19/04/2024·2 mins to read

Members’ ballot brings Insurance Contracts Bill back into focus

In February 2022, the Ministry of Business, Innovation and Employment (MBIE) released an exposure draft of an Insurance Contracts Bill for public consultation (see our previous comments here).  

That draft suggested several changes to simplify insurance policies, reduce unfair policy terms and make the disclosure of information to insurers fairer for policyholders. However, MBIE’s draft never reached parliament.  

On 21 March 2024, Hon Dr Duncan Webb's Insurance Contracts Bill was drawn from the members’ bill ballot. The Bill is currently awaiting its first reading in parliament.

The Bill largely reproduces MBIE’s exposure draft, with some small tweaks. The Bill expands on the exposure draft by:

  1. introducing a new provision dealing with interest on claims. Under the Bill, interest (calculated the same way as under the Interest on Money Claims Act 2016) must be paid by the insurer for any unpaid amount under an insurance contract. However, the obligation to pay interest only starts “on the day on which it becomes unreasonable for the insurer to withhold payment”. The Bill defines this as 12 months after the claim was made, unless it is reasonable for the insurer to withhold payment until a later time.
  2. focussing on consumer protection - the Bill explicitly lists “protect[ing] the interests of consumers under insurance contracts” as a purpose of the Bill;
  3. clarifying that the duty of utmost good faith requires insurers to accept/reject, assess and settle claims within a reasonable time. This codifies existing common law duties and was also included in the MBIE exposure draft. Other than the new reasonable time requirement, no specific aspects of the duty are listed;
  4. clarifying that policyholders do not make a misrepresentation where the insurer was not misled nor where the misrepresentation did not affect the underwriting decision of the insurer. In practice, this is likely to mean there is less opportunity for insurers to decline cover unless they can show that they would not have offered cover or would have offered it on different terms if the representation had not been made; and
  5. clarifying that policyholders do not have to disclose any circumstances that they reasonably do not know are material to the insurer. This will put the onus on insurers to make clear what is material and to seek specific information from policyholders.

While many of these changes are welcome improvements, there are some possible unintended consequences. For detail on the potential risks and benefits of the Bill, see our discussion of MBIE’s exposure draft here

Get in touch

We look forward to providing further updates on the Bill as it progresses through parliament. In the meantime, if you have any questions about the Bill or its potential impact on your business, please get in touch with one of our experts.

Special thanks to Nick France for his assistance in writing this article.


Related Articles