Contracts of Insurance Bill

Members, we now come to Part 3. Part 3 is the debate on clauses 70 to 99, “Contracts of insurance”; and Schedule 3. The question is that Part 3 stand part.

Point of order, Madam Chair. Thank you, Madam Chair. I just would seek your guidance. On this side of the Chamber, we’re a little perplexed as to why the Chair considered the debate to be exhausted on Part 2—in particular, we were meticulous in not repeating, keeping our speeches to the point, and progressing through the part in a very orderly fashion. While the Minister may have repeated some policy principles time and again, the questions put to him—and this is a detailed bill and we consider that it requires considerable scrutiny. As we approach Part 3, we certainly want an opportunity to go through each and every clause that we consider is worthy of debate, and—

Thank you for the point of order, Dr Webb. As I was here listening in the Chair, yes, I could see from the Amendment Papers that there was a little bit of a structure, but the questions were becoming very repetitive and a lot of it was deemed to have been answered. And given that we’ve actually had a session on this back in the last—I also had the boxes of things that have been discussed last time, and it seemed to me that we weren’t covering any new material, but if the members are clear in terms of Part 3 and are making it very clear that it’s not repetitive, and you are looking at it clause by clause, then that is a process that we do look at.

Speaking to the point of order—thank you, Madam Chair. Just to get further clarification, because I think there’s a distinction here between the Minister giving repetitive answers and then the questions being repetitive in and of themselves.

I actually was finding that some of the questions were overlaying some of the questions that had been previously answered. We have a sheet up here of the previous debate as well, and I also accept that because we’ve had a break in parliamentary process between that and now—I was deeming that we were starting to get repetitive. As we start Part 3, I’m very happy for Dr Duncan Webb’s suggestion of following the process.

May I just clarify: would it be helpful if we continue pointing out which clauses and subparts we speak to?

CHAIRPERSON (Barbara Kuriger): It would be very helpful. Thank you.

RICARDO MENÉNDEZ MARCH: Of course—we can do that.

Thank you.

Madam Chair, thank you for the opportunity to take the first call in this debate on Part 3, which I’m sure will be a lengthy debate as members on this side of the Chamber want to traverse the issues that have been raised.

My question is about clause 70, particularly about subclause (2), but before I ask this question, I need to give some further context, because we’ve had the Minister of Commerce and Consumer Affairs answer time and time and time again about the rationale for a change from the previous standard of “fraudulently” to “dishonestly”, and he’s reiterated that it is the appropriate standard in his mind.

Many of the questions in this part, including my question on this, will relate back to that change—it was in a previous version of the bill—that prior change which has created, in the bill, other parts of the framework. I’m not asking him whether that change was appropriate; he’s answered that it was appropriate over and over again. I’m asking him whether it is still good for consumers, whether this law, in fact, advances the position of consumers under this bill, which is something that he has said to media and that he has said to this House and that he has assured parliamentarians of in other statements.

I’m asking whether the changes to these clauses under Part 3—when they interact with the other changes in the bill which have already been traversed—are now the right changes to make, given that change was made, given that this bill was drafted around fraudulence being required as the standard of mistake on the part of consumers; whether now the protections that are in place for consumers are strong enough; and whether the remedies available to insurers are too generous, given that the standard is now different in other places of the bill.

To clause 70(2)—this is a question that genuinely had different understandings in the Finance and Expenditure Committee room around what the submitters were asking for here. My first question to the Minister is: does he know what submission this change arose from and which stakeholders were calling for this change, and is he satisfied that this is a good change for consumers?

Then, secondly, to actually understand the point and clarify for the committee the different understandings of what this meant, because it is surely a subject of litigation in future: does a reasonable time period for an insurer to settle a claim—a reasonable time that we might expect a homeowner to receive their payments in a situation like the Christchurch earthquakes or a reasonable time for an Aucklander to get their roof fixed in the Auckland floods—as a whole get considered, and then does the time to assess the information get included within that reasonable time frame? Or does this change mean that there is a reasonable time to assess the information and then there is a reasonable time to make the decisions as the insurer?

This is material because what this bill should seek to do, if it is in the interests of consumers and actively advances the position that consumers are in, is make the time frames condensed. It should give every New Zealander some confidence that their insurance claims will be dealt with in a timely manner. He should be able to stand up and give the committee a simple assurance that this reasonable time frame does condense the time frame, and also that the reasonable time frame is to be assessed as a whole and that getting the information doesn’t step that out at all. And it should be included when the court considers what a reasonable time frame for consumers would be.

They should consider the whole time, based on what kind of consumer we’ve got here—are they vulnerable, are they a little old lady, and what would be the appropriate time frame we would expect to have the claim solved in?—and then carve out the time it took them to get the information. It doesn’t matter if she didn’t have her documents in order. It doesn’t matter if it was difficult to contact her on the phone because her power was out—that there is a legitimate responsibility there for the insurers to make sure that they’ve got boots on the ground, that they have got people making the assessments on time, and that they are in there working with consumers no matter what the circumstances are, because that is what consumers should expect in New Zealand.

Thank you, Mr Chair. Looking at Subpart 1, “Implied term about payment of claims”; and clause 70, “Implied term about payment of claims”, and then subclauses (1) to (4), particularly—

CHAIRPERSON (Teanau Tuiono): Can you repeat those subclauses again?

RICARDO MENÉNDEZ MARCH: Yeah. I’m looking at subclauses (1) to (3) of clause 70 particularly. I wanted to unpack and follow on from Arena Williams’ contribution and also ask what considerations the Minister of Commerce and Consumer Affairs has given around the impact on claimants, in relationship to what may be considered a reasonable time to assess and investigate claims. Obviously, not all claims or types of insurance, when a claim is being investigated, will have such a strong flow-on effect in terms of someone’s ability to, for example, make ends meet. I do note that as it’s written, there seems to be, I guess, a lack of consideration around, for example, equity issues around the impact on the claimant. I wanted to get assurances from the Minister as to whether he thinks that the way that it is written will adequately take that into account.

Then, following on from Arena Williams’ comments, I’m also interested to understand the onus that is placed on those insurance companies to actually be adequately resourced to ensure that those claims can be investigated promptly and do not disadvantage consumers. So far, the way that subclause (3) is written, it takes into account things like type of insurance. I’m interested to know whether that specifically could take into account my earlier question. Then there’s other stuff around the size and complexity of the claim; the compliance with any relevant legislation; factors outside of the insurer’s control; and whether a sum due in respect of a part of the claim that is not in dispute has been paid; and then whether the insurer has reasonable grants for disputing the claim, particularly if there is language that seems to be more on the side of the insurance company rather than the consumer. I guess I’m just concerned about the reality that many consumers could be facing hardship while those claims are being investigated.

If we look at the Auckland floods, that’s a really good example of where people had to dip into the savings and had to get into debt while their claims were being resolved. The way that the language here is written, if I take the Auckland floods as an example, I simply cannot see how consumers’ ability to literally sustain themselves will be factored in in the language here. I would like some clarification to reassure consumers that their ability to make ends meet, preventing people entering hardship, will be factored in here.

So, just to recap, this is very specifically on clause 70, and particularly subclause (3), but I guess subclauses (1) and (2) would also be factored in into my questions.

I have a very short question, in the spirit of the committee stage, and it relates to clause 70 in “reasonable time”. What is the remedy? If there’s a breach, what’s the remedy? And will the Minister adopt my amendment, which simply states “once a breach has occurred, interest is payable on the insurance payable”? It seems to be a very simple, fair remedy. It applies in life insurance, why should it not apply in every other kind of insurance, particularly when the payment is clearly due? Will the Minister adopt my amendment so that interest is payable on late payment of insurance?

Thank you. Look, the members have raised very important points. I think everyone in this committee wants to make sure that policyholders get paid out in a timely manner—there is no debate about that. Everyone in this committee will want to make sure that policyholders get paid out in reasonable time.

The definition of “reasonable time” is a commonly understood legal term—that’s why we’ve done it. I see there’s a couple of other amendments that have been put up as well. The issue we’ve tried to deal with is that what is “reasonable time” depends on the circumstance. Just to address Ms Williams’ question specifically: yes, taking into account time to collect information is all part of that, together with the assessment of the claim itself. When a court will be assessing what is “reasonable” or have regard for both those items, it is not a separation between the two of them. Sometimes, claims will be complex and they will require a lot of documentation; others will be simple claims and they will not require a lot of time. That’s why we don’t want to adopt anything like a 12-month period: because, in some cases, that would be manifestly unfair to the policyholder. In other cases where it’s a complex claim, that would be possibly a difficult task for any insurer to actually meet. It’s up to the courts to decide it. We’re very clear about the principle.

Just dealing with the Hon Dr Webb’s question around compensation. There is, under clause 70, policyholders have the right for late payment. They can apply for it. If they deem that there is an issue about delay—unnecessary, undue delay—then there is clearly provided for in clause 70 that people can apply and get interest late payment under the Interest on Money Claims Act 2016, to be specific. This bill does not interfere with that, but it obviously references that and brings it into context. That is the principle. I don’t think there’s any dispute in the committee about making sure this happens promptly. I think we’ve struck a good balance in making sure that insurers do act promptly but policyholders are also recompensed as quickly as possible.

Thank you, Mr Chair. I’m just seeking a short call just to elicit some, I guess, basic, factual information from the Minister; just to enable this committee to get the information and context to help us judge a “reasonable time”. Can the Minister, please—through the officials or if the Minister himself knows—inform the committee what the shortest time has been to pay a claim, what the longest time has been to pay a claim, and what the average time tends to be? That would be, I guess, very helpful as we sort of explore this question around Part 3, clause 70(1) to (3). Thank you.

I don’t think we actually have a view on—I’m not sure, because that’s a commercial view on it. Look, the point is that it needs to be reasonable in the context. As the member will see in clause 70(3), there are a whole list of items that will deal with the complexity and, therefore, what is deemed to be reasonable time—and namely: “the type of insurance:”; “the size and complexity of the claim:”; the “compliance with any relevant legislation or guidance:”; “factors outside the insurer’s control:”, because sometimes there are factors outside the insurer’s control that would delay settlement of that claim; and also “whether [in fact] a sum due in respect of a part of the claim that is not in dispute has been paid:”, so maybe there’s been an advanced payment—so, again, there’s another one as well. That is why we want to take a flexible approach. The courts are the best organisations to determine what is “reasonable” in these circumstances.

It’s very timely that I speak at this time because of the discussion about remedy. I looked at the clause and I thought the first thing that I can see is that clause 70(1) talks about “an implied term”, and in fact that seems to be a superfluous word because it does look to me like this is a term of every agreement not an implied term. I’m interested in the use of that word because it does seem that what we’re doing—and I’d like the Minister’s opinion on this—is we’re creating a couple of remedies later in the clause, which talks about what you can have, but everything else seems to be up to the parties to decide in the contract itself. I’d be very keen to hear.

The Minister talks about how he would see this play out if, in fact, there is a contract here and this is seen as an implied term. What happens if there are express terms in the contract which go to remedy and say, “You won’t be getting this” or “You will be getting that”. This is your claim, so, yes, there is an issue later in the clause, from what I can see, where you’ve got the right to enforce the payment and you’ve got the right to the interest on the sum. But what happens if, in fact, the rights beyond that are not there?

My understanding is you’ve got people who are still waiting in Christchurch to be paid. If the contract denies other rights, is that as far as we’re willing to go? I’m not sure it’s necessarily up to the courts to decide that if in fact in the contract you have expressed terms which limit the rights of the person beyond what we would consider reasonable in that circumstance. I’m concerned about where we’ve made the line here for your average consumer when the devil will be in the detail of the agreement, and people get creative about what they knock out of the suite of remedies that we would expect to be here. There’s a time when it just becomes simply unreasonable. Is it going to become reasonable because there’s an express term? Is it going to become an unreasonable remedy because it is put outside of the ambit by an express term?

I’d also like your comment, Minister, on the issue about the use to the word “implied” when we’re actually saying it is a term. Thank you.

Thank you, Mr Chair. I’m a little bit surprised because I know the member is a lawyer and she of all people in the committee should know the value of the word “implied”. That means every contract—every insurance contract—has that as an express element of that contract. It’s fundamental to every contract.

Now, obviously there will be examples where there may be contracting out on a specific insurance policy, but remember some of my earlier comments on Part 2. It’s up to the insurer to make sure that those terms are written in an easy-to-understand manner. It’s not the reference to lots of detail and terms and conditions. Part of the fundamental change in this bill is to make sure that policyholders are not surprised by express terms taking them out of that implication. But the implied term cuts across every contract—and by putting that in clause 70(1), it means that policyholders can seek contractual damages for a breach. It’s actually the best way of dealing with it.

Thank you—I’d just like to take you up on that. Yes, I’m very familiar with the law around implied terms and the fact that an implied term is usually an unwritten term that’s so obvious it goes without saying. We’re not actually dealing with that here. We’re dealing with something that’s deemed a term in every agreement, and so this seems inappropriate wording to me, and in fact I would ask the Minister to consider an amendment that says it is a deemed term.

Then, the issue I have raised beyond that—which I would dearly love to look at—is what we do about making sure it’s a fair deal for the consumer beyond these terms, because there are couple of things here. Is that a fair enough deal? I would wonder about that, given the calculation of delay, for example. Is it a fair term when somebody has still not paid out a claim in Christchurch that we now actually look at penalties for punitive damages in that situation? And I do get that there is a reference to damages, but it looks like that is a case of whether your contract says it or not, and I’m not sure about that.

In many areas of the law, you’d have this capacity for the judge to say “exemplary damages”, “punitive damages”, or we’d write it into the law that there was a penalty—and I suspect we think there should be a penalty in this situation where you get calculated behaviour. Delay is probably the best friend of many lawyers as you just put it off and wear people down, and they die and they go bankrupt and they commit suicide. We really need to make sure we’re signalling in the law if we’re talking about something that is a deemed term, if we’re saying, “That’s it. You have to have it in. You’re not getting out of this.” That is an important thing to follow up with something that is really us directing the court what to do or giving the court power to do it, not letting one party weasel out of it in its terms and conditions, which can happen.

I’m not suggesting anyone is not acting in good faith, by the way. I’m saying that this is a situation where we are going to have to be careful because we are dealing with a range of vulnerable consumers that may be in a crisis in their life, which is that they’ve lost all their property.

Just responding to the member again, I note that the use of the term “implied term” is very consistent. It is consistent with the UK approach—it’s given rise to no issue. I think it’s pretty commonly understood, as I said before, as to what that means. It means it’s a fundamental tenet of every contract that there needs to be a payment in a reasonable time. By writing that, it gives, as I said before, the policyholder the right to seek damages.

Also, clause 70 does not seek to legislate how the courts approach damages, because, again, I get the intent, and I made this point earlier to the Hon Dr Webb. Members opposite seem to be trying to anticipate how the courts will interpret each occasion and be specific about it. Their fundamental approach to the bill is to be clear about the principles that people need to be paid out in a reasonable time, and it is up to the court to decide what is reasonable in that circumstance. So that’s why I think the approach in this bill is very appropriate.

Thank you, Mr Chair. I take the Minister’s point that the intention of this legislation is to set out the approach very clearly, so I’m asking him this in in good faith. Clause 71 of Part 3 is the arbitration provision that has been included in this legislation since the Labour Government first drafted it and since the formulation of what is an insurance contract that applies to consumers.

Since that definition has now changed, my question to him is: is he satisfied that clause 71 is the right formation for the arbitration provision, which excludes arbitration provisions being binding on policyholders specifically, now that he has changed clause 6, which is the meaning of a contract of insurance and the conflict of law provisions, particularly 7(2) that now relates to the broader section of non-consumer insurance contracts and not just the highly negotiated and highly commercial contracts of insurance?

Thank you, Mr Chair. I just wanted to move to clause 72, which has always been a tricky area of insurance law. That’s those clauses which set out a condition in the insurance policy about how a claim is to be made. Historically, those clauses could be used quite unfairly to deny cover, and the law generally has taken a substance-over-form approach so that even if a contract of insurance—and I know claims-made policies are a little different; we’ll come to those—but contracts of insurance sometimes do say that a claim for motor vehicle damage must be made within 30 days, for example.

The law has, for a long time, taken the approach that insurers can’t rely on those clauses unless the breach of the clause has caused some loss to the insurer over and above the insurance claim. For example, they can no longer find the person who crashed into the car, and, therefore, they can’t recover, and so on and so forth. Therefore, they can reduce the claim by the amount of detriment they’ve suffered, and this seems to be reflected in clause 72. That seems to have roughly captured what I think was one of the Insurance Law Reform Act provisions.

The difficulty I have is that the clause itself needs to be reasonable. You could conceivably have a clause which—this is in one of my tabled amendments; I think it’s in my name. But you could have a clause which says that you must make a claim for damage to your house within seven days and you’ve got a situation where it was damaged by a third party who then absconds, so you meet the test, but the seven-day limit itself is unreasonable. My proposal is a new clause 72(3)(c), which says not only must the insurer be prejudiced and it would be inequitable but also, and the additional words are “And the provision referred to in subsection (1) was in all of the circumstances reasonable given the nature of the insurance and the identity of the policyholder.” It would actually be a bar on unreasonably tight time frames or methods.

This would also cover where it says, “You must make a claim by turning up to the insurance company in a red jumper and making the claim in writing.” Silly rules like that would be ruled out simply because they’re unreasonable. Equally, notification should be able to be made in any way. A telephone call, an email, or an in-person claim should all be legitimate and reasonable. Unreasonable clauses, which unreasonably specify how the claim must be made and when, would be ruled out simply by that small addition. Again, I won’t take up too much more time, but I’d be interested in the Minister’s approach to that.

Thank you. Just in response to Ms Williams’ question around clause 71, look, hey, this is a very longstanding provision that applies only to consumers, not to non-consumers. It maintains a status quo that arbitration clauses in them are not binding. That’s a very common approach. It’s always been that, and so we’re pretty comfortable with that approach.

Just with your clause 72, the Hon Dr Duncan Webb, the first thing is this is a longstanding provision and we actually had no feedback, as I understand, during the select committee. Everyone seemed to be comfortable. Insurers are already prevented from relying on a time limit, unless it can show it’s been prejudiced or this is inequitable. An additional reasonableness test is not required. I must note, I think you must have had an epiphany because, in your original bill, you had this wording but now you’re seeking to change it with a tabled amendment. Obviously, you’ve had some epiphany in more recent times.

We get ourselves into some trouble in this committee stage, because we do need to refer back to previous changes that have changed I guess what you could call the net between where we are sort of creating consumer protections on one side and then creating surety for insurers to rely upon, in order to arrive at a balance that is appropriate in New Zealand law to codify what we have, and then step out for consumers their protections, which is what the Minister has told media and has told ordinary people in New Zealand is being done by this bill. It’s right to interrogate the entire net and not only the provision.

What I’m asking is not whether clause 71 is the same as what it was before; I’m asking whether clause 71 is now both appropriate, in the Minister’s view, and good for consumers, in the Minister’s view, given his changes to clause 6 and clause 7, because those change who can use a consumer insurance contract. Now, where there were provisions that were designed to only apply to contracts of reinsurance, which are big insurance contracts that are negotiated between insurers of consumers and insurers of insurers—and so there are lots of lawyers in the room, and we can design provisions around those which are really designed for two commercial parties with a meeting of the minds where they’re equally powerful and well represented. And then we’ve designed provisions which should only apply where there is a power imbalance. We’ve changed that net in clauses 6, 7, and 8. Is the old provision at clause 71 appropriate, in his view, and is it good for consumers?

I wonder if I might talk now about claims-made policies, which is clause 73. There’s just a little conundrum in there, because it does talk—claims-made policies are generally considered to be broad liability policies; policies that builders, lawyers, architects would have about claims made against them. Claims-made policies are one method to define that the insurance covers the insured for claims made within a defined period of time. One of the difficulties is the interface between those policies and clause 72, which says you’re not bound by when a claim is actually made. Obviously, the whole underlying way a claims-made policy works, the finances of it are that it’s time-limited.

The interface with that is kind of sorted out by clause 73, which gives a grace period. All that’s well and good, but I’m just concerned because many contracts of general insurance have a liability element as well. For example, a home policy, classic general insurance will also cover for liability. If you, I don’t know, have a house fire, that’s general damage and you’re covered, but if it leaps next door and burns the house next door down, well, that next-door house isn’t part of the insured property, but you’re covered under your liability part of that policy, so it actually becomes a policy for liability. There’s a danger in there, if it’s got a clause relating to when a claim must be made, the period of insurance, that it falls within this clause 73, so all of a sudden clause 72 isn’t going to work for the liability part of your general insurance.

My proposal is for the tabled amendment to be adopted which adds to that clause 73 at the end of subsection (2), “And [the] cover for liability is not ancillary to other insurance (such as general insurance over property)”. I’m a bit worried there’s a gap in there, and it would really be good to tidy that up.

In answer to Ms Williams’ question: yes, it is appropriate. In answer to Dr Duncan Webb’s tabled amendment around clause 73: I’m not keen to accept that and recommend we shouldn’t, because the Law Commission actually proposed the change. The member’s tabled amendment would actually reduce or narrow the scope of it, which actually would be a disadvantage to policyholders, so I think they’re actually going to end up with a perverse outcome. That’s why I don’t think it’s one that we’d like to recommend, because we’d like to have the wider definition that the Law Commission recommended.

Thank you, Mr Chair. I’ll just take a short call, if I may. It’s actually a real irritant of mine that we get these fantastic consolidation bills, and yet we’re still using terms that are 300 years old. I’m looking at clause 76, and who in the world other than some nobby lawyer would know what a “pro rata condition of average” is—and all of our nobby lawyers are nodding: “Yes, I know what a pro rata condition of average is.” Now, it’s a perfectly simple thing—[Interruption]—and the Chair is not going to know, Mr Bayly.

CHAIRPERSON (Teanau Tuiono): Can you repeat that again?

Hon Dr DUNCAN WEBB: Well, I’ll tell you what it is. A pro rata condition of average is a clause that says that, if you insure half the value of an item, then if it’s damaged not to its full value, you only get that proportion of the insurance proceeds. If you insure your house for $1 million and it’s worth $2 million, and it’s damaged to the extent of $500,000, then a pro rata condition of average says that you share the loss in the proportion that you insured it. You get half of the proceeds, and so you end up being underinsured—and here I am explaining this, and that shouldn’t be the case.

You should be able to read a piece of legislation on a consumer policy and know what it means. Let’s not use the words “pro rata condition of average”—and I’m going to do you a favour. I’ve got two amendments to amend clauses 76 and 77, which use this term. It should say, “a condition under which cover is granted in the proportion that the sum insured bears to the value of the interest insured”. That’s what a condition of average is. They’re prohibited in home insurance—as they should be—but in commercial insurance, they’re quite widely used, which avoids the insurer taking the first bit of the loss, and then the insured getting the benefit when it isn’t the entire loss.

It is absolutely insane that we’re using the Latin “pro rata” and “condition of average”, which is about as technical a term as you could possibly get. Can you tidy it up for us, Minister? Be a sport.

I’m mindful that we are jumping around on clauses. Before I go to clause 74, I did want to jump back on previous clauses that we’ve contributed to, particularly because it hasn’t been addressed. One of the things that I wanted to touch on—

CHAIRPERSON (Teanau Tuiono): Which clause?

RICARDO MENÉNDEZ MARCH: Issues that have arisen from clause 70, particularly subclauses (3) and (4), and then I’ll go on to clause 74.

The Minister, when addressing some of these issues, talked about how some of the tensions that we tried to unpack around “reasonable time”, if I recall correctly, his words were that “This has been canvased by the courts.” I know that a lot of this relies on case law, like across the legislation, but, I guess, to me, the question was about whether the Minister thinks, particularly when it comes to consumer protection, that the weighing up of relying on case law versus, for example, having more prescribed language in the bill that actually gives certainty to consumers, is actually better for both parties but particularly for consumers.

I think, to me, for a consumer, having to rely on understanding what case law has said, to be able to understand what they should expect seems actually quite unreasonable, particularly when we think about the circumstances in which some of those claims could have been made—say, after a natural disaster or an extreme whether event. It just seems to me that expecting a consumer to then go into case law, to get a sense of understanding of what “reasonable” has been previously determined by the courts just seems like actually quite a high barrier that we’re setting.

I go back to my question around the lack of consumer protections and the language of this bill in relationship to what is considered reasonable. My specific question—I do think it’s a new point—is whether the Minister thinks that case law in relationship to consumer protections and defining “reasonable time” is actually good enough, considering, for example, that we will be seeing likely more insurance claims in relationship to extreme weather events.

Now, if I jump to clause 74, in relationship to “Insurer not liable to pay greater cost”, my concern would be that, again, it seems to that there is little consideration in the context in which, often, consumers will be lodging these claims. It seems to me that clause 74 is there to mostly end up protecting the companies rather than actually giving greater flexibility around the context in which consumers may be making those claims. I wanted to get a sense of understanding around how consumers can have certainty that if they’re facing really strenuous circumstances—again, I’ll use extreme weather events as an example—that clause 74 won’t actually disadvantage them. There could be many reasons, particularly if we look at subclause (1)(b) and subclause (3) that these seem to mostly side with the insurers. I just want some clarity around how he thinks greater flexibility could be, if at all, given to consumers when strenuous circumstances arise.

Thank you, Mr Chair. I want to make sure that the committee has sufficient time to deal with Subpart 4A, which is a new subpart that comes under Part 3 of this legislation. It is brand new to the committee’s consideration. It was not introduced at the first reading. It is an issue that arose from submissions, and the Finance and Expenditure Committee came to a reasonably bipartisan, cross-party consensus around including it. I want to explain for the Minister, before I ask him a question, why this issue is significant.

There is significant individual public health and scientific benefits associated with the use of genetic testing, whether undertaken for individual health reasons or medical research. However, as submitters made it clear to the select committee, there are individuals in New Zealand who are potentially forgoing lifesaving clinical and relevant genetic testing, or not participating in medical research involving genetic testing, for fear that it will impact on their ability to get insurance, particularly life insurance and health insurance. The reason for the inclusion here is to bring us not only in line with emerging international law on this issue but also to create an opportunity for the Minister to regulate in this area.

This is an issue where Labour members want to see the adoption of law in New Zealand to regulate this. We’re very concerned about this issue and agree with submitters from the community of people who suffer from these genetic conditions that the Government should be regulating in this area and should be allowing sufferers of these conditions to have protection in the law. However, my question to the Minister is that this was a consensus-based position at the time—that the select committee had based on submissions. Things have changed since the select committee heard that evidence. Australia has now decided to impose a five-year ban, with a review provision at the end, since the select committee was able to make those considerations. Has the Minister’s thinking on this changed given the position of Australia now?

Thank you, Mr Chair. I am going to be jumping around, so I will have to leave the Chamber, but I trust that actually my Green Party colleagues and our Labour counterparts will canvass the stuff between the sandwich. I’m just going to jump to Subpart 4A on genetic testing, acknowledging that there’s many other clauses that are yet to be touched on before that.

CHAIRPERSON (Teanau Tuiono): Can you repeat the subpart?

RICARDO MENÉNDEZ MARCH: New Subpart 4A on genetic testing. This has been a very contentious issue. I know that this will gather quite a lot of debate and there’s other clauses to be debated, but specifically, on new Subpart 4A, I wanted to get the Minister’s views on whether Australia’s recent move to ban genetic testing when it comes to life insurance, and actually have the companies cede ground—and support the recent moves by Australia—has actually played any factors in how he’s laid out new Subpart 4A.

This is an issue where New Zealand is actually falling behind the rest of the world when it comes to how we legislate to protect consumers but actually use the most ethical policy to also protect disabled people. I’ve got an amendment on this issue that would eventually, effectively, prohibit our country, relating to genetic testing—and I think, to me, we had a lot of passionate submitters on this issue, but at the same time, Australia was having a very, very fulsome debate on the matter. Where they have landed is that, actually, a prohibition approach is the best way to move forward. I’m really concerned that the way that new Subpart 4A is laid out won’t keep up with the rest of the world that is now acknowledging that, actually, even having regulations may not be fit for purpose in terms of protecting consumers.

I know that, in the second reading, the Minister interjected and said to not worry, when I talked about the resourcing of those regulations, but I would still like the Minister to none the less actually properly unpack how he sees those regulations being adequately resourced—well, the people who will be in charge of regulating the stuff in new Subpart 4A to do its work adequately and to meet what the legislation prescribes.

I also wanted to ask—so this is, I guess, my big third question—what meetings has he had since taking on the role, particularly, since Australia has moved to prohibit genetic testing, when it comes to life insurance? Like, what meetings he has had on the issue and or with Australian counterparts to ensure that what he has put in new Subpart 4A actually is fit for purpose. To me, it just seems like we’re just kind of steamrolling ahead with this process and not actually considering that other parts of the world are evaluating this type of policy.

So, to recap on new Subpart 4A, I’m interested to know whether the Minister has had any sort of meetings or discussions around Australia’s recent decision, whether he thinks how this regulatory powers will be adequately resourced to ensure that they comply with the legislation, and whether he’s got any reflections about the state of this bill in relation to how consumers will be protected and what consumers would expect if they see other parts of the world actually moving to a more prohibitionist approach to genetic testing.

Thank you. One very brief point coming from Mr Menéndez March’s contribution, and my suggestion, is that regulations are required, because at the moment the legislation as drafted is permissive. There’s a real danger that a Minister might get a little busy—I know, Minister, ha, ha!—or might simply not think it’s a great idea, and therefore kind of thwart the intention of Parliament by not implementing parliamentary intent, which is to have regulations here. I’ve got a proposal there that says, “The Minister must make a recommendation under section 86B within two years of the commencement of this Act.” The time is up for grabs, but it just has to be time-bound. That’s the guts of it. That’s the first thing.

The second is actually really important. It’s about clause 82—so a different change to this. It’s about contracts for the sale of land. There’s always this tricky thing. I remember over the earthquakes when the earthquakes hit, the first thing the law firms had to deal with was what about all of those contracts where someone had agreed to buy a house and now it’s damaged? Now, it’s solved largely by clause 82, which says, “Well, you still have to buy the house, but you get the benefit of the insurance.” You’re put in the same situation. People don’t like it, but at the end of the day you’ve still got to buy the house and you get to be in the shoes of the insured party.

There’s a gap, and it’s actually a really big one, Minister, and it’s one we need to address. That’s that it is silent on Natural Hazards Commission payments. There is absolutely no legal requirement for the Natural Hazards Commission to pay an incoming purchaser of the house. Now, through the earthquakes, the workaround was deeds of assignment of the Earthquake Commission entitlements, but sometimes those were forgotten, sometimes they were defective, and sometimes people would simply say, “Hard luck. I’ve decided not to.” and it became a real problem. We need to cover that off, because, as night follows day, if you’re entitled to the benefit of private insurance, you must be entitled to the benefit of natural hazards insurance. We really need to address that so you don’t have this black hole of law where private insurance is dealt with one way and natural hazards insurance is dealt with another way.

Thank you very much. Look, I’ll just deal with that one quickly. The issue around natural hazards—we’ve quite deliberately kept that separate from this Contracts of Insurance Bill. The natural hazards Act has its own arrangement, and what we haven’t done with this bill is try to take parts of that and put it under here. The natural hazard Act operates under its own framework, and this one operates under its own framework. It’s very clear we haven’t tried to mesh them and merge them and do all that sort of stuff, and that’s quite a deliberate approach to the whole thing. I think it’s wrong to try and complicate it.

I just want to return to this issue around genetic modification. Of course, as members will know, this was an issue that came up during the select committee. It wasn’t something that there has been a lot of consultation on; it just came up during the select committee process, and I’ll just call out Mr Menéndez March’s comments. Australia has announced a policy to ban insurers from using adverse genetic test results, but they haven’t actually passed the legislation. It’s an intent, but the details of that we do not know. The presumption of what Mr Menéndez March was implying—I think we’ve just got to be a little bit careful with the language. Obviously we’re very interested to see what Australia does on this issue. We are also very interested from New Zealand’s perspective. We’d want to make sure that people are not unduly disadvantaged from insurers using this as a way to exclude minorities, unnecessarily so. That is why we’ve adopted a flexible approach, which means we’ll do it through Order in Council.

Mr Menéndez March asked the question a couple of times about resourcing. Look, we all understand this is a very important issue. It’s a new, emerging part of the insurance industry. I’m very mindful of it. There are large resources the Government has to be able to undertake and investigate further, but the reason we’ve gone down this route is there is a procedure laid out as to how we might put in place regulations to deal with this in a more flexible manner rather than predetermining an outcome. At this point, we have to consult with various groups. We’re going to take a measured approach. It is an important area. If the members opposite are suggesting it’s not, it is. The approach we’re taking will mean that we can keep our practice up to date with what’s happening around the world, to make sure that New Zealanders are not disadvantaged by this practice, but it is an emerging trend, and we need to be cognisant of it, and we’re very aware of it.

Thank you, Mr Chair. I am particularly concerned with the section on genetic testing as well. It was an issue we tried to deal with in the Finance and Expenditure Committee and, as I’m sure the Minister knows, it was brought to our attention and then dealt with there.

Look, Dr Webb has gone through the issue on clause 86B—that the Minister “may” regulate. What I want to look at is in clause 86C(1)(d). All right, so most of this section on genetic testing is set up to ensure that consumers aren’t adversely affected by being required to take genetic tests and so on, and the Minister is required to develop regulations that are going to sort of have that effect, but 86C is looking at the procedural requirements, and particularly who the Minister needs to consult—the Financial Markets Authority, people who are affected. It has to ensure that the regulations are desirable or necessary, but it’s 86C(1)(d) where the Minister has to be “satisfied that the regulations are not likely to unduly prevent insurers from considering information in relation to genetic tests”.

Now, that’s a little bit curious because the set of rules around the sorts of regulations that the Minister may make seem to have the effect of ruling out genetic testing, but 86C(1)(d) seems to allow it back in again. I wonder if the Minister could explain what sort of information insurers might be able to consider? It has to be highly significant to insurance underwriting, but it’s a little hard to understand what that information might be, given that all the other rules in this section are going to ruling out genetic testing. What sorts of genetic information, or information related to genetic tests, might insurers quite reasonably consider so that it wouldn’t be ruled out by the Minister’s regulations?

It’s a little bit complicated, but I am trying to see if that’s kind of a little bit of a back-door entry in for genetic testing, and to make sure that we aren’t—in the process of setting up these regulations—then allowing a back door, which would have the effect of nullifying them.

Thank you, Mr Chair. I appreciate the opportunity to ask a question of the Minister of Commerce and Consumer Affairs in relation to his answer on genetic testing. I think his answer was really, really helpful, especially given the context of a number of patient groups of people in a community of sufferers of genetic conditions, who will be following along with this debate very closely because it deeply and personally affects them and their families, particularly their children.

I want to ask the Minister: when he says he will run a full consultation process when he is using the Order in Council powers, what will the consultation process look like and will those patient groups be consulted with? A number of submitters noted for the Finance and Expenditure Committee that it was the first time that they were able to engage with the issue when this bill was before the select committee. They were, essentially, really making the case for regulation at all. They weren’t able to put their arguments about what good regulation would look like; they weren’t able to put their arguments about where they would see genetic testing as a low risk and where they would see it as a high risk for certain patient groups and for certain conditions. They made the point very strongly, I guess, that the kinds of tests on one side and the kinds of conditions on the other have a material impact, and what’s in and what’s out in a regime is something that they really want to be consulted on.

I’m asking him to elaborate for people who are watching along with this at home, and I know there are people watching this now. Can he just give an assurance about what the sort of consultation process would look like, who would run that, how long people might expect it to be open for, and how they might engage?

I move, That debate on this question now close.

Look, I’m sorry to stand up and take the call again, but I really am hoping that the Minister will answer those questions. I think they’re quite important. Thank you, Minister.

Thank you. Very good comments. With clause 86C(1)(d), which the member raises, the reality is that genetic testing is happening and will continue to occur, and it’s likely it will continue to escalate. What this is referring to is that there are some conditions where, if you have the gene, it is so significant in terms of an insurance event that it would have a material bearing on whether, in fact, you could get insurance. For instance, I had a good friend who had Huntington’s disease. He was a good friend of mine. He planned his life, never had children—he adopted children—and made sure that, when that disease occurred, his family was provided for. Unfortunately, he died at a very young age, at 40—a very successful person in his career.

Now, that was a situation that he planned for, and if an insurance company knew that he had that disease—because it was inevitable that he was going to suffer from that disease; it’s not one like, for instance, the BRCA gene, where a person may or may not get it. In that situation, it is a significant piece of insurance information, and it’s only fair in those situations that you should be able to get insurance for certain aspects but certainly, I think, it would be pretty unlikely to be able to do life insurance, because the likelihood of what is going to happen is almost inevitable. This is what this is taking into account. It’s obviously a very subtle issue and a difficult one. It’s not presupposing an outcome, but it’s just trying to recognise that there are some conditions that are, unfortunately, terminal or have significant consequences. That’s why that subsection (d) is included in this area.

Given the Minister’s answers—and I really appreciate his answers and I didn’t necessarily anticipate that answer—how does the subsection that Dr Russell has raised interact with new clause 86C(3)(c), which is an important protection, which was really essential to the committee’s buy-in to the cross-partisan support for these regulations, which is that it’s a protection which, essentially, requires the Minister, before making an Order in Council to regulate the use of genetic testing by insurers, to satisfy himself and have—no, sorry. It’s not a standard of satisfaction; it’s a standard of having a particular regard to the kind of genetic test, and that is an important distinction—about whether the regulations are likely to avoid significant disadvantages for policyholders. That’s all policyholders, including those policyholders who are expected to ultimately have their lives shortened by the genetic conditions they suffer as a group.

The examples there are important and should be read in the meaning of that part and not simply as examples alone for the purpose of illustrating the meaning of that. It’s the word “significant”, the less favourable terms which the Minister is, I guess, being asked to consider. Can he compare the meaning of new clause 86C(3)(c) with the provision which then protects insurers that Dr Russell has asked him about?

Thank you, Mr Chair. I’d just like to thank the Minister for sharing that example and to offer my sympathies for the loss of his friend, because it does bring home the nature of some of those genetic diseases.

I just want to follow up on what the Minister told us a little about. Huntington’s disease is, as I say, very distressing and has only one outcome. But the BRCA gene is interesting, because it is so highly associated with a pretty—what’s the word I was going to say—aggressive form of breast cancer. I guess this becomes the point at which something is a certainty versus a very high possibility. There’s a little bit of a line-drawing exercise to go on in there. For example, until recently, we would have said that cystic fibrosis was pretty much a certainty of an early death, but with the advent of some drugs—if people have access to Trikafta, then a fairly standard lifespan is expected. There’s a little bit of a judgment exercise involved in there.

I’d just invite the Minister if he could speak a little bit more about the sorts of advice he is likely to take, or the things that the Minister who is handling it at the time ought to take, around trying to distinguish what really is a terminal condition, what is a likely condition, and how that might affect how that particular clause might operate.

Look, it’s obviously a very delicate issue. Probably the easiest way to explain it is there are some conditions that there is no possibility of a different outcome. They’re terminal or maybe of terminal nature, and that’s what new clause 86C(1)(d) deals with, right?

The example that the member just raised—obviously, there are many forms of cancer; not all of them are terminal. I’d be very concerned and certainly wouldn’t be wanting to make changes through Orders in Council to allow insurers to say anyone who had cancer wouldn’t be able to get a life insurance policy, because that clearly is unfair. New clause 86C that was put in by the committee is, I think, a good clause.

There is a distinction, right? Of course, what we’re talking about—and there are multiple insurance products, of course. Even my friend with Huntington’s disease still wanted to insure his house. He still wanted to insure his car, he wanted to do other insurance, but the likelihood of him getting life insurance against an event that was inevitable—that’s the distinction. We certainly don’t want the insurance companies saying: as a big band, we’re going to exclude you or charge a higher premium. I’m very clear on that point.

Look, I’ll just indicate that at this stage we’ll be looking for new material.

In the spirit of the committee stage, my question is a straight question. Given Australia’s changing position, should New Zealand be seeking to align itself with Australia, and will the Minister exercise his powers under the new regulation-making powers in this legislation with a view to aligning New Zealand’s insurance industry up with Australia’s?

Look, as I’ve said before, Australia is announcing an intention. It has not passed legislation, and local parliaments—and we’re the same—will go through a select committee process. It will be interesting to see where they end up. Of course we will have regard to Australia’s outcome, as we would have regard to other jurisdictions around the world. What we’ll make sure of is that we’ll do best in class around the world to make sure that we deal with this, and it will be evolving. Even if we make it a change in a year’s time, or whenever the Parliament in Australia passes its legislation, there will be further developments. That’s why adopting an Order in Council procedure, with the very clear procedural approach that has to be followed under clause 86C, gives us the flexibility to make sure we keep up to date and abreast of developments.

Thank you, Mr Chair. I’ve got some questions around clause 86C(3) and the paragraphs within that. I’m particularly interested, if the Minister could tell me, what another source of information might be. I mean, how do we stop insurers from, for example, requesting information from the heritage sites where people have voluntarily given DNA information to, which can be very useful. I mean that’s how I confirmed my Jewish heritage through that site. Can we prevent them from requiring us to disclose information? Looking at paragraph (c) “when viewed as a group”, does that mean an ethnic group, potentially?

I mean, presumably, people of African heritage living in New Zealand are far more likely to have sickle-cell anaemia than the Minister or myself. At what stage does that constitute some sort of ethnic bias? Are there some genes that Māori or Pasifika hold that make them more vulnerable to particular illnesses or shorter life? There certainly is a far shorter life expectancy for a number of reasons—potentially some of them genetic, mostly socio-economic—for Māori and Pasifika. How does that fit into us trying to make insurance fair in this country?

I just want to also reflect on a personal experience. I’ve just visited my sister who’s got terminal bile duct cancer. Would I have to declare my relatives and their particular diseases in order to get insurance, and do I need to have a genetic test to see if we’ve got the same vulnerability, or would they just look at some medical likelihoods? It’d just be interesting. I mean these are very complex questions. It’s difficult to answer in here, but this is a point at which we should be asking these questions. Thank you, Mr Chair.

I’m sorry to hear about your sister. Look, the examples you use are exactly what we don’t want to happen. We don’t want insurers to blankly classify people, ethnic groups, people with certain conditions—and it might be a familial relationship or whatever—we don’t want them doing that. That’s the bit about this whole thing. Of course, it’s an evolving thing. That’s the general principle. I’m very keen, and I’m sure all parties in this committee want to make sure, that people should be able to get insurance—that’s the general principle of it, right? We need to deal with it delicately, but that is the general principle. We do not want that sort of classification that you’re talking about.

I move, That debate on this question now close.

Thank you, Mr Chair. My question is about clause 90, and it is about the insurer standing in the policyholder’s place for those claims that are made under this subpart, which is a new subpart that we have not yet debated. It’s relating to an amendment on the Table for the Minister’s consideration. There is a lack of clarity here about what documents the insurer, when standing in, should receive. An amendment here seems to be needed, via a new subclause (3), where whoever the claimant is in this kind of scenario would be able to seek—and the insurer must provide—all information in the documents relevant to the claim, whether or not there had been proceedings.

In a situation where there were proceedings—where there were court proceedings or, in a provision where arbitration was allowed, arbitration proceedings; or in a negotiated scenario, which is a scenario that we envision in this bill anyway for consumer insurance contracts—what’s not clear here is, prior to that, whether it would be possible for the claimant to get those documents. It would also be helpful, if the Minister is not going to accept the amendment that’s being proposed here, if he would enunciate his view on whether those documents should be provided to the claimants in this situation.

I know the member is talking on behalf of a clause put forward by the Hon Dr Webb. Look, it’s already addressed—if Dr Webb looked seven clauses on, he would have seen that it’s addressed in clause 97 and also Schedule 3 of the bill. It’s already provided for in the bill that a claimant can obtain information documents relevant to the claim from the insurer.

Thank you, Mr Chair. Moving to clause 91, which is the defences which apply to this subpart, has the Minister considered the need for a new subclause (2)(d) here, which would allow for the defences which are being relied on to be for the status of the policyholder and making them specific to that policyholder. In this subpart, there’s the policyholder and there’s the claimant. It’s helpful, because there is a lack of clarity here, for the Minister to give Parliament some clarity about whether an amendment is needed here or whether it’s his intention to ensure that the term saying the insurance is voided on insolvency, or anything like that, would not deprive third parties who are making a claim.

Look, clause 91(2) already prevents insurers from relying on certain technical defences that it would only have because the policyholder has become insolvent, so it’s already provided for. I suppose a more general principle is that it’s better to clearly identify the specific defences that insurers cannot use, to avoid uncertainty.

I move, That debate on this question now close.

Thank you, Mr Chair. I just had a quick question—and I know we’ve been jumping around a lot, but I’ve got to go—on Subpart 6, and I think it’s clause 99, “Application for shares in company not to be contained in proposal for insurance”. I was wondering: is that quite a common phenomenon in the insurance industry? Is it a kind of common thing? When you’re taking a call for insurance, is it quite common that they’re, essentially, asking you to, like, buy shares in the company? I’m just wondering whether you can kind of quantify the extent of the problem as it exists today: like, how often is it occurring—what, I guess, that current kind of scale for penalty is. Thank you.

Thank you, Mr Chair. I apologise for coming back to the Subpart 4A on genetic testing, but I want to ask a specific question which I don’t believe has been answered and that there is significant public interest in—that is, how long interested groups in this, particularly patient groups, can expect consultation with them to occur for. The reason I would ask this is because, before the Minister can exercise his powers, which he’s required to do in two years—so there is a time frame on the requirement for the Minister to make regulations in this area—is it his expectation that the consultation period would, basically, be the entire two years, or would that be a smaller part of the two years? The patient groups for this are already engaged in it because of this bill’s process, and they want to know how they can prepare because they want to make the best case possible for their access to continued life insurance. This is not a question which affects a large number of people, but it is a question which affects a small number of people very deeply, and it’s one that would be very helpful for the Minister to give some clarity on.

I move, That debate on this question now close.

The question is that the Minister’s amendments to Part 3 set out on Amendment Paper 125 be agreed to.

The question is that the Hon Duncan Webb’s tabled amendment to insert new subclause (5) in clause 70 be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to insert new subclause (6) in clause 70 be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to insert new paragraph (c) in clause 72(3) be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to clause 73(2) be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to insert new subclause (5) in clause 74 be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to delete clause 75(3)(b) be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to clause 76(1) be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to clause 77(2) be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment deleting clause 80 be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to insert a definition of “land” in clause 81 be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to insert new subclause (4) in clause 82 be agreed to.

The question is that Ricardo Menéndez March’s amendment to replace Subpart 4A of Part 3, set out on Amendment Paper 108, be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to clause 86C(1) be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to insert new paragraph (i) in clause 87(2) be agreed to.

The Hon Dr Duncan Webb’s tabled amendment to delete clause 89 is ruled out of order as being inconsistent with a previous decision of the committee.

The question is that the Hon Dr Duncan Webb’s tabled amendment to insert new subclause (3) in clause 90 be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to insert new paragraph (d) in clause 91(2) be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment inserting clause 93A be agreed to.