Consumer Action, the Insurance Law Service and Legal Aid New South Wales are broadly very supportive of the Exposure Draft Insurance Contracts Amendment (Unfair Terms) Bill 2013.
Unfair contract terms protections currently apply to every other contract an Australian consumer is ever likely to enter and it has always been our view that these protections should apply equally to insurance contracts.
The draft Bill is informed by a proposal set out in a Media Release from the Assistant Treasurer, the Hon David Bradbury from December 2012 (the December 2012 proposal). That proposal in turn came out of extensive consultation by Treasury, the Assistant Treasurer and his office with insurers and consumer advocates. This proposal—in particular the decision to insert new elements in the Insurance Contracts Act rather than simply extend the existing ASIC Act provisions to insurance—was not the preferred option for consumer advocates. However, the result is in our view workable and a considerable improvement on the current situation. More importantly it is a result achieved through genuine negotiation between both sides of the debate which deserves to be enacted.
That being the case, this submission does not make any recommendations to amend the draft Bill in a way that is contrary to the scheme outlined in the December 2012 proposal. Our suggestions below are intended to ensure that the draft Bill and explanatory memorandum put that proposal into law.
Briefly, this submission:
- recommends that the amendments to the Insurance Contracts Act be restructured so that the central unfair terms provisions are inserted into, or immediately follow, section 14;
- recommends that proposed paragraph 15A(1)(b) be amended to create an obligation on insurers to conform to the expected standard of fairness prior to a Court-sanctioned order being made. This amendment is required to make the unfair terms law operate as it is intended in relation to insurance, but reflects the December 2012 proposal in that it still avoids the risk of market uncertainty raised by insurers;
- recommends that text should be inserted in the Explanatory Memorandum to explain the purpose for the main subject matter exemption;
- recommends that amendments to the draft Bill and the explanatory memorandum should be made regarding proposed subsection 15B(5) to be clear a contract term which reflects underwriting risk is not protected from challenge as an unfair term if it reflects underwriting risk in a way which is unreasonable;
- raises serious concerns that ASIC is not capable of using its investigation and enforcement powers in relation to a suspected unfair contract term until a declaration of unfairness is made (either under the ASIC Act currently or under the proposed amendments to the Insurance Contracts Act). It is not clear whether the relevant sections of the draft Bill will effectively apply the ASIC Act standard of enforcement to this Act. In either case changes should be made to ensure ASIC has investigation powers prior to a declaration of unfairness;
- notes that the draft Bill appears to remove two (relatively minor) ASIC powers without clear reason. These powers should be reinstated or the reason for the removal made clear;
- recommends that the Explanatory Memorandum explicitly note that the unfair terms law is open to be applied by industry external dispute resolution schemes; and
- recommends that, as soon as the Insurance Contracts (Unfair Terms) Bill 2013 receives royal assent, Government should begin consulting on how unfair terms protections should also be extended to consumer life insurance contracts.
To read our full submission click: Exposure Draft Insurance Contracts Amendment (Unfair Terms) Bill 2013.