The Minister of Commerce and Consumer Affairs says he’s not looking to “bag” the insurance industry with his new Contracts of Insurance Bill that passed its first reading in Parliament last week.
At the Bill’s first reading, Bayly said the Contracts of Insurance Bill would modernise insurance law, making it easier for people to get insurance and claim on it as well.
“The existing legislation is complicated and dated. Some of it is over 100 years old. It's difficult for consumers to know their obligations, and the system can operate harshly,” he said in his speech.
Bayly told interest.co.nz that he's unsure why the previous Labour government sat on insurance law reform for so long.
“The insurance industry is so important to New Zealanders, both at a personal level but also from a business perspective,” he said.
Work around blowing off the cobwebs of the original Insurance Contracts Bill did kick off during the previous Labour-led government's term, which in November 2019 committed to updating insurance laws for better market function and risk protection.
It wasn’t until 2022 that the Ministry of Business, Innovation & Employment (MBIE) published an exposure draft of its Insurance Contracts Bill for public consultation.
Multiple insurance bodies submitted on that Bill, including insurers, brokers and the general insurers' lobby group, the Insurance Council of New Zealand (ICNZ).
Kris Faafoi was Commerce and Consumers Affairs Minister during this period of Bill consultation and in a turn of events, Faafoi – who left politics in 2022 – started as the new ICNZ chief executive in April of this year.
“When I became minister, it became pretty apparent that whilst a lot of good work had been done and had been involved in numerous sorts of consultations, there was still a number of elements that [were of] significant concern to the industry that potentially would lead to higher, higher than necessary, insurance costs for people,” Bayly said.
He told the insurance industry to put their “best foot forward” and communicate with him what they wanted out of insurance law reform and he would listen and go through it before making a decision.
Some insurance bodies did reach out and others didn’t, he said.
Liability
Bayly has three focus points when it comes to consumers for the new Contracts of Insurance Bill – make it easier for consumers to get insurance, for consumers to better understand what they’ve signed up for, and for consumers to get paid out quickly.
“But from the other side, from the insurance industry, I want to give them confidence and certainty about what their obligations were, and also I didn't want to introduce new terms and things like that that previous governments had contemplated doing,” he said.
What did the insurance industry put on the table? Bayly said the communications were “technical in nature” but one example was that the industry wanted an “objective definition of consumer insurance contract”.
The previous government’s draft Insurance Contracts Bill had a “subjective definition”, Bayly said, and he wanted to be clear about the definition of the consumer insurance contract.
“I thought that was appropriate when it came to liability.”
Bayly said he didn’t necessarily want to talk about the previous government’s work around insurance law reform.
But he added that the Labour government’s Bill meant “insurance companies were going to have to basically write out a cheque, even though some [people] may have been misrepresenting the situation to them”.
“What we've ended up with is a staged approach, he said. “If the breach is deliberate or reckless, then the insurance company can say, 'no I’m not paying you out'.”
“If the breach was careless and if the insurer had known about that careless breach and they wouldn't have offered the insurance policy, then the insurer may not pay out, but they still have to return the premium," Bayly said.
He described it as a classic balance between requiring the applicant to do a “diligent job” when filling out their insurance applications but if the information was “unrelated or not significant” insurers would still have to pay people out.
“The disclosure rules are that you have to be diligent, but your insurance company can't use the technicality not to pay you. That’s what we're trying to strike a balance between,” Bayly said.
“I don't want this to be portrayed as anti-insurance companies because many of them are very good. But under these arrangements, we've tightened it up. We want to protect it for the applicant.”
Later in the interview, he added: “I don't think we should all be sitting here bagging the insurance industry.”
Bayly said he intends to have the Bill reported to the House by the 3rd of September this year.
Consumer NZ’s head of investigations Rebecca Styles said on Thursday that the reforms in Bayly’s Bill looked “positive” for consumers.
However the consumer watchdog didn’t think all the insurance law reform needed was included in the Bill and Consumer would be making a submission.
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