Brought to you by:
Coverforce
Coverforce

Disclosure debate continues as major reform nears

Facebook Twitter LinkedIn Google

The Insurance Council of Australia (ICA) says the upcoming abolition of the duty of disclosure for consumer insurance contracts will bring “clarity and certainty” – but warns insurers will still be able to deny claims if customers provide inaccurate information.

Consumer groups have also welcomed the Hayne-inspired reform, which kicks in from October 5, but have called for insurers to put more emphasis on checking information at the point of sale rather than when a claim is made.

Changes to the Insurance Contracts Act mean instead of a duty to disclose “every matter” that a reasonable person would expect to be relevant, consumers will instead face a new duty “to take reasonable care not to make a misrepresentation”.

“The new duty will mean a simpler application process for customers as it replaces a lengthy prescribed notice under the existing duty of disclosure,” an ICA spokeswoman told insuranceNEWS.com.au.

“We believe the new duty will provide improved clarity and certainty to insurers and their customers, while ensuring respective rights are fairly protected.

“If information provided to insurers is not accurate, the insurer will have equivalent remedies to those currently available under the Insurance Contracts Act.

“Depending on the circumstances and the insurer’s underwriting criteria, those remedies can include reducing or not paying a claim, cancelling a policy or treating the policy as if it never existed.”

Consumer representatives also welcome the change, but concerns remain about the practice of relying on customer answers at the point of sale, while carrying out detailed checks at the point of claim.

Consumer groups say this can result, in the case of motor insurance, in people driving around for years with “fake insurance”, putting themselves and other road users at greater risk.

“We support the new disclosure change, and it will help in some innocent misrepresentation situations,” Financial Rights Legal Centre Policy and Communications Officer Julia Davis told insuranceNEWS.com.au.

“Whether the insurer can deny the claim will come down to whether a misrepresentation was reasonable – and the onus is now on the insurer to prove otherwise. It will also force [insurers] to make their questions more clear.”

But Ms Davis still recommends insurers carry out “more front-end verification of disclosures”.

“If the insurer verified the disclosure data at the front end, at least people would know they were not covered, and they could see a broker to find special cover or drive less.”

See Analysis.