Contracts of Insurance Bill

I present a legislative statement on the Contracts of Insurance Bill.

ASSISTANT SPEAKER (Greg O’Connor): That legislative statement is published under the authority of the House and can be found on the Parliament website.

Hon ANDREW BAYLY: I move, That the Contracts of Insurance Bill be now read a second time.

In starting this review of the second reading, I would first of all like to thank the members of the Finance and Expenditure Committee for their collaborative efforts, and particularly acknowledge the chair, Mr Stuart Smith, for his input and oversight through this process. The committee has reported the bill back to the House recommending amendments which I support and will speak to shortly. I’d also like to thank all submitters who took the time to provide comments to the committee. Most of these submissions supported the bill. Collectively, submitters are behind making long overdue improvements to the current arrangements, which no longer adequately serve consumers, and hamper industry performance.

The Contracts of Insurance Bill would modernise and improve existing legislation which is fragmented across six Acts and is, in some cases, over 100 years old. The bill addresses continuing and longstanding concerns of consumer and industry groups about weaknesses of the current law. For consumers, the law is complex and difficult to understand and can operate harshly—for example, consumers having their cover refused where they do not realise what is relevant or needed for insurers to know. Reading and comparing policies is often challenging for consumers, since policies are typically long and complex.

Insurers and brokers have fed back that the law is no longer fit for purpose. This can cause perverse outcomes and may create challenges for insurers to accurately quantify risk. There is potential for prices and access to insurance to be affected if insurers cannot value the risks that they are covering.

The bill makes significant reforms to duties for disclosing information to insurers. Consumers are required to take reasonable care not to make a misrepresentation, in replacement for existing rules which require consumers to disclose any and all information that a prudent insurer may wish to know. Consumers and businesses will be required to make fair representation of risk to the insurer, which often is more complex for insurers to assess than for consumer contracts. The bill includes proportionate remedies for the insurer where disclosure duties are breached that vary depending on whether the breach was intentional or accidental and the difference that accurate information would have made to the insurer.

Unlike many other jurisdictions, New Zealand has no specific legal requirements in relation to the presentation of insurance policies. The bill will require insurance policies to be written and presented clearly, making it easier for consumers to understand and compare policies and make informed decisions about their cover. The bill also introduces a new requirement for insurers to pay claims in a reasonable time. The bill has also made a variety of changes of a more technical nature to streamline and improve the operation of the law and to provide certainty to insurers.

Key changes: the first one is regulating the use of genetic testing information in insurance. The committee considered a new policy issue that was raised by the health sector and consumer submissions on the use of genetic testing information by insurers. Genetic testing has been used more frequently and has real health benefits. It can allow for early identification of health risks, which can enable people to get more preventative steps to improve their health, but genetic testing can also be used to diagnose conditions and target more accurate and precise forms of treatment, improving outcomes.

The committee heard that some people are refusing or delaying a genetic test against medical advice because of insurance concerns. Similar concerns have been raised in other countries. Canada, by way of example, has stopped insurers from seeing genetic testing information, and earlier this month Australia announced it will ban life insurers from using genetic testing. By majority, the committee has recommended a new regulation-making power to prohibit or regulate the conduct of insurers in connection with genetic testing. I support this change. I think it’s the right approach for New Zealand and it stops it from being left behind by other countries.

Time frame for client claims is another area that the select committee addressed. By majority, it has recommended a change to clarify that the requirement to settle claims in a reasonable time frame includes the time taken to gather information as well as the time to investigate and assess claims. Some parties are opposed to this. They consider that the changes walk back the requirement on insurers. I agree with the majority view of members and support the change. The other issue is the consumer standard of reasonable care. The committee, again by majority, has recommended a change to the consumer standard of reasonable care for disclosures. The Green Party and the Labour Party are opposed. They consider that the changes make the requirements unclear. I agree with the majority view and support the changes.

There are a number of other technical changes, but I’d like to thank the committee, that has made a positive difference with its recommendations, particularly to address the use of genetic testing information where it has clearly balanced the views of industry, consumers, and health groups. I commend the bill to the House.

The question is that the motion be agreed to.

Thank you, Mr Speaker. This will be a reasonably technical call, and you’ll forgive me if I read some of my contribution, because it is in response to the legislative statement given by the Minister the Hon Andrew Bayly. In this speech, I will set out the Labour Party’s position on a number of technical changes to the Contracts of Insurance Bill, which will, really, be a point for further debate and clarification at the committee stage. There are two changes that the Minister has just referred to as becoming, in our view, less clear after the committee process, and it’s those which will need further explanation in the House’s records about what the intention of Parliament is when setting this legislation.

This is the first time that New Zealand has had a consolidated legislative answer for our insurance law. This is the first time we will have all of our insurance law being codified in this way, and this is a real step forward. That is why the Labour Party is supporting the bill at this reading, because we want to see the introduction of a piece of legislation which clarifies and codifies not only the rights of consumers but also the obligations of insurers, and particularly their duties to one another in good faith when entering into this kind of insurance contract, which requires the utmost good faith. It is a special kind of consumer contract which requires both parties to treat each other in a way that is respectful and honest, and that is at the heart of this legislation. We want it to be clear and fair, and a number of the changes that happened in the Finance and Expenditure Committee made it less clear, especially for consumers.

The key to good law in this area is that policyholders who make honest mistake should not find themselves without cover as a result, and this law should also introduce penalties for insurers who fail to act in good faith, such as not completing a claim in a timely manner. Those were the two principles which really began this work under the Hon Kris Faafoi, Dr the Hon David Clark, and Dr the Hon Duncan Webb, who all brought to this work personal experience as politicians and practitioners of the law in addressing claims in instances like Christchurch and insurance claims for the Earthquake Commission, where undue delay caused a huge amount of stress for consumers of insurance products and led to region-wide economic trouble. This law should be able to deal with that in a way which recognises the rights of consumers well, and there is a concern that remains within the changes that the committee has made that make this less clear, and especially in a time of a disaster or in a major event, where consumers around the table are suffering from the need for their insurance providers to pay them out in a timely way. We may need to revisit this as a House.

I want to make the point that, throughout the bill, the key consumer protections here have been reversed in favour of insurers, and we generally do not support those changes but could live with this bill as a package of change overall, because it does advance the position of consumers even still, but there are two points—and those were the two points that the Minister outlined—which we think go too far in favour of insurers: one is the point of undue delay, and one is the point of consumer care changes in the duty of disclosure requiring dishonesty or fraud.

The first one: where policyholders who make a mistake with their disclosures should not be denied cover. It would not be fair to insurance issuers if the policyholders were acting fraudulently or obtaining insurance by deception, but the bill as introduced included those kinds of protections. As amended by the select committee, the bill has become less clear because it has done away with “fraud” and uses “dishonesty” instead. The problem here is that—and I don’t want to labour this point, because it will be a contentious issue for litigation in the future—deliberate attempts to get into an insurance contract for your own personal gain would be fraud, and that is what the bill should prevent. A dishonest disclosure in an insurance contract opens up a huge amount of litigation risk for anyone entering into these contracts, because a dishonest disclosure could, really, be anything where there is not personal gain.

The worry for people who came before the committee was in something like a health insurance contract or a life insurance contract. My failure as a sufferer of asthma to not disclose my pre-existing condition of asthma might lead to a lack of cover in future for something that was completely unrelated to that, and did not result in my personal gain in any stretch. The idea that an all-inclusive insurance contract will be somehow not upheld because a consumer had failed or had made a mistake in one of their disclosures, that amounted to dishonesty but didn’t actually result in any gain for them, seems unfair and is a real step backwards for the consumers who this bill is designed to protect.

The second one is that insurers should complete claims in a timely manner, and the time to complete a claim should not be delayed by a prolonged period of discovery or obtaining information before an assessment can be made. The Minister’s changes in this bill as it was introduced walked them back from that bill that the Ministers in the Labour Government had worked on.

We could have still accepted those, but, as amended by the select committee, that further walks back requirements on insurers to settle claims quickly, and that is something which is a huge shame for consumers and should be revisited if, in the future, there are events which result in insurers not paying out in a timely way, because often these things occur when multiple claims are claimed for a similar event at the same time—even though this creates a huge burden on insurers and is a real worry for insurers because this bill would create timing requirements for them, and that is very difficult in a situation like the Auckland floods or the Christchurch earthquake. It is also very, very difficult for those consumers, and it creates a region-wide economic issue when you have huge numbers of people at the same time not being paid out for their insurance in a timely way.

The issue of timely completion of claims is important to consumers, and the committee heard about that. They will be rightly disappointed that this bill resiles from the consumer protections proposed by the former Minister of Commerce and Consumer Affairs the Hon Dr Duncan Webb. The bill should provide for a clear duty on an insurer to accept or reject, assess, and settle a claim within a reasonable time, and the select committee’s changes have made this less clear despite the courts having already recognised similar duties.

I’ll turn now to two other matters which the committee spent some time on. The first was unit titles. We heard from submitters that there was an issue with the Unit Titles Act not allowing bodies corporate to choose the level of insurance cover they could take out, rather than being required to insure the building to a full interval value. That is something that this bill should, in my view, have been able to cover. It was something that there was cross-partisan support for exploration of in this bill, and it is a shame that we were not able to have that included in this bill. It is an item for further work that all members of the committee encourage the Government to take up.

The last is that Labour supports the approach taken in this bill to genetic testing. It is something that is useful for our legislation to include. However, at the committee of the whole House stage, we should spend time scrutinising the legislative arrangements for that, because it is, basically, being done in secondary legislation, and that was in recognition of the fact that it was introduced at the select committee stage and there was not time for the committee to design a regime in the primary legislation. It is incumbent on the Minister to exercise those powers given to the Minister to create that secondary legislation in a way which serves all New Zealanders, knowing that the committee was unable to do that in primary legislation, and knowing that the House will not have another opportunity to scrutinise whatever rules come out of that.

We support legislation which consolidates insurance law in New Zealand. But at the committee stage, I have two amendments. One is to the dishonesty and fraud provision that I’ve spoken about. One is to timing. I hope that the Minister will give due consideration to both of those issues, because the changes at select committee have substantially weakened the bill and may require us to come back here to consider it again.

I can bring some joy and perhaps even some extra sleep to the House by indicating that the Government have indicated that they do not wish to continue with urgency. This bill will be adjourned until the next sitting day. The House is suspended until 2 p.m. tomorrow. Goodnight.

Debate interrupted.

The House adjourned at 10.05 p.m. (Wednesday)