Under the proposed model, a consumer or small business would not have to be a party to the insurance contract; The UCT scheme applies where a third party beneficiary of the contract is a consumer or a small business. The extension of the UCT scheme to insurance contracts has been reviewed and supported by a number of investigations, including the 2017 Senate Economic Benchmark Committee survey on the general insurance sector, the Australian Consumer Law Review 2017 and the Parliamentary Joint Committee on Corporations 2018, and the Life Insurance Financial Services Inquiry. The rationale for extending the UCT plan to insurance contracts was as follows: A clause in a home insurance policy that allows the insurer to choose to carry out building repair work itself or to pay the insured the cost of the repair work based on the lowest offer the insurer has received. The Commission concluded that this clause could be considered unfair, since the lowest offer the insurer receives would likely contain discounts that would not be feasible for the insured. Remove the requirement that the initial price payable under a contract must be below a certain threshold for the contract to fall under UCT protection. However, these articles also contain various exceptions which are not available under the UCT scheme. For example, guaranteed extendable health and accident insurance contracts are excluded from § 53. Unless similar exceptions are included in the extended TCU scheme, a clause unilaterally amending this type of insurance contract may no longer be enforceable. The Royal Commission on Financial Services has recommended a number of important reforms to australia`s insurance industry.
One of its main recommendations was that the current unfair contract term regime be extended to consumer and small business insurance contracts. Special Regulatory Advisor Nicholas Blackmore explains how the scheme is applied to consumer and small business insurance contracts, which clauses could be considered unfair and how Australian insurers can prepare for the change. The UCT regime currently applies to most financial products and services under the Australian Securities and Investments Commission (ASIC Act) 2001. The effect of the law is that an unfair term in a consumer or small business contract is void. One clause is unfair if: The CIA already contains several provisions that prevent insurers from availing themselves of certain conditions of an insurance contract: Although there is no fixed date for the publication of bills, the Ministry of Finance has recommended that consideration be given to transitional arrangements. [6] This will allow companies to review and examine the proposed reforms and reflect on any changes they may need to make to their model contracts. A transition period will also give regulators time to prepare additional information that industry needs, such as guides. B and training materials. In assessing whether a term is unfair under the UCT regime, a court takes into account all the relevant circumstances, in particular: although there have been some indications in the draft documents, the government has not provided more clarity as to when an insurance contract is no longer a standard contract. An insurance contract can still be a standard contract if a broker is acting on behalf of the client.
However, brokers often look for specific confirmations on behalf of their clients. In certain circumstances, these negotiated contracts may no longer be a standard contract. Terms that allow a party to circumvent or limit its obligations under a contract have often been found to be unfair. In insurance contracts, the most common terms that do this are exclusion clauses. So, for example. B, the failure to immediately remove an unfair term (as declared by a court) from an insurance policy, even if, in practice, there is no intention to rely on it, could lead to a civil penalty (since the presence of that term in actuarial documents could be regarded as an affirmation of the existence of the right conferred by the term). Finally, the introduction of a rebuttable presumption would mean that insurers would have to dispose of the types of terms declared unfair by a court, in particular in other insurance contracts. If a term has been found to be unfair and an insurer continues to rely on it, it would be presumed to be unfair and the insurer would have to provide evidence to show why it was not unfair in the relevant circumstances. The following insurance contracts are not subject to the Insurance Contracts Act and therefore already fall within the scope of the UCT laws as they are model contracts for consumers or small businesses: a term is “transparent” if expressed in plain language, is clear and legible and is easily accessible to the consumer or small business. A term that is not “transparent” is more likely to be considered unfair. Subjective wording may render a term unfair because it allows it to be applied in situations where it should be objectively inapplicable. In the example above, the insurer could apply the clause if it determines that the other party has breached the agreement, whether or not it actually did so.
This could increase the scope of insurance contracts subject to the UCT scheme. The UCT scheme, introduced in 2010, applies to most Australian businesses that use standard form contracts in their stores with consumers and small businesses. Until now, it did not apply to most insurance contracts (with the exception of private health insurance contracts and government insurance contracts) as they are governed by the Insurance Contracts Act 1974 (Cth) (ICA). The expanded UCT scheme would apply to standard consumer or small business insurance contracts where: the exclusion clauses most likely to be considered unfair are those that exclude liability for losses or claims that the insured would reasonably expect to cover, either because they are generally covered by this type of insurance, or because coverage is implicit in marketing materials or policy materials. On February 17, 2020, the Financial Sector Reform Act (Hayne Royal Commission Response – Consumer Protection (Measures 2019)) (Financial Sector Reform Act) received Royal Approval, 2020. With effect from 5. In April 2021, it will amend section 15 of the Insurance Contracts Act so that all insurance contracts subject to that Act are subject to the UCT laws (with the exception of certain insurance contracts that provide for third-party liability insurance). This is a significant extension of uct laws. Car insurance, travel insurance, life insurance and home insurance are subject to UCT laws insofar as they are standard contracts, which are either consumer contracts or contracts with small businesses.
The practical effect will be that all insurance contracts, with the exception of certain contracts that provide medical compensation coverage, will be subject to UCT laws. Despite this significant expansion in UCT law enforcement, there will still be many insurance contracts that are not standard consumer or small business contracts and are therefore not subject to UCT laws. The Department of Finance`s proposal provides an exception that allows the insurer to unilaterally increase premiums for guaranteed renewable life insurance policies. In addition to the amendments to the Insurance Contracts Act, the Financial Sector Reform Act will include new provisions in the ASIC Act that specifically address contracts subject to the Insurance Contracts Act. The proposed model amends Section 15 of the CIA, which currently provides that no law other than the ICA itself applies to insurance contracts to provide for the exclusion of the UCT plan in the ASIC Act. Consequently, the UCITS regime applies to insurance contracts in the same way as to contracts relating to other goods and services. Like the abovementioned reform, the abolition of this eligibility threshold would theoretically increase the scope of insurance contracts subject to the UCITS regime. However, the threshold is very high when tested against an annual insurance policy, so most contracts with “small businesses” are likely to already be below this threshold. This reflects the more general principle that a term of an insurance contract may be considered unfair if it disadvantages an insured person because of the acts or omissions of a third party beyond the insured`s control.
Currently, a contract is a small business contract if the initial price payable under the contract does not exceed $300,000 (or $1 million if the contract has a duration of more than 12 months). [5] Extending the remedies under the ASIC Act to non-partisan consumers to non-partisan small businesses would mean that insurers should know that if a small business that is not a party to the insurance contract loses or harms (p.B. because it is favoured under a group policy) because of the unfair term, the insurer may be asked to: Take steps to remedy or prevent or reduce any loss or damage suffered by the non-party small business […].