Contracts of Insurance Bill

Members, we come now to Part 5. This is the debate on clauses 123 to 164, “Contracts of life insurance”. The question is that Part 5 stand part.

Oh, goody, I’ve been looking forward to this bit. Now, obviously, contracts of life insurance are of critical importance and actually are really significant financial instruments. I was just a little bit concerned, firstly, in terms of clause 125—look, this is good. Interest rates must be paid on life insurance—pity about other insurance, but life insurance—“at the rate and calculated in the manner specified in the life policy”. OK, that’s the default rate of “at the greater of the following”. Or “(b) … calculated in the manner prescribed in the regulations.”

Now, my concern is that neither will exist. What happens when neither exist? At the moment, the regulations aren’t there and the regulation-making powers are all discretionary. My proposal is to insert, after clause 125(b), “provided that where there are no regulations under subclause (b), the interest rate under that clause is deemed to be the official cash rate plus 2 percent.”

There are interest rates that you could choose—the Judicature Act rate and so on—but we just need a placeholder, and it’s probably a placeholder that needs to be a little higher than might otherwise be the case to incentivise regulations being made, because there is a real risk that it’s just a lacuna, a gap, a void, in respect of interest rates. I’d be very interested in the Minister’s view on how we address the issue there.

I’ll go straight to a second point, because I can see the Minister’s just wrestling with that issue. The other one, and this is one that really bugs me, then, is clause 131, “Life insurer may require reasonable evidence of matters affecting validity”. That’s OK. “A life insurer may, before it registers an instrument under this Part, require any reasonable evidence that it thinks fit about any matter that might, in its opinion”—now, “insurer’s opinion” has no place in the law. And, in fact, they’re nasty little things which give an outrageous degree of discretion to insurers, because if something affects the validity of the instrument, it’s a yes/no question. Either it’s relevant or it’s not relevant. The opinion of the insurer is not an appropriate consideration. If the insurer has an entirely misplaced opinion that some document is relevant—the birth certificate, whatever it might be—they can then ask for it; that’s just putting unnecessary hurdles in the way.

There’s a tabled amendment there ready to go, so let’s just strike out “in its opinion”. That clause should never be found in the law of insurance in relation to “the opinion of insurers” anywhere. Don’t you agree, Minister?

Thank you, Mr Chair. A general question about Part 5 and then a specific question. Is there anything in Part 5, which is the life insurance provisions in this bill, that would give the Minister concern if they are in primary legislation, given that he has new powers to set regulations about the use of genetic testing in a life insurance context? Those will be secondary legislation and subordinate to the primary legislation. I ask that because Part 5 was drafted in the context of nothing being off the table in a life insurance context, but the Minister is expected to make regulations which are very likely to place a number of questions for insurers’ purposes off the table.

Then a specific question around clause 131. This is also particularly problematic given the Minister’s new powers in setting regulations. Is it his intention to formulate the regulations in some way to get around clause 131 or will he need to be back in this Chamber to amend clause 131 at the stage he’s creating the regulations? It doesn’t seem to me to be possible, unless there’s a very wide interpretation of “reasonable evidence” there, for clause 131 and new regulatory-making powers to exist if they were to limit the insurer’s ability to use genetic testing information, which is entirely the point of the regulations in the first place. Those regulations were introduced by the select committee to limit the ability of insurers to use them.

The Minister has also agreed with limitations on use of those tests. So, if an insurer was to continue to ask for evidence before registering the instrument about matters pertaining to the use of testing, then that would be allowed at the primary level but, perhaps, prohibited it at a secondary legislative level, which would create some problems for us.

Thank you. Look, just in reference to your first question, Ms Williams, I don’t have particular concerns—and I know you’ve asked that in a previous part. We’re cognisant and mindful of that, but, at this stage, I don’t have any concerns.

Just dealing with the specific questions around—well, let’s deal with clause 131, which both you and the Hon Dr Webb have raised, and the proposal is to delete the words “in its opinion”. Look, the first thing I’d say to you is that the bill carries over a longstanding provision which has operated without issue. I think that raising this as a significant issue at this point sort of goes against the grain of what’s been in place for a long time.

Secondly, I’d make the point to the Hon Dr Webb that it’s a strange argument he’s putting forward, because the provision inherently turns on life insurers’ own assessments of what evidence to request. The deletion probably wouldn’t make any practical difference at all. The existing requirement for the required evidence to be reasonable already exists as a safeguard, so there is a reasonable test around that. The bill’s approach has been well consulted on, and no other person or group has raised concern. I do note, again, that you must have had an epiphany, because your original bill didn’t have it changed.

Again, coming back to clause 125, I’d just draw your attention to the preamble to clause 125: “The interest payable under section 123 or 124 must be paid at the greater of the following: (a) [which is the life insurance policy rate] … [or] (b) interest at the rate … calculated”. There is a backstop, which is the life insurance policy rate, and that’s why it’s been done. I know the member’s been very helpful in proposing the official cash rate plus 2 percent, but that’s been plucked out of the air, I might suggest to the member, because already we’ve dealt with the issue in paragraph (a).

I just want to talk to assignments of life policies, because that is an important question. It recognises that life policies are, essentially, a kind of intangible personal property—

Hon Andrew Bayly: What clause?

Hon Dr DUNCAN WEBB: —and that the rights attached to them can be—

CHAIRPERSON (Teanau Tuiono): Which clause are you focusing on?

Hon Dr DUNCAN WEBB: Sorry—clause 126, “Assignment of life policy by way of ordinary transfer”. And just recognising that it’s, essentially, a financial instrument—intangible personal property—which is a valuable bundle of rights.

My concern with clause 126 is that it’s set out as exhaustive, whereas there may be other dealings in life policies, which, to use a kind of slightly arcane approach, are transfers at equity—for example, if money was to be lent and it was agreed that the life policy would be assigned as security; so if I don’t repay it, you can have my life policy. If that’s a promise of something that will happen in the future, it’s an incomplete transaction. It isn’t an assignment at law, it’s not by way of ordinary transfer, but there is an interest that passes, sort of by way of mortgage or perhaps by way of equitable charge.

Now, those kinds of transactions are actually quite important, and they’re part of the oil that keeps the wheels of commerce going. Those not fully formalised transfers, which are transfers at equity, need to be recognised, because, at the moment, with clause 126, which looks like it has codified how you transfer a policy, it actually leaves a gap in terms of transfers at equity. These kinds of transfers, which are a little akin to a trust in land law, you’d recognise them by way of caveat. In terms of where they sit in terms of priority, clearly a legal transfer by way of documentation, which is done without notice—honestly without notice—will gazump, will prevail over, an equitable transfer, which might be a far less formal thing. However, if there are no other competing transfers, an equitable transfer should absolutely be recognised because it’s, essentially, a slightly inchoate transfer.

My suggestion in the tabled amendment is to add new subclause (3), to clause 126, which says, “For the avoidance of doubt, nothing in this section prevents the transfer of an interest in a life policy at equity.” That’s very much a catch-all phrase just to say the common law and the law of equity still stand, and transfers of life policies or interests or part interests—whatever. I haven’t sat down yet, Mr Bayly, ha, ha, ha, ha!

CHAIRPERSON (Teanau Tuiono): I love the enthusiasm.

Hon Dr DUNCAN WEBB: But I will now. I think you have gist. I’ll be interested in your answer.

Thank you very much. I know the member is very diligent, but I suspect he’s been in Parliament too long. I say that with all due respect, because we understand from industry that equity transfers, which he was talking about, are no longer the normal practice. We did actually discuss that with industry. Transfers are done by way of—ordinary transfers no longer occur. So the concept of what he was proposing—if you were seeking to provide security by way of some form of vested interest in another interest, then that would be captured by the contractual relationship. We think that this piece of legislation captures the current thinking on how that happens in this area.

I asked my question about clause 131. I asked about the Minister’s concerns. He said he wasn’t concerned. Let me ask him whether this is good for people who suffer from genetic diseases, who expect him to take powers that restrict insurers from using their genetic testing information to prohibit them from getting insurance—whether clause 131 is good for them. They are expecting him to restrict insurers, to stop insurers, from being able to stop them from getting life insurance policies that would be discriminatory to them and a group of people.

Most jurisdictions around the world think that it is fair for legislatures like ours to make that call and say, “Actually, it’s discriminatory. These people would be facing genetic discrimination if that were the case.” I’m asking him: is it good for those people if clause 131 stated, as it’s written, that an insurer can continue to ask for evidence which is reasonable in its opinion before it registers an instrument? Even if it complies with the secondary legislation that he might introduce, they will still be able to rely on clause 131, as it is written, to continue to ask for information that they deem relevant and reasonable before they register the instrument. I’m asking whether it’s fair and good for patients.

Thank you. I have a couple of short points. The first is very short. It’s clause 132, “High Court may order registration”. That’s kind of a default provision, like the appointment of trustees and so on and so forth. But why the High Court? The High Court’s slow and expensive. Why not the District Court? Those District Court judges know what they’re doing.

This is a real formality too. It’s, essentially, saying where there is an assignment by way of transfer and the insurer hasn’t done their job, the court can simply say, “Do your job.” It’s a really good point, this clause 132. I think there’s a principle that any decision making should be undertaken at the lowest appropriate level in terms of achieving some efficiencies in the judicial system, which, frankly, is overwhelmed. So, in terms of the question there, my question is: why have we defaulted to the High Court? The High Courts have always had a common law and an inherent power as a supervisor of trusts. I understand why the later provisions around appointment of trustees say High Court, but this is a really technical and rather boring provision. I’d be very interested as to why you’ve taken that approach.

The other point—I’ll just turn to clause 141—is around surrender values of policies, and that life policies may have a surrender value. And where there is a surrender value but you haven’t kept up premiums, there is an ability to deduct premiums and interest on those premiums. Then it says, in subclause (3), “This section is subject to—(a) any rules made by the life insurer or that affect the life insurer; and (b) the terms and conditions of the life policy.” It’s all very well, but life policies are, basically, consumer policies almost all of the time. The danger is that the insurer arranges rules which are quite unfair or onerous or change the kind of default settings in this section. That’s why I have suggested that added to that clause is a statement that says, “provided that no rules or terms may leave a consumer policyholder in a worse position than they would be under the terms of this section.” That is to say, insurers can say, “Well, look, we won’t charge you interest on unpaid premiums, or we won’t deduct unpaid premiums.”, but what they can’t do is say that you have to pay double premiums or some other absolutely onerous clause. I’d be very interested in the Minister’s view on that.

I move, That debate on this question now close.

I’ll take one call and, hopefully, it might get us to point. I want to address Ms Williams’ question. She’s drawing a bow between clause 131 and the discussion we had in the previous part around genetic disorders. The provisions in this bill at clause 131 relate only to Part 5, so she’s wrong to try to confuse them and conflate them and reference them back to Part 4. It deals only with issues in Part 5, around transfers, etc.

Just on the question that the Hon Duncan Webb spoke about—with clause 141—he made a comment implying insurers might be putting a whole lot of difficult terms and conditions. Again, as I’ve said, one of the three guiding principles of this bill is to make sure that insurers are not putting in terms and conditions that policyholders cannot understand or that are hidden in the terms and conditions. That’s why it is a requirement on them to present their policies in a way that can be easily understood. That guiding principle will address much of what he is concerned with.

With regard to the specifics around clause 141—this is subclause (3) that he referred to—we specifically consulted on surrender value provisions at the select committee stage. I know the member wasn’t a member of the Finance and Expenditure Committee, but the feedback the select committee heard on that was that there was no change required to this longstanding provision. In practice, insurers no longer issue these policies; they’re legacy policies only. Again, I think he’s obviously had an epiphany because, whilst this is a new change, it wasn’t in his original bill that he proposed.

Thank you, Mr Chair. I’m confused. Is the Minister saying that nothing in Part 5 “Contracts of life insurance” applies to those—

Hon Andrew Bayly: In Part 5.

ARENA WILLIAMS: Yes—nothing in Part 5, the provisions that relate to contracts for life insurance, applies to contracts of life insurance that will be affected by the new provisions given effect in Subpart 4A of Part 3, so any life insurance policies which are affected by genetic testing would somehow be exempted from contracts of life insurance? I ask this question directly relating to his answer where he said that clause 131 is not affected by the new provisions, which he’s expected to enact within two years of the passing of this bill, to do with genetic question. Look, if so, can he just make that clear for—

Hon Andrew Bayly: I did.

ARENA WILLIAMS: Right. The Minister says, “I did.” It’s now on record that people who are sufferers of genetic conditions, who may be affected by the genetic provision tests, will not be subject to the provisions in Part 5 in total. I guess they can expect that the secondary legislation enacted by the Minister will exempt them from Part 5.

Look, I’m going to deal with this question once and for all. I made my point clear before. I repeat it: clause 131 is about instruments regarding the transfer of life insurance policies. “Instruments”, that is the differentiation. I would suggest to the member that she is confusing the issue in Part 4. This is about the transfer of instruments.

I move, That debate on this question now close.

The question is that the Hon Dr Duncan Webb’s tabled amendment to clause 125 be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment inserting new clause 125A be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment inserting new subclause (3) in clause 126 be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to clause 131 be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to clause 132 be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to clause 135 be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to clause 141(1) be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to clause 146 be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to clause 141(3) be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment to clause 149 be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment inserting new paragraph (e) in clause 150 be agreed to.

The question is that the Hon Dr Duncan Webb’s tabled amendment inserting new paragraph (f) in clause 150 be agreed to.