Only certain elements of the new duty of disclosure requirements, incorporated in the recent Insurance Contracts Amendment Bill 2013, will apply to life insurance.
The Senate recently passed the Bill, which amends the Insurance Contracts Act (ICA), introducing a range of measures to streamline its operation and clarify judicial interpretation.
Riskinfo previously reported that Section 21A and 21B applied to life insurance contracts. However, only ‘eligible contracts of insurance’ as defined in the ICA regulations will be subject to changes to the duty of disclosure requirements upon the renewal of a contract. ‘Eligible contracts of insurance’ are considered, in the main, to be general insurance products.
The key changes impacting the life insurance industry are to sections 21, 22 and 31A of the Insurance Contracts Act:
- Section 21 clarifies how the duty of disclosure test is applied, expanding the objective element of the test. The two factors to which the court may now have regard are:
– The nature and extent of the insurance cover to be provided under the relevant contract of insurance; and
– The class of persons who would ordinarily be expected to apply for cover of that type
- Section 22 requires the life insurer to tell the insured the effect of section 21 and 31A before the contract is entered into and before it is varied. This includes a requirement on the insurer to remind the insured that their duty applies from the time the application is submitted until the contract is entered into. This will protect insurers from non-disclosure issues which may occur while the client is undergoing underwriting.
- The bill includes a further requirement that insurers must give a potential life insured, who is not the insured under the relevant contract of insurance, notice of their duty of disclosure
- It also clarifies when the duty of disclosure applies to a member of a superannuation or other group scheme and when the life insurance cover takes effect
Riskinfo thanks Charmian Holmes, Solicitor Director of The Fold for providing additional legal commentary in relation to this story.
