Personal lines insurers should start looking at changes needed to meet disclosure obligation reforms recommended by the Hayne royal commission, law firm Clyde & Co says.

Commissioner Kenneth Hayne proposes that the consumer’s duty of disclosure should be replaced with a duty to take reasonable care not to make a misrepresentation to an insurer.

The planned change to the Insurance Contracts Act reflects the knowledge imbalance between consumers and insurers, with retail customers often unaware of what needs to be disclosed. The new rules would put the onus on insurers to identify the information they require.

“It would be prudent for insurers with retail business in Australia to start considering the impact of this proposed change on their pre-sales scripts and questionnaires, underwriting operations and pricing of insurance policies,” Clyde & Co says.

Commissioner Hayne says current arrangements may lead to claims being denied for non-disclosure despite consumers having acted honestly and reasonably.

He has made no specific comments about changing disclosure obligations in areas other than consumer contracts.

“However, this possibility has been discussed previously and may be raised again during the legislative process to implement this recommendation,” Clyde & Co says.

See ANALYSIS.