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The imminent review of insurance contract law has been welcomed by Shine Lawyers, which has commended the government for recognising the “significant problems” caused by the current legislation.
According to Shine Lawyers senior solicitor Tim Gunn, certain policy wordings can have a disproportionately unfair effect on policyholders at claim time, and New Zealand’s insurance laws need to be brought to an equal footing with global legislation and general contract law.
“The time-old issue of innocent non-disclosure needs to be revised and be made consistent with existing law in the UK and Australia,” Gunn tells Insurance Business. “At the moment we’ve got an industry that’s attempting to self-regulate, which is creating some fairly unbalanced contractual terms and policies.”
Disablement and income protection claims are particularly susceptible to unfair policy wording, and currently form approximately 25% of Gunn’s workload. Policy wordings, containing phrases such as “in our reasonable opinion” or “to our complete satisfaction”, effectively give the insurer the power to decide whether or not a claimant has a disability - this has led to claims being unfairly declined, much to the shock of customers who had relied on a long-held policy as a safety net.
“The way policy wording affects income protection and disablement policies in particular stands out as being patently unfair,” Gunn explains. “Many people rely on these policies to kick into place, only to find that it’s up to the insurer to decide whether or not they are disabled. If a claim is approved, then there are also monthly reporting requirements in which a GP needs to sign you off every month to confirm that you’re still disabled. This ends up tiring people, and it makes them revisit their long-term injury or illness which ends up impeding rehabilitation.”
Unfortunately, Gunn says, most people who have had such a claim declined will end up with very little means to challenge the decision. A person of limited means and a limited understanding of insurance might hold a policy over many years which has no real benefit to them, and only those with a ‘rainy day’ fund are able to challenge an insurer’s decision.
“The government has specifically identified unfair contract terms and the Trading Act carve-out for insurance as a key issue,” Gunn explains. “We would hope that the review results in any carve-out for insurance being removed, and the industry being subject to general contract law. The role and independence – or otherwise – of the adviser is also being looked into. Advisers go a long way in trying to explain the terms of each policy to clients but there is always room for improvement, and the industry will be getting a firm look-over in the coming months.”
