As the old saying goes, it never rains but it pours. For those with a stake in changes to the Insurance Contracts Act 1984 it’s really bucketing down.

The release last week of Federal Treasury’s discussion paper on unfair terms was widely anticipated, even though the broad range of options it outlines might come as something of a surprise to the insurance industry.

But the Insurance Contracts Amendment Bill 2010 is more of a bolt from the blue.

Even though the review process began way back in 2004, everyone knew this would manifest itself in legislation eventually.

What they didn’t count on was how different the reform package contained in the bill just introduced to the House of Representatives would be, compared to the draft seen in 2007.

Insurers have emerged in a stronger position than expected, so it is hardly surprising the Insurance Council of Australia (ICA) has welcomed the bill.

Inevitably, success of the various outcomes will depend on whether you sell insurance or buy it.

But either way, legislative change means compliance change, and this is never an appealing prospect for insurers already dealing with the regulatory onslaught generated by the global financial crisis.

While the outcome of the 2010 Amendment Bill is subject to Parliamentary debate, the more public discussion over unfair terms looms as the immediate priority.

Well might ICA take a “serious look” at the proposals listed in the Federal Government’s options paper on unfair terms as it advised insuranceNEWS.com.au it is doing.

It’s all about damage control now.

So successful were consumer groups in persuading the Senate Economics Committee that insurance contracts do not adequately protect buyers against harsh or unfair terms that some degree of change seems a foregone conclusion.

There are two options – the status quo and Option D (self-regulation) – that are relatively gentle for insurers, but consumer groups will be fighting tooth-and-nail to see that the carve-out from the new national consumer laws they embrace is not allowed to continue.

Option C – a reworking of section 14 of the Insurance Contracts Act to enhance existing remedies for consumers – appears the best of a bad bunch for insurers, even though the change in onus of proof would ramp up costs in defending “unfairness” claims.

But unlike options A and B it would not open the way for “blanket bans” on terms found to be unfair, and the associated commercial uncertainty likely to arise.

Option A, which would allow Australian consumer law provisions to apply to insurance contracts, would add a major headache for insurers with the increased complexity of regulation due to difference in coverage and costs associated with “dual pleadings”.

Option B would see Insurance Contract Act remedies extended to include unfair contract provisions, making it the only legislation in play.

Nicole Rich, the Consumer Action Law Centre’s Director of Policy and Campaigns, says the consumer group will be making a submission on the Treasury options paper, with “A” the preferred option followed by a more unwieldy “B” that would achieve a similar result.

“I think it’s got to be option A or B,” she told insuranceNEWS.com.au. “Option C is enhancing the existing remedies but the whole point of the national unfair contract terms law is one general law applied economy-wide.

“So you’d be diluting those benefits if you start going down the path of industry-specific legislation.”

Mark Radford, a partner at law firm Colin Biggers & Paisley, says the real challenge for the industry now is to successfully identify the true differences in protection for consumers between the Australian consumer law protections and that provided under the Insurance Contracts Act and other relevant legislation.

“The good news is that in the consultation paper the Government is taking a very fair and balanced and analytical approach, which bodes well,” he told insuranceNEWS.com.au.

Submissions close on April 30. Let the debate begin.