Tony Smith (Casey, Liberal Party, Deputy Chairman , Coalition Policy Development Committee) Share this | Hansard source

It is my pleasure to speak on the Insurance Contracts Amendment Bill 2013 on behalf the shadow Treasurer and member for North Sydney. The coalition is supporting this bill, which seeks to implement recommendations made by the coalition government's 2004 review into the Insurance Contracts Act 1984. The bill had its origins in recommendations made to the Howard government review of 2003-04 of the Insurance Contracts Act. The review panel's main conclusion was that the act was generally working satisfactorily to the benefit of insurers and the insured; however, the review panel found that some changes would be beneficial given the passage of time since the 1984 act, and given developments in the insurance market over time.

The changes foreshadowed by the review were put in an exposure draft bill by the Howard government in February 2007. With the change of government at the end of that year, the matter lay dormant until 2010, when the Labor government introduced the Insurance Contracts Amendment Bill of that year. The 2010 bill had the support of the coalition; however, it lapsed with the calling of the 2010 election, and it has now been reintroduced with minor changes. As I said at the outset, the coalition will again be supporting this bill; however, as the reforms in their current form may not have been examined in detail to determine whether they may add to the cost of living of consumers, reduce specific forms of cover or introduce greater complexity in the form and content of future policies, the bill should be referred to committee. The coalition has sought to do this in the Senate.

The bill has seven schedules and I will briefly go through each of them. The first schedule amends the 1984 act to ensure that a failure to comply with the duty of good faith within an insurance contract is a breach of the 1984 act. The duty of good faith is extended to third-party beneficiaries, but the duty only commences after the contract is entered into.

The bill also gives ASIC the power to commence or continue representative action on behalf of the insured where the party has suffered damage or where there has been a breach of the act. ASIC will be able to access the various remedies under the Corporations Act in relation to Australian financial service licence holders.

Bundled insurance contracts, bundled contracts that include insurance cover for compulsory workers compensation purposes and liability to employees at common law arising from employment related personal injury will be made exempt from the Insurance Contracts Act 1984. However, bundled contracts are to be unbundled where a contract of insurance includes elements of cover that are exempt from the 1984 act as well as elements of cover that are not exempt. Once unbundled, only the elements of cover that are exempt from the 1984 act will be treated as such, whereas before even the non-exempt elements of the bundle were treated as exempt by being part of such a bundle.

The second schedule deals with electronic communications and it amends the Electronic Transactions Act 1999 and the Insurance Contracts Act 1984 to allow electronic communication of documents and statutory notices. Electronic communication is, of course, increasingly used for these kinds of transactions, and barriers to its use are a significant cost and red-tape impost to both business and consumers.

Schedule 3 deals with the powers of ASIC and amends the Insurance Contracts Act to give ASIC a statutory right to intervene in any proceeding that relates to matters arising under the 1984 act and under part 3 of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003.

The fourth schedule deals with disclosure and misrepresentation, and it makes a number of changes to the duty-of-disclosure obligations placed on insurers. The test in section 21 of the 1984 act for whether an insurer has breached a duty is clarified by including a non-exclusive factor to which the court may have regard when determining whether a reasonable person in the circumstances could be expected to know a matter was relevant to the decision of the insurer, the factor involved and the nature and extent of the insurance cover under the contract.

Amendments to section 21A will prevent insurers from asking catch-all questions relating to the risk of the contract as a means of avoiding their duty. Insurers will be required to gain specific agreement on each individual request in relation to any risk in the proposed insurance contract. This will apply at both inception and renewal of the contract. However, on renewal, insurers may choose to seek updates to answers previously provided by the insured person rather than asking specific questions again.

Compliance by the insured with the duty of disclosure on renewal does not mean that a failure to comply with the duty on the original inception or previous renewal is negated. Insurers will be required to notify the insured before the contract of issuance is entered into that the duty-of-disclosure obligations continue until the time the policy is actually entered into. A form of words may be prescribed by regulation for use by insurers to inform persons of their duty of disclosure, and any person subject to the contract is under a duty not to misrepresent.

The fifth schedule deals with remedies for life insurance contracts, and it rectifies remedies in respect of bundled contracts which have been judged by the industry and the government as being inappropriate. These remedies apply to life insurance contracts involving a surrender value and death cover. Bundled contracts will now be able to be unbundled to apply the relevant remedies. The current law forces remedies to be applied to the contract as a whole, which restricts the options for both parties. Insurers will be able to change the expiry date of a life insurance contract where that date has been incorrectly stated by the insured. Also, the statutory framework in the ICA for cancellation of general insurance contracts will be extended to life insurance contracts.

Schedule 6 deals with third parties and inserts new definitions for third-party beneficiaries to ensure that individuals who have rights under a contract of issuance but who are not insured have access to particular rights and obligations currently held by the insured.

Third parties with damages claims against an insured or third-party beneficiary who has died or cannot be found may recover directly against the insurer. ASIC will have powers to bring representative actions on behalf of third-party beneficiaries. Remedies for misrepresentation and nondisclosure are available in relation to life insurance contracts that are offered as part of a group scheme that is unrelated to superannuation and remedies are available with respect to any representation or nondisclosure that occurs between when the insured became a member of the superannuation or other group scheme and when the life insurance takes effect.

The last schedule deals with the allocation of moneys recovered when an insurer exercises a right of subrogation in relation to an insurance claim. On payment of a loss the insurer is subrogated to the rights and remedies of the insured in respect of the subject matter insured. In particular, the insurer may bring an action in the insured's name against any third party who has caused loss. Those seven schedules are outlined in great detail in the minister's second reading speech and in the explanatory memorandum.

As I have said, the coalition is supporting the bill and has supported the bill in the last parliament prior to it lapsing before the election. We do, however, note that its reintroduction, while welcome, is long overdue. Industry stakeholders have been waiting for this to be reintroduced for some time. They are happy with its provisions and the level of input they previously had into the process. They have been consulted at numerous stages now over a number of years, beginning in the final years of the Howard government. This bill is the result of the Howard government's reform agenda on insurance contract regulation. Whilst Labor has dragged its heels in the last couple of years and allowed it to drift, the bill is now before us and the coalition is supporting it.

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