Insurance Law Reform:

1
Insurance Law Reform

• The path that lies ahead
• 2007 Joint National Conference of the Australian
  and New Zealand Insurance Law Associations
• Christchurch, 19-21 September 2007

2
Context

• Review of Financial Products and Providers -
  currently in progress by the Ministry of Economic
  Development for the Minister of Commerce
• In relation to insurance market conduct issues,
  RFPP concluded that the present law in some areas
  no longer meets the needs of New Zealands
  insurance market
• Reserve Bank has responsibility for insurance
  prudential regulation

3
Problem overview

• The current laws inadequacies mainly reflect
  technological and economic changes over time
• Specific problems include ambiguity,
  fragmentation, complexity, unused systems and a
  lack of consumer protection focus
• It is proposed to repeal and replace existing
  Acts with one new statute

4
Insurance Law Reform market conduct

• RFPP identified four areas of concern
• Insurance contracts (duty of disclosure, and
  remedies for mis-statement and non-disclosure)
• Insurance intermediaries and agency
• Registration of assignments and mortgages of life
  insurance policies (and affecting transfers of
  life policies)
• Risk-based insurance product disclosure

5
Insurance Contracts issues

• 1. Duty to disclose not well understood by policy
  holders and is not contained in legislation for
  all classes of insurance
• 2. Remedy of contract avoidance does not
  distinguish between the consequences of innocent,
  negligent and fraudulent non-disclosure

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Insurance Contracts issues

• 3. There is a lack of alignment between the
  remedies for mis-statement and non-disclosure
• 4. There are inconsistencies in remedies applying
  to different classes of insurance, eg. life,
  health and general
• 5. Consumer expectations that underwriting occurs
  at contract formation rather than at the time of
  claim are not always being met

7
Insurance Contracts considerations

• The following is being considered
• Codifying the duty of disclosure and requiring
  insurers to warn policyholders about the duty
• Aligning the position for mis-statement and
  non-disclosure, and their application to all
  classes of insurance
• Limiting an insurers right to avoid an
  insurance contract and
• Providing remedies where the right to avoid does
  not apply.

8
Intermediaries Agency - issues

• 1. Need clarity about when an intermediary is the
  agent of the insurer, or agent of the
  policyholder
• Combine definitions in Insurance Law reform Act
  1977 with Insurance Intermediaries Act 1994 which
  deals with agency issues in relation to premiums
  and claims payments
• Financial adviser reforms

9
Intermediaries Agency - considerations

• To address these issues the following is being
  considered
• Agency for the purpose of contract negotiation
  and formation should be determined on the basis
  of written authorisation by an insurer
• Where a written authority is not in place the
  insurance intermediary will be deemed to be the
  agent of the consumer

10
Intermediaries Agency - considerations

• Agency status would determine where
  responsibility lies
• Appointment of an agent by one insurer would not
  restrict the agent from acting as agent for other
  insurers, unless the first insurer restricts this
• Agency status would be in addition to any
  quality, performance and disclosure requirements
  developed under the proposed financial advisers
  legislation

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Intermediaries Agency - considerations

• There would be three categories of insurance
  intermediary agent that apply during contract
  negotiation and formation
• The intermediary would be required to provide
  written disclosure to the policyholder, on the
  general effect of his/her agency status prior to
  forming an insurance contract (and at renewal and
  during claims processing where an intermediary is
  used)
• Failure to disclose would attract penalties

12
Registration for life policies - issues

• 1. Registration system under the Life Insurance
  Act 1908 for assignments and mortgages of life
  policies is paper based (contrast with other
  developments in electronic transactions)

13
Registration for life policies - considerations

• To address these issues the following is being
  considered
• The interest-holder in a life policy would send
  (including by electronic means) the insurer a
  notice of assignment or mortgage in order to
  establish priority to claims under policy
• There would be an exemption from the notice
  procedure where the entity taking the assignment
  or mortgage of the life policy is also the
  insurer under the policy

14
Registration for life policies - considerations

• The requirement for hardcopy documents would be
  removed so that interest-holders would be able to
  move to electronic storage of policy documents
• The priority rules contained in the Life
  insurance Act 1908 would apply
• Permanent transfers would be affected by the
  insurer recording the transfer details in the
  policyholder register held by the insurer

15
Product disclosure - issues

• No legal requirements for form, content and
  timing of product disclosure
• Difficult for consumers to compare products from
  different providers, and to be well informed of
  the particular details of the contract prior to
  commencement of policy
• Further work to be undertaken by MED

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Insurance Law Reform - submissions

• Overall the submissions received stated that
  reform in these areas is needed, however some
  differ on the detail of the proposals set out in
  the discussion document
• We are considering the submissions so that the
  proposals will reflect the concerns raised by
  submitters
• Thank you to all those in the audience who put in
  the time and thought to prepare these submissions

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Comments welcome

• www.med.govt.nz