Compliance gurus are watching intently as the legislative spotlight hovers over insurance contracts.

Federal Financial Services Minister Chris Bowen has kicked off the foreshadowed overhaul of unfair terms provisions in the Insurance Contracts Act 1984 by calling for comments on ways to address them.

A discussion paper released last week sets out five options for Government action to “prevent consumers (including third-party beneficiaries) of standard-form insurance contracts from suffering detriment due to terms… that are unfair or harsh”.

Its release coincides with the passage through the Senate of the new Australian Consumer Law and related amendments to the Australian Securities and Investments Commission (ASIC) Act 2001, from which insurance was controversially carved out.

Meanwhile, the Insurance Contracts Amendment Bill 2010, with considerable changes to the 1984 Act, has been introduced into the House of Representatives.

The bill includes a proposed extension of the duty of utmost good faith in section 13 of the Act to third-party beneficiaries and a provision for ASIC to launch a “public interest” action against insurers for breaches to section 14.

In the unfair terms discussion paper the five options are the status quo (including 2010 Act amendments), new insurer self-regulation measures, allowing the “unfair terms” provisions in the ASIC Act to apply additionally to the Insurance Contracts Act, extension of the Insurance Contracts Act remedies to include unfair terms, and enhancing existing remedies in the Act.

Changes to unfair terms have been in the wind since last September, when a report by the Senate Economics Committee declared that consumers are not adequately protected by existing laws government in insurance contracts.

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