The Financial Services Council (FSC) has backed the Hayne royal commission’s proposed reform measures relating to the duty of disclosure and limiting avoidance of life insurance contracts.

The two proposals will require amendments to the Insurance Act.

On the duty of disclosure proposal, the Hayne royal commission set a new duty for consumers to take reasonable care not to make a misrepresentation to the insurer before entering into an insurance contract.

The FSC agrees with the suggestion, saying the change will “result in better consumer protections” in its submission to Treasury.

But it wants some minor amendments to the proposal as the exposure draft draws too heavily from the UK experience, making the suggested legislation “unnecessarily complex and confusing”.

The FSC has suggested the amendments should revolve around these principles:

Did the insurer clearly explain to the consumer what their duty was? Were the questions asked clear and specific? Did the consumer answer the questions carefully, honestly and to the best of their ability?

“The FSC submits that following these guiding principles will result in clearer and simpler legislation,” the submission says.

“The FSC considers that the proposed Australian laws should be amended to be as principles-based as possible to ensure greater flexibility rather than attempting to deal exhaustively with every possible case.”

On limiting avoidance of life insurance contracts, the FSC broadly backs the proposal that an insurer may only avoid a contract of life insurance on the basis of non-disclosure or misrepresentation if it can show that it would not have entered into a contract on any terms.

But the FSC says the proposed wordings are “problematic” and has suggested that the exposure draft be amended. It has proposed changes so that the use of the term “contract” aligns with other provisions in the Insurance Contracts Act.

Click here for the FSC submission.