Contracts of Insurance Bill

Members, we now come to Part 7. This is the debate on clauses 169 to 193, “Repeals and amendments to other Acts”; and Schedules 4 to 6. The question is that Part 7 stand part.

I’m very happy to have an opportunity to speak on this part but very unhappy about what is in this part. In particular, the insurance industry has got a free ride on unfair contracts to date. This was our opportunity to pull that industry into line and bring them into the Fair Trading Act unfair contract terms regime. Now, I don’t know how they do it, but, once again, they’ve managed to persuade the Minister to let them off the hook, because if you look at clause 176, which inserts new section 46KA into the Fair Trading Act, it—in a kind of limp-wristed, half-hearted way—brings the insurance industry into the unfair contracts regime.

That regime, just for those who aren’t aware of it, is a regime where if there is a clause in a standard form contract which is seen as unfair and onerous in a consumer contract, then it can be referred to the Commerce Commission, who can declare it as unfair and, essentially, strike it out. It’s not heavily used, but there’s nevertheless a discipline that sits out there—particularly for large corporates like banks, insurance companies, and so on—except insurers have been not, effectively, caught by it so far. Here we have a clause which is purporting to bring them into it, except it carves out a whole lot of aspects of an insurance contract which don’t go into the regime, and, Minister, I think you should think very carefully about this.

Now, some of them you can kind of understand. The price, or, basically, the premiums—so, in banking contracts, you can’t complain about your interest rate, because that’s, basically, the guts of the contract. It’s the very nature of the contract. Similarly, in an insurance contract, the premiums are the premiums. You either accept them or you don’t, but you can’t really complain that they’re unfair and get that struck out as some kind of unfair clause. But the one that’s deeply offensive is exclusion clauses. In new section 46KA and the new subsection (2)(e), it says that “For the purposes of [this clause], a term of insurance defines the main subject matter of the contract” and, therefore, can’t be subject to the regime if it “excludes or limits the liability of the insurer to indemnify the policyholder on the happening of certain events or on the existence of certain circumstances.”

Let’s just understand what it means. It means an insurer is allowed an unfair exclusion clause. If they had an exclusion clause that says, “You’re not insured if you’re driving a red car.”—totally irrational and unfair—you couldn’t say that it’s unfair, so it becomes really problematic. Now, there are exclusion clauses, and some of them are reasonable, but they shouldn’t worry about that. If it’s like “OK, if you’re not a licensed driver, you’re not insured.”, that’s fine—that makes perfect sense. Or even some of the ones that push it a bit further: “If you’re driving a car on something which isn’t a legal road”—so you’re off-roading—“you’re not insured.”, that’s fine. They make sense; they’re reasonable exclusion clauses. But exclusion clauses which are actually unfair things, which are irrational, and which don’t make sense in the context of insurance can’t be complained about.

You can complain about your bank, you can complain about your electricity company, and you can complain about all of these terms of a contract in every other sphere of commerce and business, but somehow there’s a wee free pass—another free pass—for the insurance industry, and this is a change. Minister, I’d like to hear you speak to this and say, “When I got this bill in its draft form, I listened to”—who?—“and decided to change it.”, and why, because this is not the draft that I saw. Certainly, in terms of unfair contract terms, insurers need to be brought into the regime, because as a matter of practice, insurers do rely on exclusion clauses and they need to be held to account. I think this is the most invidious clause in this entire bill, and I’d be interested in the Minister’s view.

Well, first of all, I reject the assertion that they’re getting an easy ride. I think the former Minister got lost in this issue. I think it’s fair to say that the member has had an exposure to the industry and he has come to a predetermined view about the reputation of insurance companies and whether they act in the best interests of their consumers, or policyholders, or not. I think that the previous drafting reflected his personal view about insurance companies, which was, basically, a very negative view about that industry.

When I saw this clause, I had quite significant conversations with the insurance sector and asked them to give me good reasons why they would want this part of the bill changed. I listened to those arguments, and I also had officials arguing on the other side, and I’ll tell you what: first of all, I think the former Minister got lost because he lost the big picture. If we were to continue with the provision that that Minister had in the original bill, that ultimately would have meant that every New Zealander would have ended up paying a higher policy premium, and, personally, I thought that was a bad thing.

Hon Dr Duncan Webb: That old shibboleth!

Hon ANDREW BAYLY: And here we are, we’ve got a member from the Labour Party saying that they’re standing for ordinary New Zealanders. Ideally, if he’d slavishly followed his personal objective around this, this would have meant that “ordinary New Zealanders”—to use those words; quote, unquote—would have ended up paying more in their premiums than they ought. That was the first point.

The second point is that I don’t think the member actually considered what the unintended consequences of what he had proposed in his former drafting were. The issue in New Zealand is that we have what’s called an all-risk approach to insurance, which means that when you do take on a policy, in the main, it covers all risks. If we were to adopt the approach that the previous Minister had proposed, it would have pushed us towards the Australian model of being a defined-perils policy. That would have been even worse for New Zealanders, because then we would have had—in the example of, let’s say, a house event—to try to define what would happen and what type of cover you would have in the event of a peril, and requiring the obligation for every policyholder—all “ordinary New Zealanders”—to be able to clearly define what the peril was that they wanted insurance for.

Of course, if they inadvertently missed one out, then they wouldn’t be covered by the type of policies that are currently available in New Zealand. So that’s the second point. That would have been an absolute adverse implication for the New Zealand insurance industry and also—more importantly—for policyholders in New Zealand. I think there is recognition that these contracts are different from banking contracts and the other ones that he referred to. Insurance policies are quite specific and different, and they need to be.

The final point was that he talked about the Fair Trading Act. Actually, insurers will be captured under the conduct of financial institutions regime, which comes into force on 31 March 2025—i.e., in a few months’ time. Therefore, they are subject to making sure they are operating in the best interest of their consumers, and I’ve been very explicit to all industry players that that is one of their primary objectives. It is wrong to assume that they won’t be subject to oversight; they will be. Ultimately, the proposal that the member put forward would have been bad for New Zealanders, and that’s why it’s been changed.

This is an outrageous position for us to be in, in a committee stage, where we have a Minister in the chair alleging that another member has a personal view which has coloured the way that he has engaged with this legislation, when that Minister will not answer repeated questions from me about which submitters asked for certain changes—when I know that there was only one stakeholder, in some cases, who asked for a certain change—and whether that is an appropriate legislative process for this House to conduct.

Whether it is appropriate, Minister, I ask you very specifically this time: is it appropriate for the Insurance Council of New Zealand to be the only submitter to ask for a change, and for officials under your watch to make exactly the change they have asked for, to the detriment of consumers, and for you then—for the Minister, then—to claim to the media and to this House that he has initiated a legislative reform package which is good for consumers? We know that over and over and over again, in this piece of legislation has gone from a Labour piece of work which tried to balance the interests of consumers and insurers to a piece of legislation which went to Cabinet and was approved and removed many of those protections for consumers but was something that was still a reasonably balanced package of legal reform that was still very much needed, and then to the Finance and Expenditure Committee, where one or two—only one or two—submitters asked for a certain change in certain areas and were then given that change, and then it was introduced into this House.

Is that an appropriate way for legislation to be then signed off in this House? These are the questions. This is why we are asking these questions over and over again, and we have not got an answer to that. Then for the Minister to give a speech that alleges that a member in this committee has a personal, biased view of certain stakeholders is absolutely outrageous. We are owed an answer to the questions about who is asking for these changes, whether they are widely supported, and whether they are still in the interests of consumers, like it is being claimed here and like it is being presented? Inevitably what will be said by the Minister in the third reading is that this is a piece of law which benefits consumers and fairly benefits them in regards to their interests being balanced with those of the insurers, who have much more power in these situations than they do.

My question is about the changes here: which ones were changes which were in response to one or two stakeholders, and which ones were supported more widely? I’m also going to ask him about the prioritisation: which ones were the priority of the insurance industry and which ones were only supported by a few but were seen by him as changes which were worthy of making?

Look, the member may feign enragement about the whole thing, but these changes were included in the draft bill that went before the Finance and Expenditure Committee. There has been no surprise about it; there’s been absolutely no surprise. It’s been through a long select committee process, and, interestingly, the member should be aware—I hope she’s aware—there were actually a lot of submitters on this point, on this issue that has been raised here, and, in general, there were very few opposed. Most of them were strongly in favour of this bill and the proposal around this specific issue.

This is what a parliamentary process is: they go through a select committee process, they have a good hearing, and they have people come submit on it. We’re obviously doing a committee of the whole House today. To be outraged about it and to try and say that some sort of blind-siding event has occurred is wrong. It’s been through a full select committee process.

Progress to be reported.

House resumed.

Madam Speaker, the committee has further considered the Contracts of Insurance Bill and reports that it has made progress on the bill. I move, That the report be adopted.

Motion agreed to.

Report adopted.

The House will adjourn until 2 p.m. this afternoon.

The House adjourned at 12.57 p.m.