Unfair terms rules kick in
Insurers are running a magnifying glass over their policy wordings after changes to the Fair Trading Act this week.
Thursday, March 19th 2015, 6:00AM 
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by Susan Edmunds
A ban on unfair contract terms took effect on Tuesday, focusing on contracts that unfairly privilege the company issuing the contract over the consumer.
It applies to all new contracts.
But there are a number of carve-outs for insurance policies.
Terms relating to insurers’ handling of non-disclosure, which had been suggested as one of insurance contract terms most likely to be deemed unfair, are protected.
But a large number of terms that are common in insurance contracts may still be up for scrutiny for potential unfairness.
They include cancellation terms that permit the insurer to cancel a policy but not the policyholder, terms that allow the insurer to vary the terms of the contract without consent, contracts that allow for the premium to increase without giving the consumer the right to terminate, and contracts that penalise the policyholder for breach of the terms but do not address breaches by the insurer.
If there are concerns about unfair contract terms, they will need to be tested by the court.
John Knight, a partner at Chapman Tripp, said it would be a balance.
If an insurer noted in a policy that its terms could change and that was clear near the front of a policy document, it would be less likely to be deemed unfair as a policy with the same term in tiny writing at the back, he said. How much notice a customer was given could also be a factor.
But he said the rule changes were forcing insurers to examine their contracts.
“A number of insurers are looking at their terms and going through them carefully, asking whether they can justify a certain term, whether there’s a good reason for it.”
Insurers could argue that certain terms were needed to keep prices affordable, he said. But they would not want the negative publicity of having a contract investigated publicly. “I don’t expect a raft of terribly unfair terms having to be crossed out. But I do know insurers are going through their policies quite carefully and testing the assumptions.”
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