Big changes are coming for New Zealand’s financial services industry, including brokers and insurers. Earlier this month, a government select committee endorsed the Contracts of Insurance Bill ahead of its expected approval by the end of this year.
However, the endorsement involved some important changes. Some of these directly impact insurance brokers.
Insurance Business asked insurance law experts Emma Moran (pictured left) and Rachel Taylor (pictured right) about these modifications. Moran and Taylor are both in the Wellington office of global law firm DLA Piper.
Moran said the select committee’s work has resulted in some positive developments for brokers.
“The Committee’s [Finance and Expenditure Committee’s] report on the Bill is good news for brokers because it recognises the often complex role that brokers play,” she said.
Moran said there is an acceptance that brokers can have tricky competing duties to their clients and insurers.
“It has recommended adding protection for intermediaries so that when a broker complies with their new obligation to pass information on to an insurer, they will not be liable for any breach of any contract or a civil wrong,” said Moran.
The Committee has also recommended, she said, relaxing the timeframe for brokers to make payments of money to policyholders from a strict seven days to “as soon as reasonably practicable.”
There are also recommended changes that impact brokers’ relationships with insurers.
“They would uphold liability caps agreed between an insurer and broker - or other intermediary - remove criminal liability for not passing on insurance premiums and permit insurers and brokers to retain existing agreed periods for payment of premiums,” said Moran.
Another of the select committee’s changes involved how insureds make disclosures to insurers.
The original Bill equated dishonest representation with fraud. Now, dishonest representation will be taken as showing a lack of reasonable care.
“The Bill provides that insureds have a duty to take reasonable care in making disclosures to insurers,” said Taylor.
She said that the threshold for showing a breach of that duty is now dishonesty.
“They did this to align with similar provisions in the UK and to avoid association with the term ‘fraudulent misrepresentation’ in criminal law,” said Taylor. “Dishonesty requires a lack of integrity or honesty, as opposed to deliberate acts to deceive for unlawful gain.”
The Labour Party and the Green Party did not support this change on the grounds that it decreases consumer protection.
“Dishonesty was seen by them as ‘less clear’ or ‘vague’, compared with fraud,” said Taylor.
The reasoning behind the change is quite complicated.
“If there is a breach of the duty to take reasonable care - and therefore a misrepresentation - and the insurer is able to prove that, without the misrepresentation, the insurer would not have entered the contract or would have done so on different terms, the misrepresentation is a ‘qualifying misrepresentation’,” said Taylor.
Consideration is then given to whether the qualifying misrepresentation was deliberate or reckless.
“Presumably it will be if it was dishonest, in which case the insurer may avoid the contract and refuse to pay all claims and need not return premiums,” she said.
Another part of the bill that received attention from the select committee concerned genetic testing. New Zealand is the only member of the Organisation for Economic Co-operation and Development (OECD) that doesn’t have laws addressing potential discrimination in genetic testing.
“This is a super interesting development that has happened in response to submissions made from groups like AGenDa [Against Genomic Discrimination] during the select committee process,” said Moran.
AGenDA is a group of more than 50 clinicians, researchers, academics, lawyers and patient groups from across New Zealand society.
“Some submitters [like AGenDA] said the status quo just isn’t good enough,” said Moran. “You have a situation where some people who are applying for health or life insurance could be required to disclose genetic test results but others don’t, depending on the insurer.”
However, even after its treatment by the select committee, the Bill stopped short of banning insurers from considering the results of genetic testing.
“Instead, it’s proposing this can be decided later through regulations,” she said.
Moran flagged that life and health insurers should watch this regulation space carefully for what happens next.
“Regulations could potentially restrict the ability of insurers from looking at genetic test results altogether and may also prevent insurers from requiring consumers from obtaining genetic tests,” she said.
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