Federal Parliament has passed legislation to apply unfair contract terms (UCT) laws to insurance contracts.

The Financial Sector Reform Bill 2019, passed last week, covers three other reform proposals involving mortgage broking and funeral expenses policies, as recommended by the Hayne royal commission.

Treasurer Josh Frydenberg says the measures will enhance protections for consumers and small businesses.

Insurers have said the bill would make almost every term in an insurance contact legally contestable and could lead to increased costs for consumers in the form of higher premiums.

But consumer advocates have welcomed the bill’s passage. They say it will stop insurers from using unfair terms to deny or underpay claims.

“This is an important win for all Australians who want to be able to trust that their insurance will protect them when the worst happens,” Choice CEO Alan Kirkland said.

“Insurance companies are no longer able to rely on unfair fine print exclusions to deny people’s claims. Other industries have had to play by these rules for almost a decade. Now it’s time for all insurers to treat their customers fairly.”