Welcome to our update, bringing you the latest in Life Insurance Law news.
At the recent Life@AILA 2019 Annual Life Insurance Law Review (in November 2019), Matthew Harding and Sylvia Quang presented to the industry on the status of the Federal Government’s implementation of key recommendations affecting life insurance from Commissioner Hayne’s final report from the Royal Commission in the Banking, Superannuation and Financial Services Industry, and also the plans for future implementation. Treasury released draft exposure legislation, on 31 January 2020, which relates to several of the recommendations from the Royal Commission report, consistent with the timeline in their proposed implementation roadmap.
In this update, we summarise the Exposure Draft bills and Explanatory Memoranda which affect life insurance:
Recommendation 1.15 – Enforceability of financial services industry codes
The draft legislation builds upon existing code frameworks contained in the Corporations Act 2001 (Cth) and the National Consumer Credit Protection Act 2009 (Cth) by allowing ASIC to designate enforceable code provisions, and providing a framework for establishing mandatory codes of conduct for the financial services industry through regulations. It also introduces civil penalties and other administrative enforcement action from ASIC where a breach of an enforceable code provision occurs.
These amendments are proposed to commence on 1 July 2020.
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Recommendation 4.5 – Duty to take reasonable care not to make a misrepresentation to an insurer
Changes are proposed to the Insurance Contracts Act 1984 (Cth) to include the replacement of the existing duty of disclosure with a new duty for an insured to take reasonable care not to make a misrepresentation when entering into, varying, extending or renewing consumer insurance contracts. The new duty applies only to contracts of life and general insurance obtained for the insured’s personal, domestic or household purposes.
These amendments are proposed to take effect from 5 April 2021.
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Recommendation 4.6 – Limiting avoidance of life insurance contracts
Further changes to the Insurance Contracts Act are proposed in relation to subsection 29 (3). Under the draft amendments, an insurer may now only avoid a contract of life insurance on the basis of an insured’s non-fraudulent failure to comply with the duty to disclose or non-fraudulent misrepresentation if, within 3 years of entering into the contract, it can show that it would not have entered into a contract of life insurance with the insured on any terms had the duty of disclosure been complied with or the misrepresentation not been made. This amendment essentially restores the positon that existed prior to the Insurance Contracts Amendment Act 2013 (Cth), in line with the Royal Commission’s recommendation.
These amendments will apply to life insurance contracts entered into after the commencement of Schedule 1 to the Bill, which commences on the day after it receives Royal Assent (the commencement date). The changes will have limited application to existing life insurance contracts entered into prior to the commencement date, as the changes will apply only to the extent of any variation which comes into effect after the commencement date to increase the sum insured or to provide one or more additional kinds of insurance cover. The variation must also be expressly agreed between the insured and insurer, as opposed to it being an automatic variation.
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The Exposure Draft legislation is currently open for public consultation until 28 February 2020.