New Zealand will consult further on plans to remove unfair contract terms insurance exemptions as it considers aligning the rules with proposed changes in Australia.

An earlier options paper didn’t include consultation on the Australian proposal, which provides for a narrow definition of the main subject matter of a contract, with the reform timing in both countries overlapping.

Commerce and Consumer Affairs Minister Kris Faafoi will ask the NZ Parliamentary Counsel to draft alternate options for whether the main subject matter is defined narrowly or more widely.

“I consider how the main subject matter is defined for insurance would benefit from further stakeholder consultation on an exposure draft, given the high level of interest in this matter from both insurers and consumer stakeholders,” he says in a Cabinet paper released last week.

A Business, Innovation and Employment Ministry impact statement says a narrow definition, in line with Australian draft legislation, would provide consistency for insurers such as IAG and Suncorp that operate in both countries.

The unfair contract terms provision will be part of broader insurance contract law reforms that are set to be introduced into the New Zealand Parliament in about 12 months. Draft legislation will be released for consultation next year.

The New Zealand Government has agreed on other key changes including improvements to disclosure requirements and enshrining the duty of utmost good faith in the legislation.

Consumers will be required “to take reasonable care” not to make a misrepresentation, while businesses would need to make a “fair presentation”.

Insurers would have to inform consumers before they access third-party records, such as health information, and ensure policies can be clearly understood.

The proposed reforms will overhaul rules currently spread across six pieces of legislation, which in some cases date back a century.

Insurance Council of New Zealand CEO Tim Grafton says the existing legislation is outdated and needs to be consolidated into a single piece of law, but has called for a “balanced and careful approach” towards reforms.

“This is a highly technical area and we support the Minister’s decision to consult on a draft piece of legislation, a process that we will engage in constructively,” he said.