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Product withdrawal fears escalate as UCT laws take effect

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Concerns have intensified that insurers may withdraw cover for certain risks due to potential complications arising from the application of unfair contract terms (UCT) laws to insurance contracts.

Consumer and small business insurance contracts entered into or renewed from yesterday have to comply with the legislation. Variations to terms in existing contracts must also adhere to UCT provisions.

The general insurance industry has invested significant time and other resources to prepare for the new regime, reviewing and updating product disclosure statements as well as contract wordings to ensure they will not fall foul of the law.

National Insurance Brokers Association (NIBA) CEO Dallas Booth says brokers are concerned about the potential for insurers to pull back, but stressed he has yet to hear of any specific examples.

“Insurers have to have contract certainty and pricing confidence,” he told insuranceNEWS.com.au. “If they don’t have these things then the obvious thing is to withdraw cover.

“It will be detrimental to the community [if this happens] and this is something we warned government about.

“There was already a substantial body of law in place to protect insurance customers. We need to find a better way of discussing some of these reforms with consumer groups to avoid unintended consequences.”

MGA Insurance Brokers MD Paul George says his brokerage has been forced to withdraw its Speech Processor Insurance product from the market because the insurers that have been approached to provide capacity have raised UCT compliance as a deciding factor against underwriting the business.

The brokerage has been offering the product – which insures for loss, accidental damage, fire and theft for hearing aid device implants – for years until last month, when its longstanding capacity provider pulled back.

Mr George says the MGA portfolio broker subsequently sought out other insurers and agencies to fill the void but failed to find a new capacity partner.

“This is a scheme or facility that we would normally be able to find a market for under normal circumstances,” Mr George told insuranceNEWS.com.au today.

He says “the UCT came up time and time again” from insurers and agencies that declined to offer security for the product, and believes the industry may be discovering that the UCT regime has more ramifications than initially thought.

A spokesman for the Insurance Council of Australia says “cover provided by individual insurers is a matter for them”.

An IAG spokesman says the insurance group is “supportive of the changes to the unfair contract terms laws and the positive impacts they will have for our customers”.

“It’s unlikely that the changes themselves will result in the removal of cover for specific items,” the spokesman told insuranceNEWS.com.au.

“It is possible that the way we manage some covers will change as a result of the UCT law changes, but we don’t expect those changes to have a negative impact on policyholders.”

An insurance lawyer, who asked not to be named, says he has been working with clients to prepare for the UCT regime and has not come across instances of insurers pulling out because the provisions.

A director with an underwriting agency, who also spoke on condition of anonymity, says he has not heard anything from brokers about renewals being declined because of UCT compliance concerns.

“We’ve not had any real challenges [with UCT] just yet but, like the rest of the market, that may change as we’re all flying a bit blind,” he said.