The Government wants to stop insurers blocking claims because irrelevant information was not disclosed, but the changes may not come for years, reports Thomas Coughlan.

As well as making it harder for insurers to knock back claims over irrelevant non-disclosures by clients, the Government is also looking at whether to bring in a regulator for the insurance sector. This would replace the industry-run arbitration system that rarely finds against insurers.

Commerce and Consumer Affairs Minister Kris Faafoi announced a review of Insurance Contract Law in March, but only released the issues paper guiding the review on Tuesday. 

Faafoi said when announcing the review he was concerned people were sometimes not covered for losses or able to claim for things like healthcare because they had failed to disclose seemingly unrelated matters to their insurer. 

The IMF identified shortcomings in New Zealand’s insurance contract law in a report from May 2017. Faafoi said recent reforms in Australia and the UK to update insurance regulation had left New Zealand lagging behind in this area. 

The issues paper raised the issue of the client’s obligation to disclose information to their insurer, noting that some clients were not aware of what they needed to disclose. 

The Insurance and Financial Services Ombudsman, who oversees the fairness and timeliness of insurance claims, received 3227 complaint enquiries and 314 complaints last year. Ninety-three percent of those complaints were about insurance. Sixty-five complaints were settled between parties, six were partly upheld and just four were completely upheld. 

The case for consolidation

Faafoi told Newsroom that he could make a “pretty clear assumption” there would need to be some form of legislative change to come from the review, which would probably be introduced by the end of the parliamentary term.

“There are six pieces of legislation that concerns insurance contract law, some of it dates back to 1908 so it certainly needs updating,” Faafoi said.

He said he was not yet sure whether the Government would look to consolidate these six acts into one, or look to amend them individually. 

Let’s be reasonable

Faafoi said he was looking for changes to the disclosure and claims process and was hoping that insurers would preemptively change their behaviour as part of the review. 

“The cookie cutter example is where an innocent non-disclosure is made in the application process for a policy and something unrelated to the claim means the claim is knocked back,” Faafoi said. 

“If insurers were more reasonable about that before we got to the stage of regulation or legislation were needed, that would be quite useful because I’m assuming that’s the feedback we’re going to get from consumers,” he said. 

The issue of fairness throughout the claims process raises the question of whether a more widespread cultural change is needed in the insurance industry to ensure that claims are not held back on facetious technicalities.

“That’s why I’m hope they might do some of it themselves and try and be reasonable,” Faafoi said. 

Making bold claims 

Faafoi indicated he would like increased oversight over the claims process to bring New Zealand in line with international standards. 

This could include the creation of a regulator that had oversight over the entire insurance process, from the selling of policies to policing claims. 

“I know that this is done in overseas jurisdictions,” he said.

Currently the Insurance and Financial Services Ombudsman supervises the timeliness and fairness of an insurance claim, but there are no bodies overseeing the wider system. 

Faafoi said he was open to creating a body to oversee the whole insurance industry in line with recommendations made in the IMF’s report. 

He said the current system of regulation was patchy and piecemeal. 

“You can go to the Ombudsman and deal with things on a case-by-case basis, but that doesn’t mean there’s oversight over the system as a whole,” Faafoi said.

Industry reaction

Insurance Council of New Zealand CEO Tim Grafton could not be reached for comment, but a spokesperson said the industry looked forward to cooperating with the Government on the review. 

Health Funds CEO Roger Styles, who represents health insurers, said the obfuscation tactics described by Faafoi were not common in health insurance. 

“Generally they’ve got potential to respond in a reasonably fair way to the actual circumstances,” Styles said. 

“It’s often the case that this results in a claim being paid,” he said. 

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