The Insurance Contracts Amendment Bill 2013


The Insurance Contracts Amendment Bill 2013

Background

1.1        The Insurance Contracts Amendment Bill 2013 reintroduces measures that were initially proposed by the Insurance Contracts Amendment Bill 2010, a bill that passed the House of Representatives but which lapsed due to the 2010 federal election. As the explanatory memorandum notes, the bill 'merely re-introduces the measures in the 2010 Bill with some minor refinements to reflect recent public consultation'.[1]

Overview of the bill

1.2        The bill proposes to amend the Insurance Contracts Act 1984 (the ICA) to:

  • provide that failure to comply with the duty of utmost good faith is a breach of the ICA, and to make other amendments that relate to the scope and application of the ICA;
  • make technical changes regarding the giving of notices, documents and information that will allow insurers to deliver notices, other documents and information to customers electronically;
  • give the Australian Securities and Investments Commission (ASIC) the ability to intervene in any proceeding relating to matters arising under:
  • the ICA; and
  • Part 3 of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003;
  • clarify the insured's duty of disclosure obligations and to amend the types of questions that insurers can ask;
  • give third-party beneficiaries of a contract of insurance access to particular rights and obligations currently held by those insured; and
  • replace the rules for how moneys recovered from a third party by an insurer under a right of subrogation are to be divided between the insurer and the insured.

1.3        The development of the measures in the bill follows reviews and consultation that have taken place over a number of years, including:

  • the 2003–04 report of the review of the Insurance Contracts Act conducted by Mr Alan Cameron AM and Ms Nancy Milne;
  • the 2012 House of Representatives Standing Committee on Social Policy and Legal Affairs' report In the Wake of Disasters – Volume One: The operation of the insurance industry during disaster events, which discussed the 2010 bill; and
  • consultation with stakeholders undertaken by Treasury in 2012, which also included submissions being invited on an exposure draft of the bill.[2]

1.4        The summary of the regulation impact statement provided in the explanatory memorandum argues that the measures in the bill strike an appropriate balance: both insurers and the insured will benefit from the measures without significant ongoing compliance costs being imposed on the industry. On the specific categories of measures contained in the bill, the following analysis is provided:

Insurers and insureds will benefit from the ability to use electronic communication for various notice requirements under the ICA. The use of electronic communications has the potential to lower costs related to use of hard copy communications and to increase convenience for both insurers and insureds.

Initially some additional administrative costs will be placed on insurers in relation to the changes the duty of disclosure for eligible contracts. The measures are intended to strike an appropriate balance between ensuring insurers have reliable information to assess and price risk, while at the same time, avoiding an unfair burden being placed on insureds in meeting their duty of disclosure.

Insurers, insureds and regulators would benefit from fewer and less complex disputes relating to disclosure and ease of resolution would increase. This could ultimately be reflected in lowered costs to insurers, with this factored into premium rates.

Insurers will benefit from the clarification of the remedies available to them for non-disclosure by life insureds, who are not the insured under life policies.

Holders of life insurance policies will benefit from less harsh and inflexible remedies being available to insurers with respect to non-fraudulent (innocent) non-disclosure, with insureds generally benefiting from fewer cost pressures placed on premium rates.

It is expected that options to benefit third party beneficiaries by clarifying rights and obligations in a range of areas could be implemented without any significant cost burden for insurers or consumers.[3]

Submissions

1.5        Of the ten submissions received, six (QBE, Insurance Australia Group, Consumer Credit Legal Centre, Financial Services Council, Suncorp and the Insurance Council of Australia) wholeheartedly endorsed the bill, two (the National Insurance Brokers Association of Australia and the Law Society of South Australia) generally supported the bill with minor qualifications, and one from an individual,
Mr Ian Enright, supported the policy intent of the bill but expressed concerns about its drafting. A confidential submission was also received.

Committee view

1.6        The measures contained in the bill appear to be uncontroversial and their enactment will benefit all parties to an insurance contract. Given the important role that insurance has, as evidenced by a number of natural disasters in recent years, it is critical that the legislation governing insurance contracts is effective and that its requirements are well understood. The implementation of the measures contained in the bill should not be delayed further.

Recommendation 1

The committee recommends that the Senate pass the bill.

 

Senator Mark Bishop
Chair

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