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Claims shape as battlefield in contract dispute

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Insurers may have a tough time fighting plans to extend unfair contract terms to the industry, with claim rejections providing an easy target for campaigners for change.

The Consumer Action Law Centre last week released a report that plays to the worst public perceptions of insurance and the less-than-stellar reputation the industry sometimes struggles to rise above.

The report – called Denied: Levelling the Playing Field to Make Insurance Fair – presents case studies in which consumers have been hard-hit by claim rejections, and makes the case that the sector should no longer be excluded from unfair contract term provisions that apply elsewhere.

In one example a women’s car is stolen and damaged but the insurer denies the claim because the thief is aged under 30 and her policy doesn’t cover young drivers.

In another “Sally” buys a 12-year-old car and has warranty insurance added to a loan without her knowledge. Her claim is denied after various issues with the car emerge, because the virtually useless policy excludes pre-existing defects and wear and tear.

One case features a traveller who books a holiday to celebrate recovering from cancer but is refused a payout when the trip is cancelled after cancer is diagnosed elsewhere, in a result a specialist says is unexpected and unpredictable.

The report says its examples show insurers can apply policy terms in ways that have perverse, unfair outcomes that are often not intuitive. Protections including utmost-good-faith obligations are inadequate and it often appears difficult for an individual to get a result without a lawyer.

“The duty of utmost good faith is about candour, not community expectations of fairness – it doesn’t go to the heart of the power imbalance between insurers and their customers,” law centre CEO Gerard Brody says. “It does nothing to assure someone that they’re getting a fair deal when they buy an insurance policy.”

Groups including the law centre, Choice, the Financial Rights Legal Centre and the regulator, the Australian Securities and Investments Commission, have backed extending unfair contract provisions to insurance contracts.

The Senate committee inquiry into general insurance recommended legislative changes to remove the exemption for general insurers, and the Government anticipates releasing proposals early this year.

Such a move has long been fought by insurers, which are nevertheless in discussions with various groups about the issues raised.

“We have long held that there are very ample protections for consumers under the existing legislation,” Insurance Council of Australia (ICA) CEO Rob Whelan told the Senate inquiry. “The Insurance Contracts Act offers many remedies for consumer protections already.”

The industry is “already in advance” of unfair contract laws and it would be unnecessarily bureaucratic to add another layer, he says.

Unfair contract terms laws were introduced in 2010 covering most consumer areas, leading to changes in industries such as telecommunications, retailing and banking.

The law centre says the legislation has had a significant impact, with industries moving to improve contracts so there is less chance of disputes arising. It hopes for the same effect in insurance.

“We are very interested in speaking with insurers about the contract terms we see are causing problems,” law centre Senior Policy Officer Susan Quinn tells insuranceNEWS.com.au. “They can get on the front foot here really – there is nothing preventing them or slowing them down.”

A bill to include insurance under unfair contract terms entered Parliament in 2013, but was not passed after an election was called. That version would likely fall short of current consumer group expectations.

“I think we have seen enough in recent years to come to the point where we need to start again and look more seriously at how effective the laws will be in the way they are drafted,” Ms Quinn says.

“We are in a different environment now.”

Issues to be considered would include how “subject-matter” is defined, so large swathes of policy clauses are not carved out, according to the law centre.

Insurers argued in a previous submission that extension of unfair contract terms could have significant negative implications for consumers and insurers.

They say uncertainty over whether a term that is needed to limit the insurer’s risk could be voided and  may lead to cost increases, higher premiums and diminished competition in risky segments.

ICA spokesman Campbell Fuller says the law centre’s paper does not address the fact that special provision has been made for the unique nature of insurance contracts in similar unfair contract term legislation in the European Union and New Zealand.

The industry continues to highlight potential repercussions from the detail of any proposal.

“Any changes to unfair contract terms protections need to be developed carefully and in close consultation with the industry, or they risk jeopardising customer experiences and adding unnecessary complexity to insurance processes,” Suncorp Insurance CEO Gary Dransfield says.

Nevertheless, there is strong pressure for the industry to address problem areas and the consumer campaign comes amid an increasing focus on financial services conduct.

“Many people lose out on their insurance because of unfair contract terms,” Mr Brody says. “And insurers are facing a big trust problem with Australians.”