The industry has been urged to take seriously a warning from the Australian Securities and Investments Commission (ASIC) that action will be taken against insurers that fail to comply with the new unfair contract terms laws that will come into effect next April.

ASIC Commissioner Sean Hughes issued the warning after the corporate regulator secured a court victory over Bendigo and Adelaide Bank regarding the use of several terms in six business loan contracts used by the lender.

He says the court judgement shows that “ASIC will take the necessary steps to enforce the law”.

An ASIC investigation found the terms to be unfair and pursued legal action in the Federal Court, which ruled last month in favour of the corporate regulator.

“While the bank’s contractual terms were quite different to those found in insurance contracts, the Federal Court’s decision is informative to insurers on several fronts,” McCabe Curwood Principal Mathew Kaley said.

“It indicates ASIC’s intent to pursue unfair contract terms in the courts and its approach to seeking orders in relation to them.”

He says the action also provides guidance on areas that insurers should focus on as they prepare for the UCT reforms that will apply to insurance contracts from April 5 next year.

Proving that a term is reasonably necessary to protect legitimate interests and making a term transparent, as set out in Section 12BG of the ASIC Act, will be of particular relevance to the industry when the new UCT regime kicks in.

Preparing for the looming changes will involve considerable work, and if done thoroughly it will place insurers in a stronger position to handle any likely challenges, Mr Kaley told insuranceNEWS.com.au.

“Certainly there are some clauses in insurance contracts which have already been flagged as potentially unfair either by the explanatory memorandum or by consumer groups.

“But there are a lot of other clauses in contracts which you can imagine might be challenged by customers in particular circumstances.

“Those are the ones that need some thought and an analysis as to why they are required – do they really need them to meet the legitimate interest of the insurer for pricing reasons or other reasons?”