Insurance contracts could soon be subject to the same fairness standards applied to other financial documents, following a new Treasury proposal.
Treasurer Josh Frydenberg has unveiled a new proposal to extend existing unfair contract terms (UCT) regulation to include insurance contracts, which are currently exempted.
That exemption became a major talking point during 2018’s banking royal commission, with Commissioner Kenneth Hayne arguing for a change as one of his 76 recommendations.
Mr Frydenberg said including insurance contracts within the existing UCT regime would protect consumers “against unfair contract terms that:
- Would cause a significant imbalance in their rights and obligations under a contract
- Are not reasonably necessary to protect the business, and
- Would cause detriment (financial or otherwise) to a consumer.
Overdue changes but more needed
Consumer advocacy groups have broadly welcomed the news, with Financial Rights Legal Centre director of casework Alexandra Kelly saying it’s “high time to close this loophole”.
“To this day we continue to see terrible terms in insurance contracts – from reliance on out-of-date medical definitions or requiring a cancellation to be in writing and agreed by the insurer, to consumers having to pay for the costs of their insurer’s investigation – we’ve seen them all,” she said.
“We look forward to this Bill being passed and insurers cleaning up their contracts.”
Consumer Action Law Centre (CALC), which has long advocated for UCT laws to be applied to insurance, supported the decision to act but cautioned it may not be enough to protect all consumers.
“Public scandals in life insurance and general insurance, as well as the experiences of many people who Consumer Action has assisted, all point to the need for the UCT regime to cover insurance,” CALC senior policy officer Cat Newton told The New Daily.
“This is the first step in the right direction, but more reform is needed. We need unfair terms banned outright, and for civil penalties to apply, to ensure insurers take this reform seriously.”
Further, Ms Newton said the laws look unlikely to be extended to the 12 million people insured through their superannuation.
“This problem needs to be fixed in the final Bill that goes to Parliament,” she said.
Labor as yet undecided on proposal
Shadow Treasurer Jim Chalmers said Labor will “look favourably” on the legislation so long as it is in keeping with the recommendations put forward by the royal commission, but blasted the Coalition for acting only now.
“We want to see the recommendations of the banking royal commission implemented as soon as they responsibly can be,” he said.
“It’s not good enough that the Morrison government has taken six months to implement just four of the 76 recommendations of the banking royal commission.
“We are only just seeing some limited progress now because the Treasurer has been shamed into acting after dragging his feet for so long.
“It shouldn’t take pressure from Labor and the media for him to do his job and get the victims of banking misconduct the action they were promised and deserve.”
Dr Chalmers said he will examine the policy and “take it through [Labor’s] usual process” before determining the party’s position.
Despite questions from The New Daily, Dr Chalmers did not specify what actions Labor had taken as government in 2010 when the issue was first raised.