|Earlier this year, the government released a proposal paper: Extending Unfair Contract Terms Protections to Insurance Contracts outlining a model to extend unfair contract term (UCT) provisions to insurance contracts regulated under the Insurance Contracts Act 1984 (Cth) (IC Act) for consultation. |
The consultation period closes on 27 July.
A high level summary of the proposed model is below.
On 27 June, the government released a proposal paper: Extending Unfair Contract Terms Protections to Insurance Contracts outlining a model to extend unfair contract term (UCT) provisions to insurance contracts regulated under the Insurance Contracts Act 1984 (Cth) (IC Act) for consultation.
The consultation period closes on 27 July.
Purpose of the proposed changes
In announcing the consultation, Minister for Revenue and Financial Services Kelly O'Dwyer said: 'Consumers and small businesses who enter into standard form insurance contracts should have confidence that the contract accurately reflects the cover agreed with the insurer. They should also have appropriate remedies when they suffer detriment as a result of terms in the contract which are unfair…The [proposed] model ensures that consumers and small businesses who purchase insurance are provided with the same protections that are already available for other financial products and services while ensuring the laws are appropriately tailored for the specific features of insurance contracts'.
The proposal paper adds that, if implemented, the proposed change will bring Australia into alignment with comparable jurisdictions including the UK, The EU and NZ where insurance contracts are not excluded from those jurisdictions' UCT laws.
Proposed Model: Key Points
The proposed model involves:
- Amending section 15 of the IC Act to allow the UCT provisions in the Australian Securities and Investments Commission Act 2001 (ASIC Act) to apply to insurance contracts regulated by the IC Act, which includes both general and life insurance contracts.
- Tailoring the application of the UCT provisions to 'take account of the specific features of insurance where necessary'. More specifically, it's proposed that:
- 'a contract will be considered as standard form even if the consumer or small business can choose from various options of policy coverage;
- the "main subject matter" of an insurance contract will be defined narrowly as terms that describe what is being insured, for example, a house, a person or a motor vehicle;
- clarification will be provided that the 'upfront price' will include the premium and the excess payable and that these will not be subject to review;
- when determining whether a term is unfair, a term will be reasonably necessary to protect the legitimate interests of an insurer if it reasonably reflects the underwriting risk accepted by the insurer in relation to the contract and it does not disproportionately or unreasonably disadvantage the insured;
- examples specific to insurance will be added to the list of examples of kinds of terms that may be unfair which could include terms that permit the insurer to pay a claim based on the cost of repair or replacement that may be achieved by the insurer, but could not be reasonably achieved by the policyholder;
- where a term is found to be unfair, as an alternative to the term being declared void, a court will be able to make other orders if it deems that more appropriate;
- the definition of "consumer contract" and "small business contract" will include contracts that are expressed to be for the benefit of an individual or small business, but who are not a party to the contract; for life policies, as defined by the Life Insurance Act 1995, which are guaranteed renewable, it will be made clear that a term which provides a life insurer with the ability to unilaterally increase premiums will not be considered unfair in circumstances in which the premium increase is within the limits and under the circumstances specified in the policy'.
The proposal paper notes that in addition to the proposed model, other options also exist for extending the UCT laws to insurance contracts regulated by the IC Act. These options include enhancing the existing IC Act remedies and introducing the existing UCT laws into the IC Act. The proposal paper also seeks feedback on these other options.
It's proposed that a 12 month transitional period will be provided before the new provisions take effect. After the transition, it is proposed that the UCT provisions will apply as follows:
- New contracts: New provisions will apply to all new contracts originally entered into on or after the commencement.
- Renewed contracts: If a contract that was originally entered into before the commencement is renewed, the new provisions will apply to the contract as renewed, on or after the day on which the renewal takes effect.
- Contract variations: If a contract was originally entered into before the commencement is varied on or after the day, the new provisions apply to the term as varied, on or after the day the variation takes effect. Other terms of that contract will not be made subject to the UCT provisions because of the variation, until such time as the contract is renewed.