While insurance has largely escaped the scrutiny of the financial services royal commission to date, the government has nevertheless unveiled plans to extend unfair contract rules to the insurance sector – leaving insurers rattled.
Announcing that a proposals paper has been put up to extend the unfair contract provisions for consumers and SMEs to cover insurance policies and agreements, Kelly O’Dwyer, Minister for Revenue and Financial Services, suggested that better protections and opportunities for redress are sorely needed.
“Consumers and small businesses who enter into standard form insurance contracts should have confidence that the contract accurately reflects the cover agreed with the insurer,” she said.
“They should also have appropriate remedies when they suffer detriment as a result of terms in the contract which are unfair.”
Under the proposal, the same protections from unfair contracts and clauses would be put in place for insurance policies that exist for other financial products and services “while ensuring the laws are appropriately tailored for the specific features of insurance contracts”, Ms O’Dwyer said.
In response to My Business’ questions, the Insurance Council of Australia – the lobby group for the insurance industry – issued a statement expressing “serious concerns” about the proposal.
“While the ICA will work carefully through the proposed model with members, on an initial reading, the Government’s proposal has profound implications for insurance contracts, the scope of cover offered and the pricing of insurance,” the group’s CEO, Rob Whelan, said.
“If implemented, it would cause insurers to fundamentally review their contracts and reassess their pricing.
“The model under discussion would change the nature of the industry and the risks that insurers are prepared to underwrite. This is not consistent with the Government’s announcement that it would apply UCT protections to insurance contracts in line with other sectors of the economy.”
Mr Whelan said that previous reviews had found “no compelling evidence” that the extension of unfair contract terms protections would actually benefit consumers and SMEs.
“The ICA will respond to the Proposals Paper and will continue to work with stakeholders on seeking mutually acceptable outcomes.”
Unfair contracts has seen considerable attention in recent weeks, with family-owned potato wholesaler Mitolo Group facing action by the ACCC for allegedly unfair terms including bans on selling their own properties.
Meanwhile, the banking royal commission found that Suncorp is using unfair contracts 2.5 years after being warned to clean them up.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.