The Contracts of Insurance Act, which received Royal Assent late last year, marks a significant overhaul of New Zealand’s insurance legislation. It consolidates and modernizes existing laws, aligning them more closely with statutory frameworks in the United Kingdom and Australia. The Act will come into effect by November 2027, and insurers and intermediaries will need to implement significant changes to their processes, systems, and staff training to comply.
Here, we summarize the key changes and practical steps that insurers and industry participants should consider as they prepare for the new regime.
New Distinction Between Consumer and Non-Consumer Insurance Contracts
The Act introduces a clear distinction between consumer and non-consumer insurance contracts, based on the purpose of the contract rather than the identity of the policyholder. A consumer insurance contract is defined as one “ordinarily entered into by a policyholder wholly or predominantly for personal, domestic, or household purposes.”
Practical Steps: Insurers will need to categorize their policies into consumer or non-consumer categories, which may involve reviewing product designs. Some products may fall into both categories, necessitating potential design changes for clarity.
Diluted Disclosure Obligation for Consumer Insurance Contracts
Under the new regime, policyholders are required to “take reasonable care not to make a misrepresentation” to the insurer, shifting the burden of ensuring adequate disclosure to the insurer. Insurers must ensure that proposal forms are clear and cover all material points.
Practical Steps: Insurers will need to revise proposal forms and digital application processes to ensure they are sufficiently specific, potentially requiring technological updates. They should also review historical claims data to better design forms that minimize disclosure disputes.
New Disclosure Duty for Non-Consumer Insurance Contracts
For non-consumer insurance contracts, policyholders must make a fair presentation of the risk, relying on their own knowledge and that of their brokers. The policyholder’s broker’s knowledge will be considered part of the risk disclosure.
Practical Steps: Insurers and intermediaries must update policy documentation and communications to accurately reflect the duty of disclosure and the consequences of non-compliance. This includes specifying the need for a reasonable search for material information.
Insurer’s Right to Claim Against Intermediaries for Non-Disclosure
Intermediaries will be required to ensure that they pass on accurate information disclosed by policyholders. If an intermediary fails to meet disclosure obligations, the insurer can seek indemnity from the intermediary rather than the policyholder.
Practical Steps: Insurers and intermediaries need to review and possibly revise their agreements to ensure they clearly define obligations for the disclosure of material information. Brokers must strengthen their file management systems to ensure information can be easily accessed and provided to insurers.
Proportionate Remedies for Non-Disclosure
The Act introduces a proportionate approach to remedies for non-disclosure, allowing for a reduction in the amount paid on a claim or the ability to treat the policy as if it had been written with proper disclosure.
Practical Steps: Insurers should ensure that their policy terms align with this new approach and do not contain broader avoidance clauses than those permitted under the Act. They should also ensure that their systems can support the counterfactual analysis needed to prove what they would have offered had there been proper disclosure.
Abolition of Third-Party Statutory Charge
Third parties will now have direct claims against insurers for a specified policyholder’s liability, eliminating the need for a statutory charge.
Practical Steps: Insurers must consider how this change affects their litigation control provisions and how they will manage third-party requests for information. This may involve assessing the adequacy of information provided by third parties and implementing a policy for charging third parties for the cost of providing such information.
Extension of the Unfair Contract Terms Regime
The unfair contract terms regime in the Fair Trading Act 1986 is now extended to non-consumer insurance contracts with an annual premium value of $20,000 or less.
Practical Steps: Insurers must review both consumer and non-consumer standard form contracts to ensure they are compliant with the new regime. In-house legal teams may need additional training to understand the application of this regime across different policy types.
Time Sensitivity
Given the complexity and scale of the changes, insurers and intermediaries are urged to begin addressing these issues as soon as possible. Technology transformation projects, in particular, require substantial lead time and may be challenging to implement if not initiated this year. The earlier these changes are made, the more time insurers will have to comply with the new legislation effectively.
By addressing these key workstreams early, insurers and intermediaries can ensure they are fully prepared for the implementation of the Contracts of Insurance Act by 2027.
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