Duty of disclosure reconsidered

Duty of disclosure reconsidered | Insurance Business New Zealand

Duty of disclosure reconsidered
The Ministry of Business, Innovation and Employment (MBIE) recently announced that insurance law will be reviewed.

This could have a huge impact on New Zealanders as one aspect relates to the duty of disclosure, which holds the customer responsible for disclosing all information relevant to their cover to an insurer. New Zealand is the last of the Commonwealth jurisdictions to still enforce this duty on the customer. 

Dr Michael Naylor, an insurance expert at Massey University’s school of economics and finance, said he has been pushing Government and successive ministers to reform insurance law, especially that of disclosure, since 2000.

“We managed to get a proposed law passed by the Labour Cabinet in 2007, but it never made it to the house,” he pointed out.

“I arranged for a number of people to push the issue and got the Commerce Minister in 2015 to agree to look at it this year, but then the minister changed.

“When I contacted the new minister, she had never heard of it. Thankfully our efforts have had some success, but given many previous promises, I'll not be happy until a law is approved.”

Naylor explained that all his efforts underscore his strong wish to have contract law reformed in many areas in addition to that of disclosure.

“New Zealand’s current disclosure laws are antique, being common law based,” Naylor pointed out. “The UK and Australia have reformed their laws several times since 1995, while we have done nothing.

“Innocent non-disclosure is the main reason for insurance non-payment and neither side really wants that. In the age of online sales, with no advice, expecting clients to know what to disclose is weird.”

He said that Massey University is analysing proposals as part of its review of the Canterbury earthquake claims.

Seneca Group broker Sam Kerr, who thinks the rules around non-disclosure for consumers are in need of a revamp, echoes these sentiments.

He highlighted though that it is a two-way street and entails shared responsibility as consumers should do their utmost to disclose any information that is relevant to their cover while insurers have to take responsibility for asking the right questions.

“Where the balance point should be set is not that easily determined,” he said.

He elaborated that what could also give rise to misunderstandings and inadequate information are short forms and online applications.

“Think of long form proposals compared to short form online applications which make for a large opportunity to miss out on material information,” he pointed out.

According to Insurance Council of New Zealand CEO Tim Grafton, the ICNZ and its general insurers have been well aware of the issue of non-disclosure and addressed it in the Fair Insurance Code Review in 2015.

"As part of that review we looked at the legislative frameworks in the UK and Australia, but rather than try to copy and paste foreign legislation into the code, we went about fixing things far more pragmatically,” said Grafton.

He explained that the ICNZ inserted into the code wording that requires its members to respond reasonably in relation to non-disclosure by the insured and that it allows the IFSO and FSCL schemes to determine what is reasonable when complaints of this nature reach them.

“The truth of the matter is there are an incredibly small number of non-disclosure complaints that end up with the dispute schemes each year relative to well over a million claims being made each year,” he said.

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