Insurance is vital for Australia’s community to function.  People and organisations are able to participate in social and economic activities that they otherwise would not be able to engage in by using insurance as a means to price and transfer risks associated with those activities. 

The law governing contracts of insurance has a direct influence on the effectiveness and efficiency of the insurance market.  In Australia, the primary source of laws regulating the rights and obligations of insurers, insureds and relevant third parties is the Insurance Contracts Act 1984 (the Act).

The Insurance Contracts Amendment Bill 2010 (the Bill) has been developed over a long period.  In September 2003 a Review Panel was appointed comprising Mr Alan Cameron AM and Ms Nancy Milne to embark on a comprehensive review of the Act.

The Review Panel’s final report was released in 2005.  The report noted that the Act had generally been operating satisfactorily to the benefit of insurers and insureds.  However, the Review Panel found that, given the passage of time, developments in the insurance market and judicial interpretations since its enactment, there were some changes that could be made to improve its operation.  Further consultations on the details of the amendments were recommended.

Subsequently, consultations on the details took place and the Bill as introduced reflects many refinements to the initial proposals that have been made in response to stakeholder suggestions.  In some cases, proposals initially included in the legislative package were ultimately withdrawn.  The Government appreciates the constructive and thoughtful feedback that stakeholder representatives from industry and consumer groups have provided during the consultative processes.

The Bill includes measures that will:

• remove impediments to the use of electronic communication for statutory notices and documents;
• ensure that failure to comply with the duty of utmost good faith is a breach of the Act;
• make the duty of disclosure easier for consumers to understand and comply with, especially at renewal of household/domestic insurance contracts;
• make the remedies in respect of life insurance contracts more flexible and suited to modern life insurance products;
• clarify the rights and obligations of persons named in contracts has having the benefit of cover, but who are not parties themselves; and
• clarify what types of contracts are exempt from its operation.

Although many of the changes are in the nature of technical adjustments rather than significant changes to the framework, as a package they will operate to streamline and clarify requirements while maintaining appropriate consumer protections. 

The amendments will make it easier for consumers to understand and comply with their duties, such as the duty of disclosure on renewal of a policy.  This will help to avoid misunderstandings and disputes over any claims down the track.

The amendments will give the regulator, the Australian Securities and Investments Commission, greater powers to bring and carry on actions on behalf of consumers, and to take action under the licensing provisions of the Corporations Act in relation to breaches by an insurer of the duty of utmost good faith.

Full details are contained in the Explanatory Memorandum. 

One issue that is not addressed in the Bill is the current carve-out under section 15 of the Act for insurance contracts from the operation of the unfair contracts terms provisions of certain other laws.  The Government is aware of a range of views on the preferred course of action on this question.  To provide an adequate opportunity to allow all relevant factors to be considered, I am releasing a discussion paper on the issue with proposed options for consultation with stakeholders.

In conclusion, this Bill provides for a package of improvements and efficiencies to how the Act operates, while maintaining the balance that the Act aims to strike between the interests of insurers, insureds and the wider public.  A better functioning, more efficient insurance market ultimately benefits the entire Australian community.