Amendments to the Insurance Contacts Act will make it easier for life insurers to avoid and vary policies in cases of non-disclosure and misrepresentation, lawyers say.

Legal firm Slater & Gordon has slammed the changes, which took effect on June 28.

Insurance Practice Group Leader Andrew Weinmann told insuranceNEWS.com.au insurers ask questions that can be “really broad and incredibly difficult to answer”.

He often sees cases where insurers try to avoid a claim from someone who suffered mental illness in the past, plus companies relying on minor ailments the insured did not disclose because they saw it as a routine problem.

“There doesn’t need to be a connection between the illness not disclosed and the illness that gives rise to the claim.”

Law firm DibbsBarker says the changes are significant.

“The new provisions permit an insurer to avoid a life insurance contract within three years of its commencement, if it can establish it would not have entered into the contract if it were aware of the non-disclosure or misrepresentation,” a paper by lawyer Danielle Fraser says.

Insurers can also alter the sum insured within three years of the policy starting if an insured fails to comply with disclosure duty or is found to have made a misrepresentation. 

“As the formula provided in the Insurance Contracts Act reduces the sum insured by reference to the premiums that would have been charged but for the non-compliance, variations to the sum insured may continue for the life of the contract, potentially resulting in significant reductions in payouts.”

Insurers can also raise defences relating to the conduct of the insured when defending an action brought by a third-party beneficiary.

The amendments clarify the rules for insureds joining super, retirement or group life schemes, and detail when a third-party beneficiary is entitled to written notice about claims.