The Insurance Council of Australia (ICA)  says it does not see any “real basis” to clarify further the term “utmost good faith”  as spelled out in the Insurance Contracts Act  in a submission to the  Attorney-General’s  Department.

ICA says the creation of a comprehensive definition that applied to civil penalty clauses may increase consumer  confusion.

The ICA was responding to the Attorney-General’s  Department inquiry  into use of the term  “good faith”  in civil penalty and criminal offence provisions in Commonwealth legislation.

“While the duty imposed by the  [Insurance Contracts]  Act is reciprocal, civil penalties attach only to the insurer,” ICA says in the submission.

“This raises the question of how any amendment that targeted civil penalties only would impact consumers.”

ICA says recent legislative changes  such as the application of unfair contract terms to insurance contracts should be given time to settle and their operation be observed.

It says while the unfair contract terms provisions operate independently, there is a degree of overlap.

“The ICA suggests that recent amendments be given time to settle and their impact be understood  before further changes are made,” the insurance industry’s peak body said.

“Similarly, any further  consideration of the scope of ‘good faith’  duties in the insurance industry should consider the impact of the extension of [unfair contact terms]  provisions.”

ICA says while it  is open to considering any proposals that the Department puts forward, it “remain[s]  to be convinced that a comprehensive statutory definition would bring meaningful benefits for policyholders, industry or the broader community”.

The inquiry posed a number of questions for feedback including if a  lack of legislative definition of the term “good faith” contributes to any lack of clarity or certainty in civil  penalty and offence provisions.

It also asked if  defining the term in legislation when used in civil penalty and offence provisions or otherwise affect regulatory coherence, and if so, could non-legislative mechanisms such as regulatory guides complement express definitions to help mitigate the effect.

The inquiry is to report to the Attorney-General by  September  1.

Click  here for  more from  the ICA submission.