Select Committee endorses Insurance Bill with notable amendments

The Finance and Expenditure Committee has reported back on the Contracts of Insurance Bill, recommending it be passed by majority. However, some notable amendments and issues were raised during the review process, which have important implications for businesses involved in the insurance sector. The Government has signalled the Bill is likely to be passed this year.

Please see our earlier update for a summary of the key changes proposed by this Bill, which represents a significant overhaul of New Zealand’s insurance law, aiming to consolidate and modernise multiple pieces of existing legislation.

 

Key elements of the Finance and Expenditure Committee’s commentary

Recommendation to pass the Bill

The Committee recommended the Bill be passed with most amendments agreed upon unanimously. However, differences emerged around three key areas:

• when making disclosures to an insurer, dishonest representations will be taken as showing a lack of reasonable care, rather than fraud, which was preferred by the opposition members of the Committee;
• the majority amended the implied term that an insurer must pay any sums due in respect of a claim within a 'reasonable time' to include the time taken to gather information for the purpose of assessing a claim; and
• the majority of the committee preferred a more permissive approach to the regulation of genetic testing.

Modernisation of Insurance Law

The Bill consolidates and modernises several outdated laws, including the Life Insurance Act 1908 and the Insurance Law Reform Acts of 1977 and 1985. This comprehensive reform ensures that New Zealand’s insurance laws reflect current market realities, improving clarity and consistency across the sector. It also seeks closer alignment with comparator jurisdictions and partners such as the United Kingdom and Australia.

Consumer protections and contract fairness

The Bill introduces various reforms to protect consumers, including codifying the duty of policyholders to provide accurate information to insurers. It also sets out remedies for misrepresentation and regulates certain contract terms, ensuring fairness and enabling consumers to better understand and compare insurance offerings.

Genetic testing and discrimination

One of the most significant new areas addressed in the Bill is the issue of genetic discrimination when placing health or life insurance. Submitters raised concerns about insurers using genetic test results to treat individuals differently. While the Bill stops short of banning genetic discrimination, it gives the government broad powers to regulate how genetic data is used in insurance underwriting. These regulations could significantly impact life and health insurers in the future.

Intermediaries and reinsurance exemptions

The Bill also clarifies the roles and responsibilities of insurance intermediaries, ensuring they are covered by the law even when they receive indirect compensation from insurers. Importantly, the Bill excludes reinsurance contracts from its scope, maintaining the autonomy of commercial parties in choosing the governing law for their contracts.

Implied terms for timely claims handling

An implied term in the Bill mandates that insurers process claims within a “reasonable time,” including the time needed for investigation and assessment. This provision is expected to reduce delays in claims handling, improving outcomes for policyholders but risking operational pressure for insurers to streamline processes. The amendment to explicitly acknowledge time taken to gather information for the purpose of assessing a claim goes some way to ensuring that insurers do not face undue pressure.

 

Genetic discrimination: a new regulatory frontier

One of the most debated provisions in the Bill concerns the potential for genetic discrimination in life and health insurance. The Bill grants the government broad powers to regulate the use of genetic data, giving the Minister authority to prohibit or regulate insurers' conduct in relation to genetic testing. While these provisions allow flexibility in how regulations evolve, they introduce a complex and sensitive issue into the insurance landscape. Future regulations could limit the use of genetic information in risk assessment, fundamentally altering underwriting practices in New Zealand’s insurance market.

 

Comparative insights: learnings from Australian reforms

To understand the broader context of these reforms, it is useful to compare them with similar initiatives in other jurisdictions. For instance, Australia’s Unfair Contract Terms (UCT) reforms provide an interesting parallel. These reforms, which are discussed in DLA Piper’s article Unfair Contract Terms Reforms – Implications for Insurance Contracts in Australia, introduced significant changes to how unfair terms in insurance contracts are handled, including new prohibitions and penalties. The Australian reforms expanded the definition of "small business" and provided more flexible remedies for unfair contract terms, setting a precedent that could inform New Zealand's approach.

One key difference is the emphasis on genetic discrimination in New Zealand's Bill, which is not as prominently addressed in Australia's reforms. However, both jurisdictions share a common goal of ensuring fairness and transparency in insurance contracts, with valuable lessons to be learned from Australia's proactive stance on consumer protection and the enforcement of unfair contract terms.

 

Next steps for businesses

As the Contracts of Insurance Bill moves towards its final stages in Parliament, businesses in the insurance sector must prepare for the regulatory changes it introduces. Key steps include:

• Reviewing existing insurance contracts to ensure compliance with new consumer protection standards.
• Updating compliance frameworks to address new disclosure requirements and the potential regulation of genetic data.
• Streamlining claims handling processes to meet the new "reasonable time" requirements for processing claims.

The Bill will be divided into two separate pieces of legislation during the Committee of the Whole House stage, facilitating a more focused discussion on its provisions. The primary Contracts of Insurance Bill will deal with the substantive reforms, while a secondary Contracts of Insurance (Repeals and Amendments) Bill will address necessary repeals and amendments to existing laws.

 

Conclusion

The Contracts of Insurance Bill is poised to bring significant changes to New Zealand’s insurance sector. For businesses, staying ahead of these developments will be critical. If passed, this Bill will require insurers and intermediaries to adapt their practices and ensure compliance with a more rigorous regulatory framework.

For more detailed advice on how the Contracts of Insurance Bill may affect your business, contact our team at DLA Piper.