The Australian Lawyers Alliance (ALA) has welcomed a number of reforms proposed by the Banking Royal Commission report, saying they “will pave the way for a fairer insurance system for decades to come.”
Josh Mennen, ALA spokesperson, said some of the recommendations directly address the unfair way in which consumers have been treated by banks and insurers, particularly customers who paid their premiums in good faith only to have their insurance claims declined and their policies avoided.
The association was particularly pleased with the proposed amendment of the Insurance Contracts Act.
The act “should be amended so that a consumer applying for a life-insurance policy will be required to take reasonable care not to make a misrepresentation in response to the insurer’s questions, whereas they are currently required to surmise, or guess, what information might be important to the insurer,” Mennen said. “This reform places the burden on the insurer to elicit the information that it needs, which is only fair given the knowledge gap between the consumer and the insurer as to what type of information the insurer wants to know.”
Another reform welcomed by ALA deals with the ability of insurers to avoid a life-insurance contract.
“We applaud the recommendation to allow an insurer to avoid a life insurance contract only on the basis of an innocent non-disclosure or misrepresentation if it can show that it would not have entered into a contract with the consumer on any terms,” Mennen said. “Currently an insurer may avoid a policy if it would have merely increased the price had it received more information about the consumer – Commissioner Hayne identified that the current laws disproportionately favour insurers and are fundamentally unfair.”
The lawyers’ group also supported the commission’s call for the insurance code to be approved and monitored by ASIC, as this means that there would be “no more voluntary, non-binding, and self-regulated code,” Mennen said.
ALA noted, however, that the report didn’t provide specific recommendations on life insurers’ claim-assessment tactics, such as heavy-handed surveillance and discriminatory practices against mental-health claimants – issues the group said should now be addressed in a binding code of practice.