The Federal Government is considering extending the unfair contract terms law to include insurance policies.

It has released a draft regulation impact statement detailing the options for extending the laws to include insurance, and seeking an industry response to the proposals.

Parliamentary Secretary to the Treasurer David Bradbury says the Queensland floods last year raised the issue that some insurance contracts were unfair.

“Following on from these concerns, I convened a roundtable of insurance industry and consumer stakeholders… to find a way forward on this issue,” he said.

“In its final report, the Natural Disaster Insurance Review also recommended that the unfair contract terms laws be extended to cover insurance contracts.”

There are five options being proposed, including leaving insurance contracts out of the unfair contract terms legislation.

According to the Government, this option will not result in premiums going up.

Other options include enhancing the existing Insurance Contracts Act remedies by modifying any disadvantages in section 14 and extending the duty of good faith to third parties.

The Australian Securities and Investments Commission could also bring a public interest action for any breaches of the section, and there could also be changes to insurers’ onus of proof to demonstrate that refusing a claim is not in breach of its duty of utmost good faith.

Another option proposes encouraging the insurance industry to self-regulate, leading to the use of unfair terms by insurers being eliminated.

The Government’s analysis sees benefits in improved drafting and administration of contract terms, but this may not offer the same level of protection as where the unfair condition terms apply to other industries.

Mr Bradbury accepts insurance is a complex area and says any changes to regulations need to be carefully considered.

“Consumers also deserve certainty in the protections they have when entering into contracts, and in this respect insurance should not be treated differently from any other financial service that consumers use,” he said.

Submissions on the draft paper must be received by February 17.