Cats stall progress on insurance law

NZILA President’s message – Kavita Deobhakta

As the Australasian industry is aware, New Zealand has faced two significant insurance events this year, with the Auckland Anniversary Day January 2023 floods and Cyclone Gabrielle devastating the Hawke’s Bay in February 2023.

Our thoughts go out to those affected by these significant events, those who are working tirelessly to adjust and settle claims and to advisers assisting their clients though the claims process.

The Insurance Council of New Zealand Te Kāhui Inihua o Aotearoa has released provisional general insurance claims data for Cyclone Gabrielle which records more than 40,000 claims to a value of about $890 million. To date about $70 million of claims has been paid.

The implications of the events and the volume of claims will continue to affect the New Zealand industry, and the motu as a whole, for years to come. The significant weather events continue to be of concern going forward.

As these events become more frequent and of increasing intensity, the ability of New Zealand’s infrastructure to deal with such events has been brought squarely into focus. 

With that in mind, it is of little surprise that statutory reform of insurance law has taken a back seat. 

Briefly, by way of background, the Insurance Contracts Bill aims to facilitate insurance markets that work well by shifting jurisdiction to the Financial Markets Authority (FMA). This includes new jurisdiction for:

• unfair contract terms in contracts for financial products and financial advice services, including insurance, and
• overseeing and enforcing a new codified duty of utmost good faith on insurers. 

The proposed reform of insurance contract law was approved by the New Zealand Government Te Kawanatanga o Aotearoa in November 2019. The goal is to strengthen consumer protection against unfair terms in insurance contracts by:

• Making insurers responsible for ensuring consumers clearly understand the insurance policies they enter into and what their obligations are under those agreements
• Ensuring insurers respond proportionately in the event of non-disclosure by the consumer, and
• Extending powers to FMA to monitor and enforce compliance with new requirements.

The Bill will apply to a “contract of insurance” as defined in the Insurance (Prudential Supervision) Act 2010 so it will have broad reach over the insurance industry, affecting both general and life insurance providers and reinsurers, and providing greater protections for policyholders. Insurers that enter into consumer insurance contracts will have additional disclosure obligations.

Some four years later, drafting of the Bill is still in progress. Submissions on the draft Bill closed in May 2022 and are still under review. Unfortunately, there is no timeframe for when the draft Bill is anticipated to be completed and introduced to Parliament to be passed as legislation.

However, the last step will include a select committee process that will provide a further opportunity for public feedback before the Bill is enacted.

In its 24 February 2022 consultation paper, the Ministry of Business, Innovation and Employment welcomed public feedback out of concerns that some proposed provisions may not adequately account for various situations involved in insurance practice. Key issues sought by submissions include whether the Bill is workable in practice and if it achieves its policy intent.

Clearly, the legislative process continues to work at a slow pace but, on the positive side, the timeframe has enabled various sectors of the industry to put forward submissions. I am aware in particular of some useful submissions being put forward to provoke consideration of the implications of the Bill.   

With cyclones and floods at the forefront of our minds, the process continues to be watched closely by those of us advising the industry.