Industry Insider:
A Compliance Update on the Proposed Insurance Contracts Amendments Bill from the GT Compliance Officer
The new Insurance Contracts Amendments Bill (Bill) proposes to introduce several key changes to duty of disclosure requirements, which if passed, will have significant effect on how insurers process applications and mitigate their risk.
The proposed changes are intended to apply to contracts of insurance originally entered into, renewed, varied, extended or reinstated 18 months after the Bill is passed. While it was initially expected that the Bill would be passed in the first half of 2011 (in which case the new duty of disclosure requirements would commence towards the end of 2012), to date, it has yet to be passed.
Should the Bill become law, we have summarised two of the key changes that are proposed:
‘Catch all’ questions can no longer be asked
Currently, to be able to rely on its duty of disclosure, an insurer must, before entering into an eligible contract of insurance, ask the insured specific questions that are relevant to the insurer’s decision whether or not to accept the risk.
The insurer may also ask what is referred to as a ‘catch all’ question, that places the onus on the insured to disclose any relevant ‘exceptional circumstances’ that a reasonable person would expect to be relevant to the insurer’s decision whether or not to accept the risk.
The ‘catch all’ question is essentially a safety net for insurers, that is intended to capture relevant circumstances that may be too specific to be covered in general questioning (e.g. because the matter is specific to an individual insured).
Under the changes introduced by the Bill, however, if an insurer asks a ‘catch all’ question, it is proposed that this will result in the insurer waiving the insured’s duty of disclosure in respect of these matters. As a result, insurers will need to make sure that neither they, nor their agents, ask the insured any ‘catch all’ questions, so as to maintain the enforceability of the duty.
This also means that to ascertain any specific risk, the onus will now be on brokers to ask clients more specific questions relating to their situation, instead of relying on the ‘catch all’ question to obtain all relevant information.
Renewal procedure changes
The proposed Bill also impacts the renewal procedure. On renewal, the insurer will, prior to renewing the policy, be required to either:
- ask the insured specific questions again; or
- provide them with a copy of the matters previously disclosed and ask them to disclose any changes or confirm that there have been no changes.
If the insurer does not comply with these requirements, it will waive compliance with the duty of disclosure. If the insured does not respond to the above, they are taken to have advised the insurer that there has been no change to the relevant matters.
This new procedure does not apply to variations, extensions or reinstatements.
These changes are significant and it will be interesting to see, if they are passed, what their effect will be on the insurance industry. We will continue to keep you updated on the progress of the Bill.
