Advisers’ role clarified by select committee
The Finance and Expenditure Committee has recommended changes to the Contracts of Insurance Bill, including clarifications for advisers.
Monday, September 30th 2024, 9:06AM 
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The bill was introduced to parliament in April by Commerce Minister Andrew Bayly. It is a development of the previous Government’s Insurance Contracts Bill.
It proposes a new duty of disclosure, in which, for consumer cover, policyholders will have a duty of reasonable care not to make a misrepresentation to the insurer. This puts the onus on insurers to ask questions that reveal the required information.
Insurers would also be required to respond proportionately to failure to disclose.
Insurers will be required to make sure their contracts are worded clearly and effectively and claims ae paid within a reasonable time. Exemptions from the Fair Trading Act for unfair contract terms will be narrowed.
The bill also gives certain duties to intermediaries such as advisers.
Submitters pointed out that, in the definition of the bill as it stood, the only advisers captured would have been those receiving commission directly from an insurer, not those who were paid via a financial advice provider (FAP).
The committee recommended broadening the definition to include those who received commission indirectly.
It also recommended adding protection for intermediaries, so that when they complied with the bill’s obligation to pass on information to insurers before a new contract was entered or an existing one varied, they were not liable for any breach of contract.
The committee has also recommended deleting the criminal offence in the bill that would apply if a broker did not pass on insurance premiums.
“We believe it is more appropriate that the monies be recoverable as a debt due, rather than this being a criminal offence,” the committee said.
The bill requires that premiums are passed on within a specified “relevant period” – but this does not stop an insurer and broker making a contract to vary that period.
“Submitters asked whether clause 105(a) would allow existing agreements to remain. We heard that existing arrangements would be costly and inconvenient to renegotiate.”
The committee said existing agreements should continue and a “grandfathering” provision should be added to the bill.
The bill requires that a broker who receives money for a policyholder must pay it to the client within seven days, which the committee said had prompted questions.
“Submitters suggested that brokers and policyholders should be able to contract out of the seven-day period set out in clause 108. We also acknowledge that, for complex insurance arrangements, it may take longer than seven days to forward payments to the policyholder. We recommend amending clause 108 so that the broker is required to pay the money to non-consumer policyholders as soon as reasonably practicable (rather than within seven days). Our proposed wording would allow some flexibility while still requiring the funds to be transferred promptly.”
Submitters also raised the issue of genetic discrimination in life and health insurance - where an insurer might treat clients differently according to genetic testing results. The committee acknowledged that this could create a situation where people were reluctant to get a test, even when recommended by a health professional.
The committee recommended adding regulation-making powers that could prohibit or regulate insurer conduct with genetic testing, including whether an insurer could require a test.
Law firm Dentons said a key consideration now would be planning for the bill’s implementation, including when key obligations.
“We had suggested a two-year transition period at a minimum. Officials have noted that more than 12 months’ lead time will be needed for the significant set up work required for many of the substantive changes in the bill, including the new disclosure duties. However, the determination of the commencement dates has been left to a later phase after the bill is in the final legislative stages. Helpfully, further engagement with ‘stakeholders’ will be undertaken on timing.”
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The point on genetic testing is one that those involved appear to lack industry understanding.
If the client has done the genetic test then it is medical information subject to disclosure. It is part of the known risk factors and speaks to anti-selection risk of it is set aside.
If the insurer can’t assess the risk, then they will increase the premium for it. Funeral cover vs underwritten life cover is the easy example here.
Genetic testing is an emotive subject at the best of times and people often don’t want to know about family risks with testing.
Additionally the medical code of conduct says you can’t force someone to have tests or treatment.
Screening tests your GP asks for are the ones insurers ask for. More invasive Code D cardiac testing being the extension where the sums are higher.
If there are conditions being assessed or tests pending then insurers ask for results of these and often won’t offer cover until the risk is assessable.
This is the behaviour of a prudent underwriter and insurer.
I do support insurers not being able to request genetic testing directly, this is a personal choice that should be protected.
At the same time not excluding or ignoring genetic testing results. Ignoring genetic test results increases the risk and premiums for the rest of us.
And a client has the right to refuse, as does the insurer not to offer cover if the test isn't done.