the regulator needs to prove to win them.
But how can insurers make certain they are drafting policy contract documents that won’t attract ASIC prosecutions?
“Ensuring documents drafted in plain language also convey information accurately and with sufficient specificity is indeed a delicate art,” said Fricke.
She said insurers, particularly those who write risks for consumers and small businesses, will need to ensure that they are not misrepresenting, overstating or embellishing their rights as an insurer.
“Or the obligations that the insured owes to them, in their policy documents,” said the Hicksons expert.
Fricke said a common feature of both ASIC cases is that the contract terms that have caught the regulator’s ire both relate to the insured’s duties regarding disclosure to its insurer.
“So it is worth giving those provisions some particularly careful review,” she said.
The difficulty for insurers, said Fricke, is that they have obligations to ensure that their communications to customers, including their product disclosure statements, are drafted in plain language. For example, she said, under clause 42 of the General Insurance Code of Practice.
“One expects that, in simplifying the language in their policy documents, some of the nuance or detail needed in these wordings may have inadvertently been lost,” said Fricke.
However, she said, “there is no reason why, with further review and amendment, that balance cannot be attained by insurers, but it does require careful consideration regarding the wording and framing of terms which, to date, insurers may not have considered problematic.”
Another issue, she said, is insurers’ failure to regularly review the terms of their insurance contracts.
“Particularly as and when changes are adopted to relevant legislation that may affect how the terms of their insurance contracts are read or interpreted,” she said.
Fricke said ASIC’s new Enforcement Priorities are catching contract errors that, even in years past, would have been seen that way.
“It was never good practice for insurers to be representing, in their policy documents or otherwise, that they had greater rights, or the insured had greater obligations, than what was in fact the case at law,” she said.
Fricke said there has always been the duty of utmost good faith owed by the insurer under section 13 of the Insurance Contracts Act.
“Further, such terms [like those allegedly in the Auto & General and HCF Life contracts] just create confusion for both insureds and insurers alike,” she said. “Where incorrect claims decisions have been made on the basis of such provisions, those decisions were liable to be overturned on review.”
Fricke said poor policy wording and drafting has always been costly for the industry. The major difference now, she said, is that ASIC has more specific enforcement tools at its disposal, like the unfair contract term provisions of the ASIC Act.
Fricke said there are other regulations coming into play that insurers should be aware of.
“All insurers should be aware of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth), which passed late last year and will come into effect from November 9, 2023,” she said.
Fricke said these amendments expand the application of the unfair contract terms provisions of the ASIC Act, particularly with respect to contracts for small business.
“They also expand the class of orders available to the Court if a contract term is found to be unfair under the ASIC Act, including the extension of powers to make adverse publicity orders where there is a breach,” she said.
Importantly, said Fricke, these amendments also introduce “hefty civil penalties.”
“What is very clear is that the powers of ASIC as a regulator are being further strengthened, and insurers are on notice that ASIC has taken a particular interest in ensuring that policy documents are considered fair for consumers and small businesses,” she said. “Insurers ignore these warnings at their peril.”
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